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VIETNAM STEEL INDUSTRY

December 2013

INDUSTRY COVERAGE

Thousands

2003-2012 Apparent steel use (finished products)


mn tons
1,500

World

China

1,200
900
600
300
0
2003

2005

2007

2009

2011

2014F Apparent steel use (finished products)


mn tons
1,200

2012

2013E

2014F

1,000
800
600
400
200
0
Developed
Economies

Emerging &
Developing
Economies

China

World excl.
China

Vietnams GDP at current prices

3,500

Industry and construction sector


Total GDP
% y-o-y
GDP growth
9.0

2,800

7.2

2,100

5.4

1,400

3.6

700

1.8

VNDtn

The global steel industry has been out of favor of late. 2012
saw the industry suffer from impacts of the Euro-zone
sovereign debt crisis and economic stagnation. In 2013, the
steel industry continued to face headwinds in the form of
overcapacity and a surge of imports mainly from China. The
sector is going through structural changes as there is a
structural shift of demand for steel products to emerging
markets. In medium to long term, global steel demand is
expected to improve with the efforts of the Chinese
government to rebalance its economy. India will fuel steel
demand in the future thanks to a rising middle class along
with increased urbanization. The global apparent steel use is
forecast to grow by 3.3% for next year.
The steel industry is one of the core industries of Vietnam
which support development of the country, especially
infrastructure development. Vietnams current consumption
of steel ranks third among ASEAN countries, after Thailand
and Indonesia. Vietnams manufacturing industry is still
immature and the country is becoming more urbanized, so
over 80% of steel materials are used for construction. In
addition,
the
correlation
between
per-capita
steel
consumption and per-capita GDP is strong among Asian
countries. Potential for long-term expansion may be strong,
but the Vietnamese steel sector still faces many difficulties
and challenges.
According to the Vietnam Steel Association (VSA), total
construction steel consumption is expected at about 5 million
tons in 2013, up 3%-5% y-o-y, less than a half of the capacity
forecast (about 9.5 million tons). In 2014, the local steel
consumption is expected to post a 2%-3% y-o-y increase.

0.0
1999 2001 2003 2005 2007 2009 2011 9M13

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2007-2012 Vietnams steel production


12
10

The market for construction steel is quite concentrated as the


five largest producers together account for a 60% market
share. Of the top five market players, Pomina (16.1% market
share in 10M2013), Vinakyoei (9.9%) and SSC (8.1%) focus on
the southern market while HPG (14.8%) is the largest in the
northern market, followed by TISCO (11.5%).

Metallic & color coated


Welded steel pipe
CRC
Long steel products
Steel billet

8
6

Vietnam has the largest number of new projects in the


region. According to the master plan for the industry, there
are 44 projects for new investment or expanding production
to the 2020 to 2025 period, making supply further exceed
demand and leading to a more fierce competition in the local
market.

4
2
0
2007

2008

2009

2010

2011

2012

2009-2012 Vietnams steel import and export


mn tons
12

Export of all kinds of steel


Export of steel billets
Import of all kinds of steel
Import of steel billets
Total import value
Total export value

Value
(USDbn)
8

0
2009

2010

2011

2012

VN-Index vs. steel stock price index


350

Steel stock price index

VN-Index

1,500

280

1,200

210

900

140

600

70

300

0
Dec-07

Government uses tax policies as the main tool to exercise


control over the steel industry. However, the protection of the
industry will be significantly reduced as international trade
commitments take effect in 2014, which could undermine the
competitiveness of the industry.

Thousands

mn tons

As of December 16, 2013, 17 listed steel companies slightly


outperformed the market as they rose by an average of 29.3%
YTD while the VN-Index and HNX-Index increased by 21.3%
and 16.5% YTD, respectively. However, Hoa Phat Group
(HPG) and Hoa Sen Group (HSG) strongly outperformed the
market with 82.4% and 122.9% YTD increases in share prices
and strong liquidity, respectively. Both HPG and HSG, the
leading companies, remained profitable thanks to the
domination and improvement of their market shares.
Currently, only steel companies with competitive advantages
may attract the investors' cash flows. Given the macroeconomic
situation in the sector, we have a cautious view for the next
quarter amidst the recent run-up in share prices. The sector is
currently traded at a median LTM P/E of 7.9x.

