The overheated growth of the nation's steel industry over the past lew years could soon result in massive oversupply when a number of steel "super projects" come online.
Industry watchers are issuing the warning even though domestic demand for steel has remained stable during the current global economic crisis.
Prior to the economic downturn, domestic and foreign investors piled into the industry, eager to take advantage of a building boom, and what seemed like an unlimited potential for growth.
In addition to Van Loi Steel Co. which has invested in three steel production plants with an annual output of 500,000 to a million tonnes each, the Viet Nam Steel Corporation now has an annual production capacity of about three million tonnes.
But, even major companies like Hoa Phat (furniture making), Vinashin (shipbuilding) and the Vinacomin Group (mining) have all stuck a toe into steel production, building a number of plants nationwide.
In the past two years, a number of major foreign-invested sleel production projects have registered. Six of these, with a total potential annual output of nearly 35 million tonnes, have been granted business licences and are under construction.
Another five-million-tonne steel project, a joint venture with India's Tata Group, is also queuing up for Government approval to break ground in Vung Ang in the central province of Ha Tinh.
If all of these projects are completed on schedule and run at designed capacity, it is estimated the industry will churn out a whopping 50 million tonnes of steel yearly.
Meanwhile, according to estimates from the Ministry of Industry and Trade's Strategic Research Institute, domestic demand for steel will be at roughly 20 million tonnes by 2020. The figure for 2025 was also estimated at only about 25 million tonnes under a master plan approved by Prime Minister last year.
With the anticipated demands, Viet Nam Steel Association chairman Pham Chi Cuong said just one or two of the major steel projects currently being developed would be enough to meet domestic demand.
Cuong said investors, both domestic and foreign, had vied to pour capital into the steel industry during a period of immoderate optimism. Viet Nam used to maintain a high growth rate of more than 8 percent per year, and investors were expecting the construction boom to continue apace.
Bearing them out, steel consumption last year surged by up to 40 percent over the previous year. But, then the real estate bubble burst.
Hidden costs
The Ministry of Industry and Trade has been willing to give the green light to so many steel projects in anticipation of tax revenues and new jobs for many locals, particularly in the country's more impoverished central region.
Experts now, however, are grumbling that the optimism about the benefits of the projects may be misplaced.
Besides the obvious negative impacts on the environment, the projects would also consume a large amount of energy, causing the country to depend even more on expensive imported energy sources, said Pham Chi Lan economic consultant to the Government.
Rampant domestic investment in the steel industry also puts projects at high risk of failure due to out-of-date technology and ineffectiveness. The Viet Nam Steel Association also issued a report warning that steel projects would not be able to operate sustainably were they to depend solely on domestic input materials, but dependence on imported materials could prove to be highly costly.
The report also noted that most domestic steel projects were small-sized, further limiting their potential effectiveness and competitiveness against larger, foreign-invested projects.
Source: Vietnam News
Industry watchers are issuing the warning even though domestic demand for steel has remained stable during the current global economic crisis.
Prior to the economic downturn, domestic and foreign investors piled into the industry, eager to take advantage of a building boom, and what seemed like an unlimited potential for growth.
In addition to Van Loi Steel Co. which has invested in three steel production plants with an annual output of 500,000 to a million tonnes each, the Viet Nam Steel Corporation now has an annual production capacity of about three million tonnes.
But, even major companies like Hoa Phat (furniture making), Vinashin (shipbuilding) and the Vinacomin Group (mining) have all stuck a toe into steel production, building a number of plants nationwide.
In the past two years, a number of major foreign-invested sleel production projects have registered. Six of these, with a total potential annual output of nearly 35 million tonnes, have been granted business licences and are under construction.
Another five-million-tonne steel project, a joint venture with India's Tata Group, is also queuing up for Government approval to break ground in Vung Ang in the central province of Ha Tinh.
If all of these projects are completed on schedule and run at designed capacity, it is estimated the industry will churn out a whopping 50 million tonnes of steel yearly.
Meanwhile, according to estimates from the Ministry of Industry and Trade's Strategic Research Institute, domestic demand for steel will be at roughly 20 million tonnes by 2020. The figure for 2025 was also estimated at only about 25 million tonnes under a master plan approved by Prime Minister last year.
With the anticipated demands, Viet Nam Steel Association chairman Pham Chi Cuong said just one or two of the major steel projects currently being developed would be enough to meet domestic demand.
Cuong said investors, both domestic and foreign, had vied to pour capital into the steel industry during a period of immoderate optimism. Viet Nam used to maintain a high growth rate of more than 8 percent per year, and investors were expecting the construction boom to continue apace.
Bearing them out, steel consumption last year surged by up to 40 percent over the previous year. But, then the real estate bubble burst.
Hidden costs
The Ministry of Industry and Trade has been willing to give the green light to so many steel projects in anticipation of tax revenues and new jobs for many locals, particularly in the country's more impoverished central region.
Experts now, however, are grumbling that the optimism about the benefits of the projects may be misplaced.
Besides the obvious negative impacts on the environment, the projects would also consume a large amount of energy, causing the country to depend even more on expensive imported energy sources, said Pham Chi Lan economic consultant to the Government.
Rampant domestic investment in the steel industry also puts projects at high risk of failure due to out-of-date technology and ineffectiveness. The Viet Nam Steel Association also issued a report warning that steel projects would not be able to operate sustainably were they to depend solely on domestic input materials, but dependence on imported materials could prove to be highly costly.
The report also noted that most domestic steel projects were small-sized, further limiting their potential effectiveness and competitiveness against larger, foreign-invested projects.
Source: Vietnam News
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