Vietnam’s (Steel) Outlook

The 10 million MT local demand was forecast by the government to reach in 2010 but this was already achieved in 2007. The next target is 20 million MT in 2020. Going by their rate of expansion, and barring major and prolonged market crisis, this is very much achievable.

At present, the government has already given a go ahead business permit approval (including the necessary environmental permits and clearances) to 5 big companies to undergo and build integrated iron and steel plants by way of blast furnaces. These are PT Essar and Tata Steel from India, POSCO from Korea and the Tycoon Group from Taiwan. It has likewise given mining permits to develop and extract iron ores in at least 2 different locations identified to have enough reserves of this raw material.

Downstream, all the plants we visited and similarly the others too are poised to go on further expansions. Their sites are ready, their plans are in place but got stalled only by the present global financial crisis. By their own admission however, they are upbeat that there will be turnaround sooner that most expect.

Consider this, just days ago, at the height of the crisis, Ton Nan Kim (which we visited) just bought and put up a company in New York and immediately listed it in the Dow Jones Stock Exchange. This new company now will be their mother company while their plant operation is in Vietnam.

With such optimism, vision, political will, etc., Vietnam indeed will become one of the tiger economies in this part of the world.

Philippine Productivity Quality and Safety Foundation (PPQSF)

I attended the PPSQF meeting at the Department of trade and Industry (DTI) Building in Makati yesterday, Dec 4. PPSQF is an NGO with companies and industry association as members whose objective is primarily to uphold productivity, quality and safety in industries and consumer products. Right now it is at the forefront of product standard enforcement , assisting the Bureau of Product Standards and the regional DTI’s in this undertaking. Lately, it has been holding meetings and dialogues among members and stakeholders on the issues and concerns regarding product standard enforcement, i.e., going after sub standard products and their manufacturers and sellers.

Yesterday’s meeting focused on GI sheets, steel bars, angle bars, flat glass, and sanitary wares. I was there representing our industry, GI sheets, together with other representatives from other GI sheets manufacturers. Unlike however with the other mentioned products whose concerns were the problems met during monitoring, inspection, and sanctions against erring companies, our industry is not yet on this stage. The reason- GI sheets have no standard yet.

The old standard formulated in 1986 and amended in 1987 (PNS 67) is not anymore applicable and for years now, the Technical Committee (TC) on Flat Steel Products had been trying to come up with a new standard, especially GI sheets for roofing, but until now is unsuccessful in reconciling the different views of the members. The complication arose from the fact that there are now, technically speaking, 3 different types of metallic coated sheets in the market now (generically called GI sheets), namely, the Zinc coated, the 55%Aluminum-zinc (Galvalume and Superlume brands) and the zinc-5% coated products. Each of this product has its own functional characteristic relating to its corrosion and structural integrity performance while in use; commonly called service life. That comparability can not however be yet reconciled; specifically on the minimum mass of coating.

The agreement in the meeting was that, the new BPS Director Atty Vic Dimagiba ( replacing Director Jess Motoomull effective December 1) will reconvene the technical committee where it is hoped that the issue will finally be resolved and a new standard be approved. Pending that, the GI industry, fairly or unfairly is under constant complaint from the public and other groups due to the proliferation of thin sheets with low zinc coating , not only of locally produced materials but also form exports, mainly from China and perhaps Vietnam.

Photo: Stock.Xchng

Risk and Threat Analysis in the Steel Industry

We just had our Planning Conference and the theme is "We are in a crisis mode." Everybody is.

Scanning the current steel environment, with the effects of the global financial crisis looming in the domestic front, one may be able to see the major risks and threats which should be strategically addressed.

First is the prolonged global recession which is highly probable to happen. Another is the influx of cheap (and probably low quality) imports as neighboring countries will try to look for export market to unload their inventory surplus, which will surely result in the lowering of prices and making the market highly competitive. Such products have already in fact in the past and current year entered the Philippine market. This will force production to attain highest levels of efficiencies, especially on cost reduction.