0
Feb-09

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Apr-10

Jun-11

Aug-12

Oct-13

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Contents
GLOBAL INDUSTRY OVERVIEW.............................................................................................................................................. 4
A shift in demand to emerging markets ............................................................................................................................. 5
Raw material trend and steel price ..................................................................................................................................... 7
VIETNAM STEEL SECTOR ........................................................................................................................................................ 9
Value chain .......................................................................................................................................................................... 11
Imports and exports ........................................................................................................................................................... 12
Big players of the market ................................................................................................................................................... 15
Investment projects ............................................................................................................................................................ 17
Legal framework ................................................................................................................................................................. 19
2014 OUTLOOK ....................................................................................................................................................................... 22
CONCLUSION .......................................................................................................................................................................... 23
STEEL TICKERS ON THE STOCK EXCHANGES ................................................................................................................... 24

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GLOBAL INDUSTRY OVERVIEW


The industrys long-term
prospect is positive. However,
the sector faces strong
headwinds in the short to
medium terms.

The steel industry has been considered a macroeconomic indicator as it changes


with economic development. Global steel production improved from 851 million
tons in 2001 to 1,548 million tons in 2012, representing a compounded annual
growth rate (CAGR) of 5.6%. However, the steel industry remains fragmented and
highly cyclical. Global population is on the rise, which means that demand for steel
will rise accordingly. Emerging economies continue to be a major driver for
demand as they facilitate a significant amount of steel for industrialization.
Therefore, the demand for steel will remain strong in the coming years.
After the steady growth for the initial phase in the 1991 to 2000 decade, the steel
industry slowed down during the 2008 recession as consumers made use of
existing inventories rather than buying new stocks. In 2008, global crude steel
production experienced negative growth as production fell by 0.4% y-o-y while
consumption grew by a meager 0.1% y-o-y. Poor demand continued into 2009 as
crude steel use declined by 7.6% y-o-y. The industry started to recover in late 2010
and grew in tandem with the global economic improvement as production grew
15.8% y-o-y and demand gained 14.7% y-o-y.
Demand for steel has particularly benefited from growth in emerging economies
for infrastructure investments, industrialization and further urbanization. Steel
production has also shifted from developed to emerging economies with
significant growth in China and India.
In 2012, the Euro-zone sovereign debt crisis, economic stagnation in developed
economies, and a cooling of emerging market economies once again took a toll on
the industry. Growth in the Chinese economy, one of the main demand drivers for
steel, also slowed. Production was slightly up 0.5% while consumption increased
by 1.9% y-o-y in 2012.

Crude steel production and consumption


million tons

Global production

10M2013 production

Global consumption

Others
22.7%

1,800
1,500

China
49.3%

1,200
India
5.0%

900
600

U.S.
5.5%

300

Japan
7.0%

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: World Steel Association

EU (27
countries)
10.5%
Source: World Steel Association

These challenging economic conditions continued in 2013 to hamper the industrys


prospects. Moreover, overcapacity has been a constant problem. Fierce
competition from cheaper imports and domestic producers with underutilized
existing facilities continues to result in significant oversupply of steel. Excess
capacity remains the most significant issue in the steel sector. Global steelmakers
continue to witness supply growth outpacing demand and capacity utilization rates

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below 80%. Slowdown in demand growth from China continues to weigh on the
global steel sector in 2013.
In spite of the positive long-term prospect, the industrys short- to medium-term
outlook is far from favorable.

A shift in demand to emerging markets


There has been a structural shift in demand for steel products in favor of emerging
markets during the last decade. This is mainly due to the fact that GDP growth in
these countries is substantially higher in comparison to developed nations.
Emerging markets, having a higher intensity for steel consumption, command a
higher correlation. During the last decade (2001-2010), the steel consumption
growth in China was 1.4% in comparison to its GDP growth, whereas the
correlation was less than 1.0% for many developed economies.
Steel consumption intensity per capita
Period

China

India

Apparent per
capita
crude steel
consumption
growth (%)

Apparent per
capita
crude steel
consumption
growth (%)

GDP per
capita
growth
(%)

1981-1990

3.71

7.76

1991-2000

9.50

9.32

2001-2010

13.60

9.88

6.24

United States
GDP
per
capita
growth
(%)

Germany
Apparent per
capita
crude steel
consumption
growth (%)

Japan

GDP
per
capita
growth
(%)

Apparent per
capita
crude steel
consumption
growth (%)

GDP
per
capita
growth
(%)

Apparent per
capita
crude steel
consumption
growth (%)

5.46

3.25

-0.73

2.29

0.34

2.00

2.04

4.07

2.13

3.52

1.67

2.17

-0.27

0.37

-1.90

0.93

6.10

-2.40

0.62

1.38

0.99

-0.76

0.65

GDP per
capita
growth
(%)

Source: Global insight, World Steel Association, E&Y Global steel 2013

The developed countries have not seen significant growth in per capita
consumption of steel over the last three decades, whereas the intensity of steel
consumption in emerging economies, such as China and India, has increased
continuously.
China is the dominant market in the steel sector.
Chinas status remains a net
exporter with significant
growth in steel production and
consumption.

