Tuesday, 16 Oct 2018
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ECONOMY

Vietnam's steelmaker Hoa Sen to purchase hot-rolled coil from Formosa Ha Tinh

Updated at Friday, 12 Oct 2018, 10:46
The Hanoitimes - Vietnamese steel producers are looking toward domestic hot-rolled coil (HRC) in order to avoid more anti-dumping duties that could be imposed by the US.
Vietnam's steelmaker Hoa Sen Group has reached an agreement to purchase HRC from major Vietnamese integrated steel producer Formosa Ha Tinh (FHS) amid fierce competition, local media reported. 
 
Illustrative photo.
Illustrative photo.
HRC is a major raw material for the production of steel sheet and steel pile. In the first nine months of 2018, HRC import prices increased by 16% year-on-year, causing a decrease of 55% in Hoa Sen Group's profit to VND512 billion (US$21.99 million). 

Under this context, the deal is expected to improve the group's financial situation in 2019. According to Nhip Cau Dau Tu, Tran Duong, analyst at KIS Vietnam Securities Corporation, stated that an agreement to purchase HRC between FHS and Hoa Sen Group would temporarily relieve pressure on importing the product and keep a stable domestic market.

In addition to having a better price compared to the import price (US$610 per ton compared to US$618 per ton), purchasing HRT from local source would help Hoa Sen minimize impacts from the volatility of exchange rate in the world market. 

Meanwhile, the deal gives FHS a steady stream of income as Hoa Sen currently is the largest producer of steel sheet and second of steel pile, holding market share of 34% and 18%, respectively. Moreover, Hoa Sen also owns the country's largest distribution network with 410 stores and branches as of present, which is expected to increase to 450 by the end of the year. 

This year, FHS expects to provide 3 - 6 million tons of HRC to the market, which is considered a viable alternatives for local steelmakers. In fact, the escalation of a trade friction between the US and China could have a positive impact on FHS. As reported by the Metal Bulletin, Vietnamese re-rollers are looking toward domestic hot-rolled coil in order to avoid more anti-dumping duties that could be imposed by the US.

The US Commerce Department on Wednesday August 1 launched duty-circumvention probes into Vietnamese cold-rolled and coated flat steel imports produced using South Korean or Taiwanese substrate. This restricts the sources of HRC from which Vietnamese re-rollers can purchase. The US already has imposed high duties on Vietnamese flat steel produced using China-origin substrate. 

Challenges remain

Vietnam's steel industry in 2018 is forecast to grow by 20 - 22%. Additionally, with the economic growth target of 6.5 - 6.7% and a growing number of infrastructure development projects, the demand for steel is expected to increase, according to the Vietnam Steel Association (VSA). 

However, the risk of oversupplying steel sheet in the market remains. Over the last two years, Hoa Sen Group has increased its steel sheet production capacity by 1.5 million tons, Nam Kim Steel by 800,000 tons and Hoa Phat 400,000 tons, not to mention other projects from other steel producers such as Dong A Steel or Pomina. 

According to VSA, annual demand for consumption of domestically produced steel sheet is 2.5 - 2.8 million tons, however, the capacity of the industry has reached 3.2 - 3.5 million tons, putting pressure on companies to reduce operation cost and maintain competitive advantages. 
Ngoc Mai
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