Steel plants face bankruptcy

Many Vietnamese steel plants are on the verge of bankruptcy due to unsold inventories and big debts (Illustration photo)

According to chairman of Vietnam Steel Association Pham Chi Cuong, due to Government Resolution 11 issued in late February, many ministries, agencies and localities have been required to halt non-urgent projects in order to prioritise capital for major developments. This has led to sharp drop in steel consumption, particularly between April and June.

Most domestic steel factories are now operating at just 60 per cent of their capacity, pushing their total inventory to nearly 500,000 tonnes. Steel businesses with large stockpiles are paying banks interest of VND150 billlion ($7.3 million) per month.

General director of Pomina Steel Mill Do Duy Thai, said that over the last two months, the company had halved its production due to low demand.

In a report to the State Securities Commission, the Tien Len Steel Corporation Joint Stock Company (coded TLH) said it's spending on servicing the company's debt had climbed to VND68.3 billion ($3.3 million) in the first quarter of 2011, VND40 billion ($1.94 million) higher than the same period of last year.

According to the Vietnam Steel Association’s chairman Pham Chi Cuong, this bad performance was attributed to their massive investments and lack of attention to warnings about an impending steel glut.

Nearly 30 per cent of domestic steel companies are using backward technologies, mostly centred in Quang Ninh, Bac Kan and Cao Bang provinces.

Representatives from the association said that from 2012 many steel companies would face major difficulties, including bankruptcy.

A steel company in Haiphong port city was almost entirely controlled by banks, through a combination of poor investment decisions and outstanding debts, Cuong said.

Another steel expert said one specific characteristic of the steel sector was its requirement of large amounts of working capital; therefore steel firms often had to maintain the a debt ratio based on their total assets of 51 per cent - 79 per cent.