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China is the leading steel exporter. Since 2004, the export volume has strongly
been increasing while the imports are lessening. The highest export volume was in
2007 with 66.4 million tons of semi-finished and finished steel products. These
numbers indicate the great development of Chinas steel industry recently, not only
satisfying the local demand but also controlling world steel markets. China
contributed over 45% to total crude steel production from 2009 to 2012. The
production and consumption of crude steel in the country experienced an
impressive average growth with 2003 to 2012 CAGRs of 13.9% and 11.9%,
respectively, compared to 5.3% and 5.5% for global industry.

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Chinas production of crude steel (million tons)


China

World

Chinas steel import and export (million tons)


Export

Asia

1,600

75

1,280

60

960

45

640

30

320

15

Import

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Including all carbon, stainless, and other alloy
Source: World Steel Association

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Volume of semi-finished and finished steel products
Source: World Steel Association

China's steel exports mainly flow to Korea and ASEAN countries where favorable
prices are a clear incentive to purchase. During the first nine months of 2013, South
Korea accounted for 17.4% of Chinas total finished steel exports with volume of 6.0
million tons (down 2.3% y-o-y) while exports to Vietnam made up 8.4% of the total
with volume of 2.9 million tons (up 82.1% y-o-y). The main product categories,
including wire rod, merchant bar, hot rolled coil, and metal coated products,
accounted for 70.4% of total export volume in 9M2013.
The gap is widening between long products export prices from China and local
selling values in most other Asian countries. As a result, we foresee an increasing
number of cross-border deals being concluded in the region over the next few
months.
Chinas finished steel exports in 9M2013
Top markets Volume
South Korea
5,957
Vietnam
2,864
Singapore
1,857
Thailand
1,750
Philippines
1,436
Indonesia
Hong Kong
Malaysia
USA
Taiwan
Brazil
India

1,390
1,380
1,116
1,099
1,001
948
917

Change
-2.3%
82.1%
37.5%
1.4%
38.5%
47.6%
34.2%
26.5%
27.8%
27.8%
63.7%
-21.6%

Chinas steel export potential indicator

By products
Volume
HR coil
5,172
HR plate
3,215
CR coil
3,198
Metal coated
4,976
Electrical sheet
216
Total flat
Sections
Wire rod
Rebar
Merchant bar
Total long
Grand total

16,778
3,264
7,314
213
6,626
17,417
34,195

Change
21.4%
-4.9%
7.1%
19.1%
3.3%
11.8%
13.3%
40.6%
13.6%
54.8%
38.8%
24.1%

Unit: Volume in thousand tons. Source: MEPS

North
America

European
Union

Asia

HR coil
HR plate
CR coil
Hot dipped galvanised coil
Wire rod
Medium sections
Merchant bar
Increasing and strong potential for Chinese steel exports
Continued potential for Chinese steel exports
Declining potential for Chinese steel exports

Source: MEPS analysis

Despite its growth, the Chinese steel sector faced strong challenges in two recent
years due to lower demand, overcapacity, and fragmented industry. The Chinese
government aims to address these challenges through its 12th Five-Year Plan for
the 2011 to 2015 period, which focuses on promoting the use of modern
technology, energy efficiency and improved product quality. Successful execution
of these policies will not only help contribute to the domestic and global steel
demand, but also promote the production of value-added steel.

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Is India on track to becoming the next steel powerhouse?


Steel demand benefits from
rising middle-class population
and increased urbanization.

India has seen a rapid rise in production over the 2007 to 2012 period, which
supported India to become the fourth largest producer of crude steel and the
largest producer of sponge iron in the world. In addition, Indias steel consumption
is escalating thanks to the rising middle-class population along with increased
urbanization.
According to the Institute for Steel Development and Growth, the Indian urban
population is expected to reach 600 million by 2030 from the current level of 400
million. Rising middle-class urban population boosts demand for automobiles,
white goods and other consumer durables, which leads to higher steel
consumption per capita. The countrys steel consumption growth has an elasticity
of about 1.1 to GDP growth. According to World Bank, the Indian economy is
forecasted to grow at 4.7% in 2014, which means steel demand is likely to grow by
5.2% next year.
India production
Global production

100

India consumption
Global consumption

1,600

75

1,200

50

800

25

400

Thousands

Indias steel production and consumption (million tons)

0
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: World Steel Association

Raw material trend and steel price


Raw material and steel prices
follow the cyclical nature of the
global steel industry and
economic development.

