VietNamNet Bridge - The previous article analyzed the high tax rates on iron ore exports and the impact of tariff policies on mineral smuggling. This article will consider the competitiveness of Vietnamese steel producers.

In the context of economic difficulty, as about 70% of steel manufacturers have reported losses or reduced profits, some producers have made breakthroughs, partly thanks to their selection of technology.

For example, Hoa Phat Group used blast-furnace technology to refine steel from iron ore, while many others still use arc furnaces to produce steel from scrap steel.

In mid-2014, Hoa Phat Group proposed to the government, the Ministry of Industry and Trade and the Vietnam Steel Association to ban iron ore exports to reserve raw materials for blast furnace projects in the country.

At that time, 13 steel manufacturers that used the arc furnace technology signed an urgent petition sent to the Vietnam Steel Association asking the association to review the policy banning iron ore exports.

According to these producers, called the "group of 13", the ban of iron ore exports caused the prices of iron ore in Vietnam to fall by nearly half compared to world prices, helping Hoa Phat have a competitive advantage.

Developments on the market showed that many steel producers were tired of the race to slash steel prices.

Pomina, which topped the steel market for several years, could not contend after nearly a year.

Chu Duc Khai, Deputy Chair of the Vietnam Steel Association, said most steel producers operated at 40% to 60% of their capacity.

Currently the country still has 13 other businesses using blast furnace technology, but most of them are small, with annual output around 200,000 tons per year.

Two factories using blast furnace technology besides Hoa Phat Group are the Thai Nguyen Iron and Steel Plant (TISCO) and the Vietnam-China Iron and Steel Plant (VTM), which was inaugurated in September.

Vietnam holds 55% of the total investment capital of $337.52 million in VTM, which uses iron ore from the Quy Sa mine, which has reserves of 120 million tons.

Coke, the indispensable raw material for blast furnace technology, is supplied by Chinese partners provided in the form of exchange (iron ore for coke). The benefit of this form is that it does not cause pollution in the refinery process. VTM currently uses the largest blast furnace in Vietnam, producing 500,000 tons of steel per year, in the first phase.

Is the ban a good idea?

One of the objectives of the ban of iron ore exports is to protect resources for domestic production. But the question is whether local businesses in general and the domestic steel industry in particular can take advantage of this privilege to improve their international competitiveness.

In 2013, China produced 780 million tons of steel, and exported 60 million tons, of which about one fourth went to the ASEAN market.

Vietnam, also in this year, used about 5 million tons of construction steel, less than half of the designed capacity of the entire steel industry (11.3 million tons).

China currently has a steel inventory of over 160 million tons and if they discharge this volume, the steel industry will be "miserable" – the word used by Mr. Khai - Vice Chair of the Vietnam Steel Association.

Recently it has been rumored that the Chinese government would reject steel furnaces of less than 1,000 cubic meters because the greater capacity is more fuel-efficient.

Most Vietnamese steel firms imported blast furnace technology from China. However, China’s blast furnace technology is not the most advanced in the world because China has had to import big furnaces of 3,000-4,000 cubic meters from Japan, Khai said.

If Vietnamese steel producers have to import technologies from China, how can they compete with Chinese rivals?

While the public has expressed concerns about the huge steel project Formosa of Taiwan, Khai is worried about the future of the steel industry when it comes to negotiations to establish a free trade area between Vietnam and the Customs Union of Russia - Belarus - Kazakhstan.

Russia owns a blast furnace system up to 5,000 cubic meters, which started operations in the 1990s. To produce one ton of steel, Russian plants need only 150kWh, one third compared to Vietnam.

The Vietnam Steel Association said the steel industry needs the government’s protection in the next five to 10 years to reduce costs and improve competitiveness.

Like it or not, the steel industry of Vietnam still has to compete with the rest of the world. In this competition, productivity is the decisive factor; otherwise, holding resources to serve domestic production seem to be desperate efforts.

Is this the story of the steel industry only?

Mr. Do Thien Anh Tuan form the Fulbright Economics Teaching Program said: "There is a misunderstanding between the sale of raw materials at VND10 with the sale of finished products at VND100. The key matter here is added value.”

“If we need an additional VND90 or more to have finished products worth VND100, it is better to sell raw materials for VND10 and use the money to invest in industries in which we have a competitive advantage. Australia, even though it ranks second in the world for reserves of iron ore, this country does not develop a steel industry," Tuan said.

Thuong Tung