The U.S.- China trade war that has been ongoing for more than a year is now creating fear of excess supplies in Vietnam’s steel sector. This is because amid tepid domestic demand and rising trade protectionism measures by various countries due to trade war, another supply glut in Chinese steel sector seems to be on its way and this has made Vietnamese steel company to reconsider their capacity expansion plans as Vietnam is one of the key dumping grounds for Chinese steel.
If reports are to be believed, Vietnam’s steel giant, Formosa Ha Tinh Steel (FHS) which was supposed to start the construction of its third blast furnace from next year has put its plans on hold amid the ongoing uncertainties of trade war. FHS which operates country’s only integrated blast furnace is a joint venture between Formosa Plastics (a Taiwanese plastic manufacturer) with 70% share, Taiwan’s China Steel holding 20% and Japan’s JFE Steel 4%.
With a goal to become Southeast Asia’s largest integrated steel manufacturer, FHS had planned to start construction of its third blast furnace from 2020 in order to boost its capacity to more than 10 MnT in the near term and about 22.5 MnT in the long term. The company’s first blast furnace was started in 2017 and the second one followed a year later. Its existing crude steel capacity is 7.1 MnT.
The company’s top management said in an interview that the organisation will take its decision to build third blast furnace by the end of the year after discussing the same with its three shareholders and the Vietnamese government. FHS plans to build two additional blast furnaces with capacities equivalent to the existing furnaces and the related expenses are expected to touch USD 4 billion. Once the blast furnace is started it cannot be stopped readily and this has compelled the company to once again ponder over its decision as Vietnam is currently facing rising steel imports from China.
Apart from FHS, another steel giant in the country is Hoa Phat and if FHS’s planned capacities are completed the combined capacities of both the plants would be around 26.5 MnT.
Vietnam’s steel demand scenario
Vietnam imports more than 8 MnT of hot-rolled coil per year, 40% of which comes from China. With no import tariffs on the product, inexpensive Chinese coil keeps arriving. Hot-rolled coil in Vietnam is currently quoted at $500 per ton, down 10% from a year ago, according to FHS. Prices will drop further if imports from China increase. For FHS, this would result in a drop in earnings, even if it were to increase sales.
Vietnam has become one of the key steel-consuming nations in Southeast Asia. The country’s economy has grown over the past few years and so does its demand for construction steel. Its per capita steel consumption stands to be around 240 kgs which is four times more than Indonesia. With the gross domestic product maintaining an annual pace of 6-7%, Vietnam’s investment in urban railways and other pieces of infrastructure is up sharply. And foreign companies keep opening manufacturing bases in the country, resulting in more steel being consumed.
However, the global steel industry is shaken up by plummeting steel prices since the past few months and rise in Chinese steel dumping. With the rising overcapacity in China it is likely that the steel market would destabilize once again.
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