The main raw materials, iron ore and coking coal, account for over 50% of basic
oxygen furnace (BOF) steel costs. In electric arc furnace (EAF) steelmaking, the
major raw material is ferrous scrap, which represents around 75% of steel costs.
The cost of iron ore is crucial for the global economy as it affects the price of steel.
In 2012, iron ore price was relatively stable during the first half before tapering off
towards year end. The price was dragged down by low buying activities due to a
weak economic environment. It recovered by the beginning of 2013 thanks to
aggressive restocking driven by the Chinese steel mills. The iron ore price attained
a high of USD155 per ton in 1Q2013. However, the price was volatile in the second
quarter due to the uncertain outlook for steel demand in China. In 3Q2013, the price
entered a bull run with an average of USD133 per ton as sentiment improved
across the Chinese metal sector. Steel production increased due to the stimulus
aimed at stabilizing the countrys economy. With inventories of iron ore at low
levels, increased demand from the steel industry triggered a rise in demand for
iron ore.

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Steel prices are following the cyclical nature of the global steel industry. Raw
material prices have a direct impact on steel prices. As demand weakens, it
becomes more challenging to pass on raw material price hikes to consumers.
Overproduction, floods of cheap Chinese steel imports, economic conditions and
shifts toward other substitutes also significantly impact steel prices. Steel prices
started declining in the second half of 2012. The weighted average price of all
carbon steel products was recorded at a low of USD679 per ton in July 2013, down
10.3% from 2012 monthly average of USD757.
Sustained downside in steel prices adversely affects the margins of steel
companies. The recovery in pricing momentum will be driven by a reviving
economy, stabilization in the Euro-zone and a rebound in construction activity in
the developing countries, in particular China, India and South Korea.
Iron ore price (USD per ton)

Steel price (USD per ton)

180

850

160

800

140

750

120

700

100

650
600

80
10/11

02/12

06/12

10/12

02/13

06/13

10/13

Source: The Steel Index (TSI) via IMF

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10/11

02/12

06/12

10/12

02/13

06/13

10/13

Note: Weighted average steel products


Source: MEPS All Carbon Steel Product global price

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VIETNAM STEEL SECTOR


Vietnam is a developing economy in the Southeast Asia. From 2004 until 2013, the
countrys quarterly gross domestic product (GDP) growth rates averaged at 6.4%
while reaching an all time high of 8.5% in 4Q2007 and a record low of 3.1% in
1Q2009. The industry and construction sector has made the largest contribution of
around 40% to the aggregate GDP growth rate for the last ten years.
Vietnams current consumption
of steel ranks third among
ASEAN countries, after
Thailand and Indonesia.

The steel industry is one of the core industries of Vietnam which support
development of the country, especially infrastructure development. Vietnams
current consumption of steel ranks third among ASEAN countries, after Thailand
and Indonesia. According to data of the World Steel Association (WSA), in 2012,
apparent steel use (finished products) was recorded at 11.0 million tons in Vietnam,
compared with 16.4 million tons in Thailand and 12.5 million tons in Indonesia. In
addition, Vietnams apparent steel use per capita reached 122.1 kilograms, an ideal
level for industrialization process.

Vietnams GDP at current prices

Apparent steel use (finished products)

Industry and construction sector


Total GDP
GDP growth

VNDtn
3,500

% y-o-y

mn tons

9.0

17.5

2,800

7.2

14.0

2,100

5.4

10.5

1,400

3.6

7.0

700

1.8

3.5

0.0

0.0

0
1999

2001

2003

2005

2007

2009

2011 9M13

Source: General Statistics Office (GSO)

Thailand

Indonesia

Vietnam

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: World Steel Association

The Vietnamese steel industry began in the early of 1960s with the Thai Nguyen
steel complex but has actually had a significant development from 2000. From 1996
to 2000, Vietnams steel industry maintained a high growth rate and continued
being invested in terms of depth. The whole countrys rolling steel capacity in 2000
reached 1.87 million tons (three times higher than 1995, 14 times higher than 1990).
In 2008, skyrocketing world steel prices and escalating interest rates resulting from
inflation stabilization policies, coupled with the bust of the real estate market, put
the Vietnamese steel industry in a very difficult spot. Plummeting domestic
demand which followed the global crisis exacerbated the situation and many local
steel producers ended the year with huge inventories after steel prices had
collapsed. However, in 2009, helped by the governments stimulus package and the
sharp fall in world prices, the construction industry in general and the steel industry
in particular bounced back.
The industry development was fast but unsustainable as the loss of balance in
production structure and the oversupply situation was unresolved. Recent years
saw the industry go through significant changes. The domestic steel industry
suffered a setback as the real estate markets growth rate slowed down as the
economy as a whole began to feel the effect of global recession. The Vietnamese

