Steel prices in Vietnam to decline further in Q2 under the coronavirus outbreak

Asian Metal: Hi Mr Lim, thanks for taking part in the interview. Please make a brief introduction of your company.

Mr Lim: Glad to share my opinions in the interview. Our company is one of major steel mills in Vietnam and we mainly produce rebar, wire rod, CRC, steel pipe and HGI. Equipped with modern production lines, our products specification can meet international standard. We have two rebar production lines, two CRC production lines, fifteen pipe production lines and three HGI production lines, with an annual output of around 700,000t, 300,000t, 250,000t and 250,000t respectively. Our revenue could reach approximately 10 trillion Vietnamese dong.

Asian Metal: Did your company expand production capacity and make some improvement on equipment in recent years?

Mr Lim: We launched one rebar production line, six pipe production lines and one HGI production line in 2016. In recent two years, our production capacity was not expanded yet. However, our output increases every year. As our workers become more and more skilled, they can upgrade the production line, improving the quality and quantity of products.

Asian Metal: Vietnamese steel output kept increasing in recent years. According to a recent report from the Vietnam Iron and Steel Association, the steel output would see a rise of 6%-8% on a year-on-year basis. What are main factors supporting the continuous rise?

Mr Lim: It is inevitable to see continuous rise on the production. Vietnam is a developing country and its demand for construction is not yet saturated. Seeing the improvement of people’s living standard and low salary for workers in recent years, many foreign steel producers invested here in succession to build plants, which improved people's life further by creating opportunities for employment. After that education and technology were developed, production efficiency was boosted obviously. What made steel producers benefit was, products’ quality could catch up with the international standard, which attracted more and more foreign buyers. With increasing foreign exchange, the domestic demand for steel was boosted. As a consequence, the desire for building new plants and expanding production from initial producers grew gradually.

Asian Metal: In recent two years, Vietnam relied less and less on Chinese steel supply but it kept importing many flat steels like HRC. What are main reasons for this?

Mr Lim: Producing HRC needs a lot of equipment, causing high investment amount. Currently, there is only one producer for HRC in Vietmam, which is Taiwan-funded enterprises and called Fomosa. In addition, Vietnam collect low import tax for HRC, so if local producers’ production efficiency is not high enough, their products’ cost would be higher than imported materials. As a consequence, investors are not active in building HRC plants.

Asian Metal: Whether your company aims at selling materials to traders or end users?

Mr Lim: Our major customers are distributors, whose purchasing volumes are relatively large. It is easier for producers to provide service to fewer customers. However, end users’ distribution is too wide and the service cost will be too high for us, which would reduce our profit obviously. In addition, more customers will show more complaints for our products. If we mainly deal with distributors, who will negotiate with end users instead of us, there will be fewer problems left for us to handle.

Aisan Metal:What negative influence does the COVID-19 bring to Vietnamese steel market in Q1? What are your company's countermeasures for this?

Mr Lim: The COVID-19 brought much bad influence to Vietnam, not only steel industry but also many other industries. In order to protect ourselves, people tried not to go out and the operating rate went down fast in all walks of life. However, the coronavirus is force majeure and what we can only do is to avoid being affected by strengthening epidemic prevention. Our company tried to slow down production, reduce stocks and avoid tight cash flow. Due to the extra cost increase on epidemic prevention and production reduction, our company’s profit was decreased to some degrees.

Asian Metal: How do you think the steel price would perform in Q2 of this year in Vietnam?

Mr Lim: I do not have confidence in the market in Q2, when it is the traditional low season for steel market in Vietnam. Market would ran slowly with price decline. What’s worse, the coronavirus outbreak dragged down the international steel market. It would take a long time for the market to recovery after the coronavirus. Even though it is not serious in Vietnam, the demand for invest and construction would shrink due to the global economy slump and large inventories in steel market. In my opinion, it is more likely for steel prices to go down in Q2 of this year.