Steel exports by South East Asia’s leading steel producer and consumer, Vietnam, is expected to reach 11.8 million tonnes (mn t) in 2021, SteelMint estimates. Steel exports by Vietnam are expected to rise nearly 28% from 9.24 mn t in 2020.
However, Vietnam was a net steel importer in 2020. The country imported close to 14 mn t of steel during the year. World Steel Association (WSA) data shows that Vietnam’s crude steel production increased by 11% to 19.5 mn t in 2020 against 17.5 mn t in 2019.
The share of finished steel exports in Vietnam’s total steel production was around 35% in the Jan-Nov’21 period. In Nov, total exports, as per SteelMint data, was 1.02 mn t, while data from the Vietnam Steel Association (VSA) puts total finished steel production at 2.9 mn t during the month. Therefore, the share of exports stands at around 35% of total steel output.
Pandemic & exports push
The rise in Vietnam’s steel exports in 2021 sustained the domestic steel producers that found survival difficult as steel consumption slumped amidst pandemic outbreaks and lockdown. According to VSA, since the outbreak of Covid-19 at the end of Apr’21, special distancing measures forced a number of construction activities to be suspended, leading to a decrease in domestic consumption.
In 2020, Vietnam had managed the pandemic better but this year stringent lockdowns persisted well into Aug. Exporting steel was the only solution to maintaining production levels and ensuring jobs. Exports inched up to 1.37 mn t in Aug from 840,000 t in May.
In fact, Vietnamese steel producers resisted the government’s proposal to impose a 5% duty on steel billet exports in July – to control soaring steel prices – because that would have increased billet export prices by $35/t on FOB basis and, therefore, globally uncompetitive.
Fall in Chinese buying
In 2020, Vietnam’s steel exports had increased by 47%, (y-o-y), compared to 6.25 mn t in 2019. This was mainly due to an astronomical 700% rise in exports to China from 0.45 mn t in 2019 to 3.59 mn t in 2020.
However, exports to China are expected to fall to 2.88 mn t this year. In 2020, global steel demand crashed following the outbreak of the pandemic while the Chinese economy recovered fast since Apr’20 on fiscal stimulus measures that totalled 6% of the country’s GDP.
Government spending on infrastructure triggered an economic rebound at a time when other countries were in the process of implementing stringent Covid-control measures. Steel prices in the major Asian economies were largely depressed, whereas China witnessed economic buoyancy. As a result, Chinese producers were incentivised to import steel as domestic prices soared higher.
This explains the phenomenal hike in semi-finished steel imports by China that exceeded 17 mn t in 2020. In comparison, China’s imports of semis have been recorded at over 9 mn t till Oct this year, SteelMint data reveals.
Sharp rise in shipments to EU, USA
On the other hand, Vietnam’s steel shipments to the EU and USA are expected to increase by roughly over 500% and 400%, respectively, y-o-y. While exports to the EU are about to rise to 2.2 mn t compared 350,000 t last year, shipments to the USA are slated to increase to 1.02 mn t from just 190,000 t in 2020.
During the early months of the 2020 shutdowns, many steel mills in the USA and Europe shut off production in fear that we were headed into a deep recession. But that drop-off in demand didn’t last long. Pent-up demand from the manufacturing, appliances, oil and gas, and construction sectors far outpaced supply. And the stiff duty structure in place restricted steel imports in large volumes.
Supply scarcity in the EU triggered imports from almost all global steel suppliers, including Vietnam. In addition, the Europe Vietnam Free Trade Agreement that came into force in Aug’20, covering 99% of all traded products between the two trading partners, further boosted exports from Vietnam.
In the USA, the change in spending habits and patterns of consumption due to the pandemic caused a far greater demand than expected in the steel industry. This, combined with very limited supply due to the closing of many steel mills, led to the price of steel spiralling: hot-rolled steel (HRC) rose to $1,600-1,800/t in 2021 compared to price levels of $500-800/t before the pandemic.
US domestic steel prices at such historic highs naturally led end-users to look for cheaper imported products.
Factors to watch out for
Vietnam’s steel market is projected to become one of the fastest growing markets in the world till 2024. The compound annual growth rate (CAGR) of production volume of crude steel is projected to exceed 20%. By 2024, the country is expected to become a net exporter of steel.
Vietnam buys steel from different countries and redirects these to buyers in the west after value-addition. India could have catered to this demand but markets such as the EU follow a quota-based imports system. Owing to quota restrictions, a large volume of Indian-origin steel is indirectly routed through Vietnam.
Vietnam buys a lot of HRCs from various countries and converts these into cold rolled and colour-coated products for buyers in the EU. India’s exports to Vietnam increased because the consignments to Europe were shipped over May-Jul’21. However, demand from Europe has dropped significantly.
India’s steel exports to Vietnam were recorded at 2.4 mn t in 2020, as per SteelMint data, and 1.5 mn t till Nov’21.
As stated earlier, Vietnam’s steel exports are likely to edge 28% higher in 2021 on higher volumes to the EU and the USA on supply tightness and high prices in these markets. However, the pace of recovery from the pandemic is expected to slow down in the west after the initial sharp rebound for the greater part of 2021.
Apart from rising domestic supplies in the EU and the USA, relaxation of Sec 232 restrictions on trading between the two blocks is likely to increase supplies. This may impact exports from Vietnam.
Moreover, the global semi-conductor shortage continues to impact automobile production and, consequently, flat steel demand. Therefore, HRC-CRC demand will remain partly subdued because of this reason in the short term – at least till H1 of 2022 – although the global chip shortage is likely to be plugged by mid-2022.
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