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steel companies saw much lower production and consumption during 2012 than
the two previous years due to frozen real estate market and slowdown in
construction industry. The industry outlook was poor due to negative effects from
monetary policy, interest rate and discouraging real estate market. Particularly,
interest rates were as high as 18% to 21%, which made it impossible to finance any
construction projects. In 2012, production of construction steel was down by over
10% while consumption fell by 17% and the construction industry only achieved a
growth rate of 4.9%, much lower than the 10% and 11% growth rate in the 2009 to
2010 period.
Production of steel products (million tons)
12

Metallic & color coated


CRC
Steel billet

10

Welded steel pipe


Long steel products

8
6
4
2
0
2007

2008

2009

2010

2011

2012

Source: Vietnam Steel Association (VSA)

The local steel industry continues facing hardships in 2013 amid existing
challenges such as high inventory, reduction in production, and shortage of
investment capital. Bad debts of banks and the sluggish real estate market have not
been easily resolved in the short term. Earlier this year, the VSA predicted a 2%
growth rate for the sector as local construction steels production and consumption
are estimated at 5.13 million tons and 5.04 million tons, respectively.
The gloomy outlook continues
in 2013 and 1Q2014 as the
industry still shows no sign of
recovery in the context of
falling demand and high
inventories.

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In the first ten months of 2013, the VSAs members produced 3.73 million tons of
construction steel (-0.67% y-o-y) and sold 3.79 million tons (+2.09% y-o-y).
Construction steel inventory inched down 14.09% YTD to 287,119 tons. Raw
material costs were escalating during the first two months of this year, then turned
down strongly, and went up slightly at the end of October. By the end of October,
offer prices stayed at around USD385-395 per ton CFR for scrap, and USD525-540
per ton CFR for billets. Domestic selling prices (excluding VAT) of construction steel
have not fluctuated in recent months and are listed by the VSA at VND12.95-13.40
million in the North and VND16.0-16.2 million in the South. However, buyers
usually request discounts so that the actual selling prices to customers are not
significantly different between regions. The demand of construction steel in the
country is forecast by VSA to recover slightly by the end of the year thanks to the
real estate markets rebound in the construction season and stable selling prices.
Total construction steel consumption is expected at about 5 million tons in 2013, up
3%-5% y-o-y, less than a half of the capacity forecast (about 9.5 million tons).

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Value chain
Steel products are classified into two broad categories, flat steel products and long
steel products. Flat products include plates, hot-rolled strip and sheets, and coldrolled strip and sheets. Long steel products are wire rods, beams, reinforced bars
and merchant bars.
The long steel segment primarily serves the construction sector and is dominated
largely by local producers. Imports of finished long product are declining. Flat steel
demand of about 4.9 million tons per year is used in industries such as
shipbuilding, automobiles, etc. Except for a large share of flat steel being used as
raw materials in industrial sector, end-use steel products mainly are construction,
galvanized and pipe steel.
Elements of import exist throughout the production chain. Steel scrap which
accounts for 90% of total cost structure (electricity makes up another 6% and fuel
oil another 3%) is 70% to 80% imported. In addition, domestic supply of coal is
limited. The mines in Thai Nguyen have been well-exploited but failed to meet
current demand, therefore, companies still have to import 100 to 150 thousand tons
of coal each year. Coke producers such as Hoa Phat Steel and Viet Trung Minerals
have to rely entirely on fat coal imports.
Before 2011, Vietnam had to import about 40% to 50% billets as domestic resources
were limited. In 2012, domestic output satisfied 70% to 80% of total demand. As for
flat steel, Vietnam cannot produce billets for this product and has to import about
5.3 million tons of semi-finished products in 2012 of which the hot rolled quantity is
approximately 3 million tons.
Steel manufacturing process
Iron
making
(1)

Steel
making (2)

Casting (3)

