Many Steel Makers Nearing Dissolution
Posted: Tuesday, March 19, 2013
The global recession continues to impact the steel industry and other businesses. There are large inventories due to decreased market demand. Vietnam’s steel businesses themselves are still not strong enough to compete with foreign counterparts due to small production scale, outdated technology and much higher loans than that of countries producing steel in recent years. If this situation is not addressed, its possible that Vietnam’s steel industry will be dissolved.
Broken planning
According to Vice Chairman of the Vietnam Steel Association (VSA) Nguyen Tien Nghi, in 2007, only a year after the government approved the "Plan for Vietnam's steel industry development in the period of 2007 to 2015", the VSA submitted several legal documents to the Government and the Ministry of Industry and Trade addressing the unfocused investment situation. Being so eager to attract investment, instead of asking the opinion of the Prime Minister and Minister of Industry and Trade, local investors and local authorities tend to split the investment projects into half to get easier access to investment . This is the cause of the “steel fever" in many localities, which made the steel industry fall into great difficulty.
Across the country, there are currently about 400 enterprises operating in the field of steel production, of which about 120 enterprises specialize in producing construction steel. There are nearly 100 manufacturing enterprises not located in the planning area, which causes oversupply in the steel market. In many localities, there exist many gaps in the license management, which poses difficulties in management. Particularly, development not in accordance with the plan approved by the Prime Minister, collecting information conditions are limited which narrows the choice of partners, environment protecting solutions are not well planned and technological knowledge is limited. This causes imbalance of energy, environment, transportation, etc. This is the opinion of Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association.
Weak competitiveness
Steel industry is now experiencing uneven development which makes the limitations of the steel industry even more highlighted. While construction rolled steel, cold rolled steel has high output capacity than the demand, hot rolled steel, steel fabrication, and stainless steel still has to be imported.
Besides, most of the enterprises are operating on outdated technology discarded by developed countries. This leads to high cost and waste in production activities, products with low quality, and low ability to compete with foreign counterpart products.
Mr Nghi said that every locality wants to attract investment, but has no awareness of the possible difficulties and easily accept the projects, which breaks the balance of quantity and kind of steel products. Many localities carelessly select partners with no financial resources and technology, thus when there are economic fluctuations, those projects always last longer, even have to be stopped. There have been a number of projects which face license reclamation because the partners do not have the ability to carry out the projects. Some investors can have projects carried out but with the use of outdated technology, making Vietnam the gathering place of energy-consuming and polluting factories many countries wish to eliminate.
Large debt rate
Output constraints are becoming challenge for steel producers who are operating mainly by bank loans with low equity. Failure to address the output of steel products will increase the risk of bankruptcy of enterprises. For example, Van Loi Steel Joint Stock Company, due to output deadlock, was shut down a year ago with two smelters and a factory producing steel billet, while its debt to the bank reached over VND 1,000 billion. Many projects in Nghe An are suspended indefinitely when they have yet to come into production. In all of the above cases, when enterprises declared bankrupt, the bank itself was also severely affected since the loans can not be recovered.
A well-known steel producer, Dinh Vu steel factory, has consecutive losses for years. This business has transferred 70 percent of its stake to Vietnam-Australia Steel Corporation. Dinh Vu Steel company is operating perfunctorily and handling for Vietnam-Australia Steel Corporation. Besides, numerous enterprises have to close or restructure business as Cuu Long Vinashin Steel Corporation or Song Hong Steel Joint Stock Company.
Thai Nguyen Iron and Steel Corporation also owes the bank more than VND6,000 billion. This loan is getting bigger as the company is planning to expand investment into Thai Nguyen Iron and Steel Project phase two. While the product output is limited, large inventory remains, the number of loss-making steel enterprises will continue to rise, not to mention the funds to pay the loan according to the terms.
If plan on macro development with the participation of the government, relevant ministries, associations and businesses of steel is not mapped out, the ability to "sink" in the loss of the steel industry in the country is inevitable, which will be the basis for the decline or even disappearance of the steel industry.
Luong Tuan
Challenges await Vietnamese firms after TPP
TUOITRENEWS
UPDATED : 11/02/2013 10:09 GMT + 7
Vietnamese businesses have sketched scenarios when the country joins the TPP (Trans-Pacific Partnership), and acknowledged that they may face challenges keeping the market shares against a new wave of foreign competitors.
Once Vietnam has actually become a TPP member, some 11,000 duties will be zeroed, which opens a wide door for foreign products such as Australian beef and American chicken to penetrate the domestic market.
Van Duc Muoi, director of Vissan, a leading meat processor, said joining the TPP means Vietnamese businesses can enter other markets, and vice versa.
The most important thing that should be done to protect the local market, Muoi said, is to prove that foreign competitors are not eligible to enter the country.
“In other words, more technical barriers will be set up,” he explained.
Unfortunately, Vietnam has proved incapable of passing several such barriers since it became a member of the World Trade Organization.
Vietnamese pork, beef, and chicken meats still fail to enter the US, the EU and other developed countries, who say the products do not meet standards in the regard of protecting consumer health.
Meanwhile, meat products from the US, Chile, and Australian are rampant in the country.
“In the post-TPP period, the duties for these imports will be zeroed, sending prices to much lower rates, thus exacerbating the local husbandry industry,” Muoi warned.
Meanwhile, a representative of Cau Tre, a major manufacturer of processed food, said even the current 20 percent import tax fails to prevent foreign products to enter Vietnam.
The official said he cannot feel upbeat for the future of several local food manufacturers and processors who are weak and not following a standardized production mechanism.
“TPP has strict requirements on the product tracing… Many local firms will ‘die’ as they fail to meet these regulations,” he said.
Time to change
Even the textile and garment sector, which has repeatedly posted strong growths of up to 20 percent during the last few years, admits challenges await them.
“Competitions will be harsh, especially if businesses do not seek alternative plans right now,” said Lam Quang Thai, brand director of BlueExchange.
The Vietnamese textile and garment sector only focuses on exports, leaving the home soil for foreign competitors, especially the Chinese companies.
Thai said the local products fail to have competitive prices as the manufacturers still have to heavily rely on imported materials.
Meanwhile, Nguyen Thi Thu Trang, an official from the Vietnam Chamber of Commerce and Industry, said the situation is brighter for Vietnamese fruits, as traders have adapted to the good agricultural practices.
“Many Vietnamese fruits and agricultural products have entered foreign markets and they can well take advantage of the TPP,” she said.
As for the animal husbandry industry, Muoi of Vissan said it is time for changes.
“TPP will help the industry look back and acknowledge that they have to thoroughly change and restructure in order to produce competitive products with the foreign rivals,” he said.
Vietnam has been launching a program that encourages Vietnamese to buy Vietnamese goods.
But even this will be challenged by the TPP, economic expert Pham Chi Lan warned.
She said local firms only have a few years left to change themselves.
“Should they fail to take action on time, losing the market share on home turf is inevitable,” she said.
