VietNamNet Bridge – The Ministry of Industry and Trade (MOIT) is attempting to force enterprises in some production fields to make compulsory reserves in order to help stabilize the markets. However, the intention has not been applauded by steel mills.

Under the draft legal document on the compulsory reserves applied to some key products being compiled by MOIT, the maximum circulation reserves ratios are 10 percent of the steel product volume and 3-5 percent of the ingot steel that businessmen import in previous years.

The prices at which enterprises purchase products for storage are the market prices. The retail prices of the stored products must be lower than the market prices at the sales moments by 10 percent at least. The market prices will be announced by the Ministry of Finance at the moments, when the products are sold.

MOIT believes that ingot steel is the input material for steel manufacturing, which makes up 80 percent of the production costs. Since domestic production can satisfy only 60 percent of the total demand for ingot steel, while the other 40 percent need to be fed with imports, Vietnamese steel industry cannot take initiative in steel production because of the fluctuating ingot steel prices.

Therefore, the ministry believes that in order to stabilize the steel market, it is necessary to require compulsory reserves on ingot steel.

However, steel manufacturers do not think this way. Representing steel manufacturers and traders, the Vietnam Steel Association VSA has announced that the tentative policy does not come in line with the market rules and comes contrary to the benefits of the State, enterprises and consumers.

VSA has cited four reasons to explain its viewpoint.

First, to date, the total production capacity of structural steel in Vietnam has reached 9 million tons a year, while only 6.3 million tons was consumed in 2010, which means that the supply has exceeded the demand. The steel consumption in the last five years just accounts for 50-60 percent of the total capacity of enterprises.

VSA has stressed that Vietnam never lacks structural steel, even when the steel prices fluctuate heavily. Therefore, it believes that there is no reason to store the products which are in excessive supply.

Second, steel import companies also trade many other kinds of products which are not prohibited by the State. Every month, structural steel production companies, store 500,000 tons of ingot steel and 300,000 tons of finished products. Besides, there are also the ingot steel and finished products unsold and kept at trade companies. As such, the inventory volumes are much higher than the proposed reserves ratios stipulated in the draft document.

Third, it is an unreasonable decision to stipulate that the prices of stored products must be 10 percent lower than the market prices. In previous years, when the steel prices went up too sharply, the State once asked state owned enterprises to keep the sale prices lower than the market prices by 1-2 million dong per ton. However, consumers could not enjoy the low prices, because products had to “go through many hands” before reaching consumers, and only distribution companies could enjoy benefits.

Fourth, the draft document says that when storing goods for stabilizing the market, enterprises would enjoy preferential interest rates and enjoy preferences in accessing land. However, this is thought to be not a good idea, because this would make the “Ask and grant” mechanism to return.

VSA said that 21of its member companies are making ingot steel, 31 enterprises making structural steel. The companies not only have to compete fiercely with each other, but also have to compete with cheap steel imported from ASEAN and China. Therefore, there must not be the monopoly in the steel pricing.

The steel prices have been defined based on the brands, technologies and quality. State management agencies have never discovered any cases, where people speculated to seek profits.

In a market economy, enterprises sometimes can sell products well and they have no product in stocks. However, at other times, the sales go slowly and they have big stocks. Enterprises have no reason to reserve products, because the products’ prices may go down in the future, thus causing losses to enterprises.

Source: TBKTVN