Protective import tax sends steel prices soaring

The tax on steel billets would increase from 10 per cent to 23.3 per cent and on long steel products, from below 5 per cent to 14.2 per cent. - File Photo

Not only SD2 but also many other companies and individuals have been hit hard by the relentless rise in steel prices in recent times.

The price rise began when the Ministry of Industry and Trade (MoIT) announced safeguard duties to be levied on imported steel from March 22.

The tax on steel billets would increase from 10 per cent to 23.3 per cent and on long steel products, from below 5 per cent to 14.2 per cent.

This trade barrier is used to protect the local steel industry from cheap imports.

According to the Viet Nam Steel Association (VSA), last year the country imported 1.9 million tonnes of various kinds of billets for US$15 billion, more than two-thirds up from 2014, with Chinese products accounting for 63 per cent.

At an average of VND7.15 million ($318) per tonne, Chinese billets were VND2 million cheaper than local products.

Because of this, some steel companies had asked MoIT to put up temporary barriers including higher import tax on import steel billets and other products until an ongoing investigation into dumping is completed.

But though this temporary safeguard only takes effect on March 22 steel prices have risen by at least 20 per cent.

While the jury is out on whether steel companies will benefit from this trade defence measure, steel users, especially for construction, have been affected immediately.

They not only have to pay more but also have to invest large sums to stockpile steel since they do not know when or at what levels prices will peak.

Construction costs, and hence house prices, are certain to increase because steel is the most important building material.

Construction industry insiders said steel and cement account for 40 per cent of construction costs, and are certain there would be an upsurge in house prices.

The tax hike thus goes against the Government's efforts to reduce housing prices to ensure all Vietnamese own a house.

While many analysts blamed the steel price hike on the MoIT's decision to hike tariffs, others reject this saying there are other reasons.

They point to the recovery in the global raw steel market: the price of billets has gone up by 8 per cent, or $10-15 per tonne, and steel scrap by 10 per cent, or $15-20.

They also point out that the property market has shown clear signs of recovery, increasing the demand for construction steel products and pushing their prices up.

The VSA is confident prices will soon stabilise since there is no real shortage of construction steel products, with both local capacity and inventories being high.

Besides, the temporary trade defence instrument usually has a tenure of only 200 days, it said.

VSA officials also said the temporary safeguard is aimed at enabling domestic steel companies to strengthen their competitiveness. But if they hike prices taking advantage of the tax, as many of them are doing, they would miss out in the long term, they warned.

Loosen monetary policy

The race to increase deposit interest rates among local banks is showing no signs of ending with even State-owned lenders getting drawn into it.

The Bank for Investment and Development of Viet Nam has raised the rates for short-term deposits by 0.3 percentage points and for one-year deposits from 6.6 per cent to 6.8 per cent. It offers 7.2 per cent on 36-month deposits, up 0.4 per cent.

Vietcombank has hiked rates by 0.2-0.5 percentage points.

With the scramble for deposits becoming fiercer, many fear the rates could go up by another 1-1.5 percentage points.

The high coupon rates on government bonds are also an important reason for the rise in deposit interest rates.

But the main reason is that many banks have used short-term deposits for long-term loans, while the State Bank of Viet Nam recently reduced the cap for this from 60 per cent to 40 percent. This has forced lenders to hike interest rates to attract long-term deposits.

Besides, banks are always ready to pump large amounts of money into government bonds because of their high interest rates and zero risk.

But the outcome of the hikes in deposit interest rates is predictable and inevitable: an increase in the banks' lending interest rates.

How will that play out since the Government is making efforts to reduce lending interest rates to support businesses and restructure the banking sector?

Analysts want the Government to loosen monetary policy and implement it properly, and enunciate a strategic vision to keep interest rates steady and regulate the exchange rate in a methodical and scientific manner.

For this the Government needs to pump more money into the economy by reducing compulsory reserves and limit the issuance of bonds, and actively participate in the inter-bank market to steady interest rates.

It also needs to adopt drastic measures to reduce the budget deficit and to reduce the dependence on bonds for funding it.

The flip side of a loose monetary policy is high inflation. But if the money is used effectively, it would no doubt impel economic growth.

Programme extension

The HCM Real Estate Association (HoREA) has called on the State Bank of Viet Nam not to set a deadline for disbursing the VND30 trillion (US$1.33 billion) mortgage programme to give more government workers and low-income people an opportunity to buy homes.

The SBV wants to wrap up disbursements by May 31 this year, but the Government's Resolution 02/NQ-CP does not mention a deadline.

According to HoREA, civil servants and low-income people in cities always need Government support to buy a house.

If the programme is indeed wound up, after May 31 they will have to pay higher interest rates on their mortgage. They now pay 5 per cent interes per year.