Analysis: Vietnam is poised to produce

The five-decades-old Vietnamese steel industry has caught the attention of one and all in the steel sector with its spectacular growth over the past few years, growing at a rate of 21.64 percent between 2013 and 2016.

It is projected to grow at a rate of from 12 to 15 percent over the next five years. However, steelmakers whom representatives from SteelMint met with during their recent visit to this country asserted that the growth will be somewhere in the range of 15 to18 percent spanning through the next decade.

The total iron and steel output in 2016 stood at 17.5 million metric tons, while the expected steel output for 2017 stands at 19.6 million metric tons. Vietnam is the largest steel producer and consumer in the ASEAN (Association of South East Asian Nations) region.

Consisting of blast furnaces (BFs), basic oxygen furnaces (BOFs), electric arc furnaces (EAFs) and induction furnaces (IFS), it has a total installed capacity of 16 million tons per year of steelmaking and 6.35 million tons per year of iron making.

During the period 2013 to 2016, not only did the steel production grow at a phenomenal rate, but steel consumption also grew by 25.7 percent.

Fueled by rapid urbanization and infrastructure growth, the domestic steel demand of Vietnam is shooting through the roof. The per capita steel consumption of the country stands at 195 kilograms (430 pounds), as of 2015. Vietnam Steel Association (VSA) Vice President Nguyen Van Sua implied to SteelMint that there is a huge scope to increase the per capita steel consumption and bring it to the levels of developed countries of the world.

Vietnam’s steel imports are likely to grow in 2017 and 2018 despite the commencement of production by Formosa Steel within Vietnam and increased production by other steelmakers, owing to increasing demand.

The country will still fall short of about 15 million metric tons of steel in 2020, according to Van Sua. Vietnam imported around 18 million metric tons of steel in 2016 and expected to import 16 to 16.5 million metric tons in 2017.

Scrap imports likely to increase

Considering the significant growth of steel consumption in Vietnam, along with capacity expansion projects, local producers are going to increase their imports of scrap and iron ore in the near future. Moreover, limited domestic supply and abundant availability of imported raw materials, with prices that are equal to or even below local ones, is causing steel mills to keep focusing on imports and strengthen business with overseas scrap suppliers.

Currently, Vietnam’s steel industry is in its early stage of development, with most steel producers being small-scale mills. The EAF-based method is widely used in Vietnam (around 80 percent of steel production) as compared to the BOF process.

After Vietnam imposed a 23.3 percent safeguard duty on semis imports (steel billet and slabs) in July 2016, EAF producers were forced to further orient into scrap bookings.

According to the Southeast Asia Institute of Iron and Steel, in 2015 Vietnam imported around 2.5 million metric tons of ferrous scrap, which is likely to increase to 4.5 million metric tons in 2017. This growth is attributed to increase in crude steel production, which is a result of protective measures imposed by the government on imports of billets and wire rods.

Steel and technology imports also likely

Vietnam steel imports recorded an all-time high of 18.3 million metric tons in 2016. Flat steel imports contributed about 60 to 65 percent of total steel imports, of which the majority was hot-rolled (HR) coils. HR coil imports will continue and are unlikely to receive any safeguard duties, as there are limited blast furnaces in the country.

The trade ministry estimated the country will spend $15 billion annually on steel imports by 2020 to meet rapidly rising domestic demand. The ministry also forecast Vietnam will be short of 15 million metric tons of steel by 2020 and 20 million metric tons by 2025.

Statistics show that Vietnam’s steel imports so far meet up to 60 percent of the market demand. Faster economic growth means more steel is needed to make everything from cars to buildings. However, several companies are looking to set up blast furnaces in order to reduce the dependency on imports.

The Vietnamese steel industry is in a phase of expansion. New production lines are coming up and almost all the steel manufacturers met by SteelMint have concrete plans for capacity expansion, in some cases more than double of their existing capacity.

On one hand, we have companies like Formosa Steel, which has become operational in June 2017 and will be producing high-quality bars, wire rods and HR coil. On the other hand we have companies like Southern Steel, which has finalized expansion of its rolling capacity, and Pomina Steel, which is setting up a new cold rolling mill. There are scores of other steel manufacturers like TISCO, which has already set the ball rolling for expansion of its capacity.

Vietnamese steelmakers told SteelMint that the growth of steelmaking in Vietnam is going to be driven by blast furnace and Induction furnace routes. Steelmakers like TISCO, Hoa Phat Steel, Hoa Sen Group, Vinausteel, and Southern Steel are in the market for several things, including scrap, slabs, HR coils, iron ore, coal, technology providers and global buyers.

The major risks the Vietnamese steel industry is fraught with include:

1. total dependence on external sources for raw materials;
2. a small domestic consumer base that could lead to quick demand saturation; and
3. export possibilities facing stiff challenge from other cheap steel exporting nations.
   
   

The author is a senior vice president of the Raipur, India-based SteelMint Group. He has more than 20 years working in organizations dealing with iron ore, coal and other products and hold degrees in geology and finance. He can be contacted at vivek.k@steelmintgroup.com.