Main products

Rolling (4)
Rail
Section mill

Billet
Iron ore
+ coke

Pig iron

Scrap
Slab

Bar
Shape

Wire rod
mill

Wire rod

Hot strip
mill

Hot rolled
coil and
sheet

Cold
rolling
mill
Pipe mill

Cold rolled
coil and
sheet
Welded
pipe

Source: Credit Suisse, VPBS


(1) Iron making in blast furnace: jet of heated air is used to break down the iron ore and create carbon monoxide. The carbon monoxide absorbs the oxygen
contained in the iron ore and transformed into carbon dioxide, which is then exhausted. The residual is pig iron, a form of iron in a liquid state.
(A mixture of 1 tons of iron ore, ton of coke, ton of limestone, and 4 tons of air is needed to produce 1 ton of pig iron in blast furnace)
(2) Steel Making in the BOF or EAF
BOF: In a BOF, oxygen is blown through a long tube inserted into the furnace. Upon oxidization of carbon and silicon in the mixture, a very high heat is released,
and the scrap steel melts into the molten mass, which is then poured onto a ladle where the chemistry of steel is controlled with more accuracy.
EAF: Scrap steel is first loaded into the electric arc furnace. The heat created from this arc then melts the steel scrap. Other metals are added to the steel to
adjust for the required chemical composition. Oxygen is also blown into the furnace to purify the steel.
(3) Casting: After achieving the required chemistry, molten steel is poured from a ladle into a continuous caster to produce billets or slabs. A billet is the semifinished product used to make long products, such as bar, rod, wire, rails, structural beams. A slab is the semi-finished product used to make flat rolled steel
products, such as plate and sheet.
(4) Rolling: Depending on the specifications of the required finished products end use, semi-finished products are further rolled or pinched into a finished
product, either flat (i.e., sheet, plate, etc.) or long (i.e., rebar, beams, rails etc.)

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Overcapacity of long steel mills


and outdated production
technology are long-standing
burdens.

There are more than 460 steel companies, of which 25% focus on long steel
manufacturing. By the first half of 2012, total capacity was around 18 million tons of
finished steel, of which 10.87 million tons were long steel, 3.35 million tons were
flat steel, 2.18 million tons were steel pipes, and 2.48 million tons were galvanized
steel. In addition, the country is capable of producing 2.13 million tons of pig iron
and 7.54 million tons of billets.
Total demand this year for long steel products is estimated at 5 million tons,
however, total designed capacity stood at 11.3 million tons by the end of August
2013. Of the 11.3 million ton capacity, around two million tons are from steel plants
under construction; two million tons are from 11 steel producers whose operations
either came to a standstill or run at 40 to 60% capacity; and 7.5 million tons are
from the remaining firms competing fiercely for very limited market share.
The VSA notes that over two-thirds of domestic producers use antiquated
production equipment that can require twice as much electricity to produce steel as
modern equipment. Particularly, 30% of steel producers are small-scale plants
using obsolete technology. These consume substantial energy and have a negative
impact on the environment. 40% of steel producers use medium-quality technology
such as the old factories of Thai Nguyen Steel, Southern Steel Company, Danang
Steel Company, and Vinausteel. The remaining 30% use modern technology
including Posco, Vinakyoei Steel Ltd, Hoa Phat Steel, Pomina, Phu My Steel.
Steel capacity by January 2013
Products
Coking coal
Pig iron
Billets
Long steel
Flat steel
Welded pipe
Galvanized & coated steel

Number of
producers
3
12
27
33
16
20
21

Designed
capacity

Outputs
in 2012

x000tons per year

x000tons per year

1,260
3,779
11,480
12,810
3,990
2,065
3,239

462
504
4,141
5,049
1,747
775
1,642

Source: Vietnam Steel Association (VSA)

Imports and exports


Vietnam produces long products but has not focused on flat ones. Production is
concentrated in downstream (rolling and galvanizing). As a result, there is a glut in
long products while imports of flat steel and billets (intermediate product) are
rising.
The iron and steel ranked fifth
among Vietnams main
imported items.

www.VPBS.com.vn

Iron and steel ranked fifth among Vietnams main imported items in 2012 with over
7.6 million tons (up 2.9% y-o-y) worth USD5.97 billion (down 7.3% y-o-y),
accounting for 5.2% of total imports to the country. Since 2011, the import market
has been strongly influenced by the difficult economic situation, the cut of projects
capital budgets, and the frozen real estate market. The imported volume dropped
sharply in 2011 and 2012 from the previous two years due to lower imports of local
enterprises. Meanwhile, foreign direct investment (FDI) enterprises have imported
iron and steel stably since 2010 with 5.95 million tons in 2010, 4.27 million tons in
2011 and 4.49 million tons in 2012.

Page | 12

2009-2012 steel import and export


Export of all kinds of steel

Export of steel billets

Import of all kinds of steel

Import of steel billets

Total import value

Total export value

Value
(USDbn)

12
6.16
9

5.97

5.36

6
1.68

1.64

1.05

USDbn

8
6.43

FDI enterprises - Volume


Local enterprises - Volume
FDI enterprises - Value
Local enterprises - Value

mn tons
Thousands

mn tons

Iron and steel import

0.38
0
2009

2010

2011

2012
Source: Vietnam Customs

0
2010

2011

2012
Source: Vietnam Customs

Vietnam has mainly imported iron and steel for trading. Import for trading
accounted for 84% to 89% of total import value of iron and steel during 2008 to
2010, and 72% to 73% in the two following years. Meanwhile, import for processing
and exporting was up to 24% of total import value in 2011 and 25% in 2012, from
the contribution of 15%, 11%, and 15% in the three previous years.
Iron and steel import breakdown

