Two local steel giants are in a race to build steel complex projects, while foreign investors have stayed away due to surplus steel in the market and capital concerns.

Last week, Hoa Phat Group officially asked Dung Quat Economic Zone Management Authority (DEZA) to be allowed to resume the construction of the US$3 billion Guang Lian Dung Quat Steel project in the central province of Quang Ngai, which had its investment certificate revoked in early September.

As per the proposal, the project will have total investment capital of US$3 billion and an annual capacity of four million tonnes. The construction will be divided into two phases, with a capacity of two million tonnes each. The investor seeks approval to retain the factory’s operation for 70 years. Once the factory becomes operational, it is expected to bring an annual US$2 billion in revenue for the operator.

Guang Lian is the second largest steel project in Vietnam, following the US$10 billion port and steel complex invested in by Taiwan’s Formosa Plastics Corporation in the central province of Ha Tinh’s Vung Ang Economic Zone. 

Guang Lian, first backed by Thailand’s Tycoons Worldwide Group and Chinese Jian Steel and Iron Group, was licensed in 2006 with the total investment capital of around US$1 billion. Taiwan’s E-United then became the major investor of Guang Lian, holding a 90% stake of the complex.

Hoa Phat’s move aims to revive this multi-billion dollar bankrupt steel project after the Taiwanese investor failed to arrange the necessary capital.

In another steel complex, public opinion is still divided, as chairman of Hoa Sen Group, Le Phuoc Vu, has put up his entire fortune as guarantee for the US$10.6 billion Hoa Sen Ca Na steel complex in the central province of Ninh Thuan.

In the past, the complex was originally developed by state-owned shipping giant Vinashin and Malaysia’s Lion Group, with the total registered investment capital of US$9.8 billion, but the foreign investor made an exit about one year after the project was licensed in 2008, and local authorities revoked its investment certificate in 2011.

Former chairman of the Vietnam Steel Association Pham Chi Cuong, told VIR that both of these projects were huge steel complexes that would contribute to the current steel glut, which night become problematic when sourcing investment. And it may have increased competition, as Formosa Plastics Corporation also plans to ramp up export of its products.

The global steel industry could experience some turbulent times. The demand for steel in 2016 is likely to decline as the pace of global economic growth in major makers are bracing for this and are struggling to maintain profits in the face of global excess capacity and historically low prices.

In addition to the domestic situation, neighbouring China-home to steel industry that produces more than half of the world’s 1.6 billion tonnes of steel output annually- has seen a slowdown in domestic economic growth, resulting in lower demand for steel. The industry is responding by pushing its products abroad, including to Vietnam.

Besides, the other big concern is the heightened risk of environmental pollution. With the mass fish deaths caused by Formosa Plastics Corporation’s steel complex in mind, steelmakers must take extra precautions in any endeavour. 

VIR