On the financial front, bank credit facilities will be tightened putting pressure on working capital and may result in material procurement delays, longer collection periods, etc. Liquidity becomes extremely important and significant. Add to that the possible peso depreciation and we have indeed a scenario of business survival.

Obviously, those that may be able to properly control these risks and threats and convert them into opportunities will surely come out as the winners.

Steel Industry in Crisis

The steel industry is also hit by the crisis bug. After enjoying comfortable sales and margins for 3 quarters on an environment of escalating material prices, steel companies are now hit by high cost inventory due to the abrupt lowering of material prices this 4th quarter and low customer demand. Example is cold rolled coil ( CRC). The year started with CRC prices averaging at USD 700/MT. It continue to increase, peaking at almost USD 1300/MT during the 3rd quarter. Now it went down to as low as USD 600/MT. Scrap iron/steel was selling at P27/kilo but is now at just P5/kilo. Customers don't buy, waiting for prices to still go down. Many companies have stopped production. Massive cost reductions are undertaken, from energy and power to manpower costs.

We've got news from a friend in the Middle East who said that Emirates Steel is on total shutdown; so are Hadeed and Unicoil in Saudi Arabia. At Global Steel in Iligan, which during those glorious years was called National Steel Corporation ( my alma mater), all facilities are in shutdown. They have implemented a 5 day work week and soon, will resort to forced leaves or even lay-offs. Here in Manila, contractual workers will surely be the first to go.

The sad thing is nobody knows when the situation will improve.

Vietnam’s Existing Iron and Steel Industry

Not too long ago, until the late 1990’s, when we talk about the iron and steel industry and market, Vietnam was lumped in the company of countries like Laos, Cambodia, Burma, Bangladesh, etc. But with its pro business, and state industrial policy where foreign capital was welcomed with incentives,, it has leapfrogged from this status to being on the verge of being among its equals with ASEAN and even the Asian region as well, among the likes of Thailand, Malaysia, Indonesia, and definitely surpassing the Philippines. With its 85 million population (almost similar to the Philippines), its present total steel demand has reached 10 million MT, more than 3 times the Philippines. This is broken down as follows:5.61 million MT for long products and 4.61 million MT for flat products. 2006 figures for steel per capita is 2244 versus the Philippines which is only around 1800.

Such “open” policy allows businesses to be owned 100% by foreign investors. What is not allowed, typical of Communist governments, is ownership of land, which is still retained by the State, although long term lease of up to 50 years is permitted.

Vietnam steel industry took an aggressive development, and growth starting late 1990’s . Hence, most of the plants and mills, especially all that we have visited, were constructed only after 2000. That is why, we can conclude that Vietnam’s steel plants are new and modern, many of them built and supplied by known companies such as Danielle- Wean United from Europe and America and POSCO in Korea: There are those that have been sourced from China (for its mechanical parts) but process controls and electrical systems were supplied by Siemens, the top supplier as far as controls is concerned. Their technical men have been likewise trained abroad in Europe and China.

Notably, Vietnam’s expansion followed the model of “backward integration”: The plants we visited employed this model. Ton Hoa Sen started as a distributor, then put up its color coating line, then galvanizing line and galvalume line and this year commissioned a cold-rolling mill. Sun Steel started as pipe manufacturer then expanded by putting up its own color coating line and finally a galvalume line.

Accordingly, there are now around 21 galvanizing/ and color coating lines throughout Vietnam.

They said that after years of continued and increasing growth, Vietnam got hit by recession this year with interest rates going up more than 20%. And with such huge production capacities, the steel crisis have hit them for 3 consecutive months now reportedly starting September and continued to October and November..December is projected to behave the same. They are at present holding a total steel inventory of 3 million MT (combined flat, long, section- all steel types), a figure almost already equal to the Philippine annual demand.
The business mood right now is “no business- wait and see” attitude; no movement, no price quotation.

It's interesting to know that like China, Vietnam has cheap labor, even cheaper than the Philippines.