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NEWS UPDATES 30 June 2010

Vietnamese steelmakers feel pressure

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Vietnamese steel retailers are suffering losses due to overstock and price cuts during the construction season, according to Viet Nam News.

Since the beginning of this month, the Viet Nam Steel Association (VSA) has received two notices of steel price reductions from its member companies. The steel mills have cut prices by VND300,000-600,000 per tonne in an attempt to clear their stockpiles.

With June's cuts, the steel price is roughly VND3 million per tonne less than its zenith in April.

In March, there was news that as the iron ore price increased by 40 per cent compared to the same period of last year, steel prices would also increase, leading the steel price to rise to US$630 per tonne.

There was also news that the government would restrain the import of some goods, including construction steel, to curb the trade deficit. Big retailers used this information to forecast a sharp increase in the price of steel, so they scrambled to stock up large quantities. The result was a shortage in supply and an accompanying price rise.

However, as the steel price rose sharply in a very short time, the market reacted contrary to expectations. The potential buyers delayed their construction plans because they were unsure how high the price would eventually go.

Currently, the factory steel prices range from VND11.7 million to 12.3 million per tonne for scrolled steel and VND12.1 to 13.1 million per tonne for steel bars.

Despite the price cut, surveys from building material stores show that buyers are sparse. The retail price recently dropped sharply but only a few buyers came forward as most consumers want to wait for further price cuts.

VSA said that steel producers had to cut the price due to low demand. Currently, steel products are selling slowly, steel mills are running at below capacity and the supply is abundant. In March, VSA members reached a record sales volume of 568,000 tonnes, but by April, the sales volume had fallen to 299,000 tonnes, and continued to reduce to 283,000 tonnes in May. Consumption in June is estimated to be even gloomier.

Nguyen Tien Nghi, vice chairman of VSA, said there are currently 371,000 tonnes of finished products and 560,000 tonnes of steel billet in stock.

According to experts, the excessive stock piles of steel products going into the rainy season (low season for construction) has led to reduced purchasing power in southern provinces. The declining trend in the steel billet price on the world market indicated that the steel price could continue to fall.

Domestic steel producers also have to compete against cheaper imports, which priced roughly VND100,000 - 150,000 cheaper than domestic steel. Big retailers with large stockpiles are suffering significant losses as a result of the price cuts. Some steel makers have said they are losing more than VND1 million per tonne at the current price level.

Nguyen Vinh, director of a steel firm in Cau Giay District, said that the fluctuation of steel prices has caused some big retailers to incur billions of dong in losses, while smaller stores are suffering from losses in the hundreds of millions of dong range.

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