Steel manufacturers would face many difficulties this year after poor sales due to the global economic crisis and some would have to restructure, halt production or go bankrupt, according to the Vietnam Steel Association.

The association predicts the demand for steel will remain low this year, rising only 4 per cent over last year. With this figure in mind, the industry plans to manufacture a mere 9.8 million tonnes this year.

Association chair Pham Chi Cuong said this year's growth rate was expected to be rather modest in comparison with the average 20 per cent during the peak sales period from 2005-09.

The poor performance stemmed from a frozen real estate market last year due to difficult economic conditions. To rein in inflation, the Government has cut public investment and halted or delayed unnecessary construction projects while residents have spent less on building activities.

As a result of the limited construction, some steel enterprises had to halt production or declare bankruptcy last year, including Van Loi Steel Co in Hai Phong City, Cuu Long Vinashin Steel Co, Dinh Vu Steel Joint stock Co in Hai Phong, among others.

Reduced consumption has led to 500,000 tonnes stockpile of steel, more than doubling inventory levels in recent years. As a result, producers can't pay back their loans and are paying up to VND150 billion (US$7.14 million) per month in interest, according to the association.

Input materials such as oil, coal, power, and imported materials cost 20-30 per cent more over one year earlier, creating additional problems.

According to the Ministry of Trade and Industry, Vietnam has more than 65 steel producing facilities with an average annual design capacity of more than 100,000 tonnes each. Domestic investors operate 58 of the facilities while foreign investors operate the others with a combined investment capital of $21 billion.

One solution would be to restructure production and organisation in order to cut costs and to remove any ineffective projects, said Cuong.

"Last year, the industry produced about seven million tonnes, 1 per cent less than the previous year. Production in the early months of this year is expected to continue to decline due to the existing stockpiles and low demand," he said.

He also suggested export as another solution The sector exported two million tonnes of steel last year, earning nearly $2 billion, a year-on-year increase of 56 per cent.

However, the global economy was struggling last year, so Vietnamese companies faced low prices from some ASEAN nations and China while also dealing with the US anti-dumping lawsuit.

Deputy chairman of the association Nguyen Tien Nghi affirmed that no one would invest in the sector for the next several years because of the excess supply over demand.

Source: VNS