Okay raises new steel glut fears

According to the Government Office, Deputy Prime Minister Hoang Trung Hai already agreed in principle with Taiwan’s E-United Group to expand the capacity of its Guang Lian Steel project in the Dung Quat Economic Zone by 40 per cent, from five to seven million tonnes per year.

The permission was given just a week after Hai’s request was made to the Ministry of Industry and Trade (MoIT) to examine the capital capacity of the Quang Ngai province-based project’s investor based on its capacity expansion proposal.

In line with the approval, Hai also required the Quang Ngai People’s Committee to closely instruct the zone’s management board to make regular checks and to ask the investor to follow their schedules and local laws as well.

The Guang Lian steel project, to cover 478 hectares, will include a port, a material containment area,  a milling plant and maintenance and test stations.

The plant is scheduled to finish its first period and begin its trial run in late 2012, and complete all construction by December, 2014.

In late June, 2010, the zone’s management board asked the government’s permission for Guang Lian steel project to expand its manufacturing capacity, for which investment capital would also be raised from $3 billion to $4.5 billion.

The project, which had been delayed for more than three years after receiving its investment licence in 2006 because of cash distress, began piling work again this year.

According to Nguyen Xuan Thuy, general manager of Dung Quat Economic Zone’s management board, the overall investment capital was around $100 million for 30,000 piles. The piling work is expected to be finished later this year.

The expansion proposal, with support from the MoIT, received opposition from the Vietnam Steel Association (VSA), which raised doubts about the investor’s capital capacity. It also highlighted a possible surplus of local supplies in the next several years, when some other giant foreign-invested steel projects having started their operations. The VSA’s figures revealed that as of late 2009, steel mills in Vietnam had been able to satisfy 54 per cent of local demand for square steel, 40 per cent of cold rolled steel and 100 per cent of building steel.

The country will need about 15 million tonnes of steel products in 2015 and 20 million tonnes in 2020. VSA estimated that if projects are able to run on schedule and designed capacities, supply would be 1.5-1.8 times higher than demand from the middle of this decade. The Dung Quat steel project was initially licenced in September 2006 and developed by Taiwan steel firm Tycoons with an investment capital of nearly $1.04 billion. The cost was then adjusted up to some $3 billion in 2007 when Tycoons teamed up with E-United Steel Company, which contributed 90 per cent of the investment capital to develop the project.

Then the two companies planned to run the first phase of the project in mid-2010 with three million tonnes of steel ingots and hot-rolled steel rods per year.

It should reach full capacity in 2013 and output will be for local sales and exports. However, the two investors have not made any further moves since work on the project was commenced in late October, 2007.