Analysts have warned that the ingot steel price may exceed the $600/tonne level and the price of finished steel may be higher than VND11mil/tonne ($687.5). MOF plans to release the steel selling price frame to serve as the reference for steel producers to define their selling prices. The price frame will be built on the principle of ensuring profit for steel producers, and the currently applied tax rates of 2% on ingot steel and 8% on finished steel will be maintained.

Pham Chi Cuong, Chairman of the Vietnam Steel Association VSA, said that by promulgating the price frame, MOF was striving to impose ceiling prices on construction steel products. The ceiling price scheme was removed in 2003, and now MOF plans to restore it in an effort to curb the price increases.

The plan by MOF is not being applauded by VSA members. Mr Cuong said that a price scheme set by the government should not be used in a market economy.

He said that if the ceiling price was overly high, the ceiling price scheme would not bring the desired effects. In other cases, when the ingot steel price increases sharply but steel producers cannot raise the selling prices, they would incur loss. As a result, producers will not import ingot steel to laminate steel domestically, and the market will surely suffer from the steel shortage.

Mr Cuong said that steel producers had different break-even points. Big mills which use modern technologies and have good management skills will have break-even points different from the small mills which have been operating for a short time. Therefore, it is not an easy job to promulgate a single ceiling price for all enterprises.

Mr Cuong said that it would be better to let the market define the selling prices. If domestic enterprises sell steel at overly high prices, customers will buy imported steel, leaving domestically made products unsold.

According to VSA, last week VSA’s members had to sign contracts to purchase ingot steel from China at $605/tonne. Earlier this week, Chinese suppliers offered ingot steel at $618/tonne.

Steel producers said that these were the highest price levels offered so far. The ingot steel price has been witnessing the stiff increase of $100/tonne over the last one month (the price was $518/tonne in early September).

China has cut steel output by 20mil tonnes over the last time by shutting down small steel mills which can cause pollution to the environment. It is said that China is considering raising the tax rate on ingot steel from 15% to 25%. That explains why the ingot steel price has been escalating over the last one month.

In China, ingot steel and finished steel products have also seen a 10% increase in price, now selling at Yuan4,200/tonne, as the country is now in the construction season.

In Vietnam, the high ingot steel price has pushed the finished steel price up. Domestically made steel is now selling at VND12mil/tonne ($750), or VND300-400,000/tonne higher than the beginning of September.

VSA has warned that the steel price will exceed the VND12mil/tonne threshold if the ingot steel price keeps rising. Meanwhile, several steel producers said that the finished steel price might reach VND14mil/tonne ($875) if China raised the tax rate on ingot steel to 25% as rumoured.

Local steel mills said that they continued importing ingot steel for domestic production, despite the price increases. No enterprise has announced halting production so far.

The prices of ingot steel imported from other markets are also increasing. Russia and the Ukraine are offering ingot steel at prices lower than China, but if counting the transport fees, Vietnamese importers have to pay the same price as they would for Chinese products.

Vietnamese steel mills are trying to buy ingot steel from other sources than China. Some of them have purchased ingot steel from Malaysia, while other are contacting suppliers in South Africa and South America. Domestically made ingot steel is selling at VND10.2mil/tonne ($637).

Steel producers said that a price increase in October was inevitable, as Vietnam still heavily relies on ingot steel imports.

They also said that they were considering the possibility of importing finished steel to sell domestically. Le Ngoc Son, Deputy Director of VIS, said that currently, it was more profitable to import ingot steel to laminate domestically. However, the company will keep watch over finished steel prices on the world’s market, and if China raises the tax rate on ingot steel to 25%, making ingot steel more expensive, it will import finished steel to sell instead of ingot steel to laminate.

Source:  VietnamNet.