Trading
% y-o-y
Processing and export
% y-o-y
Investment
% y-o-y
Total
% y-o-y

2009
2010
2011
2012
Volume
Value
Volume
Value
Volume
Value
Volume
Value
8,642
4,532
7,813
4,976
5,777
4,698
5,947
4,293
23.9% -16.4%
-9.6%
9.8% -26.1%
-5.6%
2.9%
-8.6%
683
615
942
946
1,446
1,555
1,465
1,489
-23.3% -39.2%
37.9%
53.8%
53.5%
64.4%
1.3%
-4.2%
423
214
327
232
164
181
190
185
6.0%
-25.2%
-22.7%
8.4% -49.8%
-22.0%
15.9%
2.2%
9,749
5,361
9,082
6,155
7,387
6,434
7,603
5,966
18.0%
-20.2%
-6.8%
14.8% -18.7%
4.5%
2.9%
-7.3%

Unit: Volume in thousand tons, value in USDmn. Source: Vietnam Steel Association (VSA)
Exporters to face more
anti-dumping lawsuits

Recently, exports face more challenges. Cold rolled stainless steel coil (CRC)
exports to Brazil by Posco VST are slapped with an import tax rate of 35.6%, a
threatening barrier to the export of Vietnamese CRC to the major importer holding
up to 30% of total CRC export volume, according to an announcement of the
Vietnam Competition Authority under the Ministry of Industry and Trade in October
2013 on the decision of Brazil after an anti-dumping investigation into the items.
As Brazil still considers Vietnam a nation with a non-market economy, it has
adopted the statistics of Taiwan for tax calculations pushing up the tax rate to a
costly level. The tax rate imposed on Vietnamese steel products is the highest
compared to duties of 7.1% to 33% on steel items from Taiwan, the U.S., Finland,
South Korea, Germany and South Korea facing the same investigation.
Vietnam now has only a few cold rolled steel coil exporters such as Posco VST and
Hoa Sen Group. Cold rolled stainless steel coil exports totaled roughly 250,000 tons
(95% by Posco VST) in 9M2013, down nearly 10% y-o-y. The traditional markets of
Vietnamese cold rolled steel coil are Indonesia, Brazil, Thailand and Cambodia.

www.VPBS.com.vn

Page | 13

Import of steel products

Export of steel products


2012

(thousand tons)

1H2013
% y-o -y

2012

% y-o -y

(thousand tons)
Flat products (*)

1H2013
% y-o -y

% y-o -y

483

-26.3%

234 -11.3%

Metallic & color coated

485

26.0%

395

68.1%
43.1%

Finished products:

7,769

13.8%

4,508

18.6%

Flat products

5,305

17.0%

2,480

4.3%

Metallic & color coated

573

48.1%

341

75.2%

Bars

360

23.3%

276

Bars

115

52.3%

38

-0.9%

Sections

54

100.0%

39

28.0%

Wire rods

420

-18.1%

86 -17.3%

Wires

26

8.3%

21

66.7%

Sections

220

27.9%

27 -44.4%

Welded pipes

191

124.7%

108

11.4%

Wires

109

10.5%

49 -14.9%

Seamless pipes

12

20.0%

86.8%

Welded pipes

40

-46.4%

17 -23.3%

Alloy steel

60

200.0%

Seamless pipes

64

83.9%

36

Stainless steel

76

-38.7%

49

62.0%

Other steel

94

Alloy steel

371

Stainless steel

0.6%

1,131

460

40.0%

5.4%

Steel scraps

39

-13.3%

22

14.5%

Others

92

-84.9%

59 -91.5%

Steel billets

365

64.4%

105

37.7%

Steel billets

470

-74.6%

219 -11.7%

3,432

52.6%

Steel scraps

244

52 -42.7%

1,614

(*) HRC, CRC, HR Sheet, CR Sheet and others

0.0%

Source: Vietnam Steel Association (VSA)

Source: Vietnam Steel Association (VSA)

In the first ten months of 2013, Vietnam imported 7.98 million tons (+26.1% y-o-y)
of all kinds of steel worth USD5.64 billion (+12.1% y-o-y), while exporting 1.81
million tons (+19.2% y-o-y) worth USD1.47 billion (+12.5% y-o-y), according to
data from Vietnam Customs. Of this, the country imported 322,193 tons of billets
worth USD179.03 million during the period, down 16.0% y-o-y in volume and
26.7% in value.
mn tons
1,250

Monthly steel export

Import volume

Import value USDmn


750

Thousands

Thousands

Monthly steel import

mn tons
300

Export volume

Export value USDmn


200

1,000

600

240

160

750

450

180

120

500

300

120

80

250

150

60

40

0
Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13

0
Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12

Source: Vietnam Customs

0
Jul-13

Source: Vietnam Customs

Hefty import volume of Chinese steel at unfair prices


China exploits loopholes in
regulation to export cheap steel
products into Vietnam.

www.VPBS.com.vn

Globally, there are concerns that small players in the Chinese steel sector will have
a negative impact on the global steel market. With their profitability remaining the
lowest globally, it is possible that Chinese companies will continue to operate even
after posting losses, flooding the steel export markets with low-cost steel. Small
steel players will either be forced to close or agree to M&A (merger and
acquisition). The governments 12th Five-Year Plan will primarily target these lowend steel manufacturers, which have contributed to declining industry profit
margins and undermined the governments goal of industry development.

