VietNamNet Bridge – What happened in 2008 in the steel market is repeating itself: the steel price keeps rising abnormally even though it is a low construction season. Especially, the demand is believed to decrease this year because the government has decided to cut down public investments.

In general, the first months of years are part of a low construction season in which purchasing power is low. However, the demand is abnormally high at this moment, thus giving a reason for steel manufacturers to raise sale prices.

In late December 2010, steel manufacturers raised the sale prices slightly by 300,000 dong per ton. After that, they raised the sale prices further  four or five times in January, February and March. Steel mills are selling products at 17 million dong per ton (not including VAT), a two million dong per ton increase in comparison with December 2010. Meanwhile, steel products are retailing at 19 million dong per ton on the market.

According to the Vietnam Steel Association VSA, the purchasing power has unexpectedly increased by 40-50 percent in comparison with the same period of the last year, despite the low construction season. The increasing demand has pushed the prices up. Meanwhile, the price increase has prompted sales agents to store more products, thus making the prices go up further.

Explaining the steel price increases, steel manufacturers said that the sharp steel ingot price increase in the beginning of 2011, along with the dollar price, electricity price and interest rate increases, has forced them to raise the sale prices.

However, the explanation does not satisfy experts, who said that though the steel ingot price in the world market has increased, steel manufacturers do not have to raise prices so sharply to make profit.

In January 2011, the steel ingot price increased slightly by tens of dollars per ton to 600-610 per ton. However, at that time, steel mills still could laminate steel with the steel ingot they imported before at a low price of $580 per ton. In early February 2011, the steel ingot price rose to $690 per ton but then decreased to $660 per ton and it is now staying at $670. As such, a ton of steel ingot can be imported at 14 million dong. If counting on the production cost of 1.5 million dong, the cost price would be 15.5 million dong per ton.

In fact, the cost price is much lower than 15.5 million dong per ton, because steel mills could make steel with the steel ingot products they imported before at low prices, before the world’s price increased. Besides, according to VSA, 60 percent of the steel ingot needed to make steel comes from domestic sources which must be much cheaper than imports because steel mills do not have to pay for transportation fees and import tax.

The trouble in 2008 is repeating?

In the first months of 2008 the world’s steel ingot price increased continuously, resulting in the sharp price increase of millions of dong per ton in the domestic market to 22-23 million dong per ton. When the domestic steel price began escalating, steel traders rushed to collect products to store them, believing that the prices would increase further. As a result, the volume of products in stocks increased abnormally.

However, contrary to people’s predictions, in August of the same year, the steel ingot price unexpectedly dropped to 330 dollars per ton, thus making the domestic price drop dramatically. Of course, those dealers, who speculated steel products, incurred a heavy loss because they could not sell out all the products they had.

Experts say what happened in 2008 is repeating now in the market. Traders are trying to store up steel, while the actual demand is not high. According to VSA, in December 2010, the market consumed 437,000 tons, while the figure rose to 469,000 tons in January 2011 and then to 475,000 tons in February.

Meanwhile, they have warned that the actual demand for structural steel will not be high in 2011, because the government has decided to cut down public investments, meaning that many big construction works will be delayed. Besides, the difficulties in accessing bank loans (banks have been told to restrict the lending to non-production sectors) will force real estate investors to delay their projects.

C. V