Domestic steelmakers raise prices, cutting own throat

Economists warned that by raising prices, domestic steel producers are paving the way for foreign-made steel products to flow into Vietnam.

VnnNews – Economists warned that by raising prices, domestic steel producers are paving the way for foreign-made steel products to flow into Vietnam.

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After lowering prices four times in May and June 2010, domestic steel mills have raised prices again, by 200,000-700,000 dong per ton, since the start of July.

Southern Steel Corporation, belonging to the Vietnam Steel Corporation, has hiked prices by 700,000 dong per ton, Vietnam-South Korea 200,000 dong per ton, while Vietnam-Germany by 100,000 dong. Prices of steel delivered at the mills are about 12.2-13.26 million dong per ton, while retail prices are hovering around 14.2-14.4 million dong.

Explaining the increases, the Vietnam Steel Association (VSA) reported that the world’s steel ingot price increased from $500 to $560 per ton in the last month, while scrap steel has also risen from $350 to $380 per ton.

According to construction material shop owners, previously, when the structural steel price increased, people rushed to buy, fearing prices would rise further. Not this time. Despite the price increase, consumption has dropped sharply, by 40-50 percent over the previous month.

Previously, an agent sold 15 tons of steel daily, but now sells only 7-8 tons.

According to Nghiem Thi Cuc, a steel shop owner, in March 2010 when the price increased, contractors anticipated that prices might increase further, so they purchased steel in large quantities to store. Now they do not need to buy steel. As the construction season is ending and the rainy season is coming, demand has plummeted significantly.

The situation proves contrary to previous VSA forecasts that July consumption would be high. VSA thought 355,000 tons would be sold in June and 360-390,000 for July after low sales in April (299,000 tons) and May (283,000 tons).

VSA Deputy Chair Nguyen Tien Nghi asserted that, only by raising prices to current levels, can steel mills break even or make a small profit. In previous years, they had to sell products at prices below production costs to stimulate demand. Nghi stressed that current prices are reasonable.

Meanwhile, experts have warned that price increases may do more harm than good. Steel producers always reason world ingot price increases, which may have been reasonable in the past, when Vietnam had to rely on imported steel ingot. Now the situation is different: Vietnam can make 60 percent of total steel ingot needed.

By raising prices, domestic steel producers may cut their own throats, because it will pave the way for low cost steel products to flow into Vietnam.

Nghi from VSA admitted that domestic steel producers must now compete fiercely with ASEAN imports with prices lower by 500-700,000 dong per ton. Since the beginning of the year, 222,000 tons of roll steel have been imported, an increase of 124 percent over the same period of 2009. In June alone, 41,000 tons were imported, or 41 percent of total monthly imports.

The same thing once happened in 2009. At that time, domestic steel mills sold prices at high prices, so imports flooded the domestic market and put Vietnamese producers in a bind.

Source: Thoi bao Kinh te Vietnam

Tags: By Raising Prices, Domestic Steel, Domestic Steel Producers, Dong Per, Dong Per Ton, Per Ton, Steel Producers, Physics games

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