Page | 14

Vietnams steel industry has suffered from the hefty import volume of Chinese steel
at unfair prices. Vietnam exempts alloy steel from import tariffs while other steels
are taxed between 5% and 18%. In particular, the Ministry of Finance (MoF) has
classified construction steel mixed with boron alloy as item subject to an import tax
rate of 10%. At that time, taking advantage of the loopholes in regulations that
allow alloy steel imports to enjoy a preferential tax rate of 0%, Chinese companies
have mixed 0.0008% of metalloid element boron to their steel to make it alloy
and avoided the 10% tax rate.
The Chinese suppliers in making customs declarations have self-classified their
products as steel for purposes other than construction to take advantage of the 0%
tariff. Such products after entering the country are still used in construction
projects. According to the General Department of Customs, Vietnam imported
679,000 tons of hot-rolled steel and 275,000 tons of hot steel sheets containing
boron from China during 2012.
Vietnams steel imports by markets
10M2013 import value
Others
India 7.5%
4.0%
Taiwan
10.1%

China
36.6%

Korea
16.7%

2012
Top markets Volume
China
2,344
Japan
2,155
Korea
1,464
Taiwan
757
India
84
Brazil
49
Russia
345
Malaysia
105
Thailand
39

Value
1,757
1,552
1,301
618
81
30
224
97
52

10M2013
Volume
Value
3,020
2,066
2,162
1,418
1,156
944
797
567
337
225
142
77
111
72
33
46
31
42

Unit: Volume in thousand tons, value in USDmn


Source: Vietnam Customs

Japan
25.1%

Big players of the market


The producers are classified into state-owned enterprises (SOEs) under the
Vietnam Steel Corporation (VNSTEEL), joint ventures with VNSTEEL, and private
enterprises. In recent years, 100% foreign-owned firms and private enterprises are
expanding capacity rapidly. The local steel distribution (including imports) is
handled by VSC-affiliated trading companies, foreign trading companies and
domestic merchants, but none of them plays the role of improving efficiency or
stabilizing the market.
Total construction steel production
mn tons
5

Others

Joint ventures

10M2013 consumption
VSC
VSC
25.9%

4
3
Others
53.0%

2
1

Joint
ventures
21.1%

0
2009

www.VPBS.com.vn

2010

2011
2012
10M2013
Source: Vietnam Steel Association (VSA)

Source: Vietnam Steel Association (VSA)

Page | 15

Pomina, Hoa Phat, TISCO,


Vinakyoei, and SSC hold a total
of 60% market share in the
local construction steel market.

The market for construction steel is quite concentrated as the five largest producers
together account for a 60% market share. Of the top five market players, Pomina
(16.1% market share in 10M2013), Vinakyoei (9.9%) and SSC (8.1%) focus on the
southern market while HPG (14.8%) is the largest in the northern market, followed
by TISCO (11.5%). The northern market faces challenges of excess manufacturers
and oversupply. Moreover, it is directly affected by policies from China regarding
export duties on steel products.
Hoa Phat Group (HPG): The second phase (capacity of 500,000 tons/year) of the
steel integrated complex was officially put into operation in October 2013,
bringing total capacity of HPGs steel refining and rolling to 1.15 million tons/ year
with a closed production process.
Thai Nguyen Cast Iron and Steel Company (TISCO): annual capacity of 260,000
tons steel billets and 650,000 tons finished steel. In 2007, the company planned
to increase an additional capacity of 500,000 tons of billets; however, the project
has been delayed.
Thep Viet Group: two main production plants of POMINA (existing capacity of
1.5 million tons of steel billets and 2.1 million tons of finished steel) and Thep
Viet Steel (existing capacity of 500,000 tons of steel billets per year and 600,000
tons of finished steel). Thep Viet Group is also very strong in terms of
distribution network.
Vinakyoei Steel: a joint venture with Japan. It produces high quality steel
products with annual capacity of 450,000 tons of finished steel. In 2012, the
company planned two projects: 500,000 tons of billets and 500,000 tons of
finished steel (400,000 tons of wire rods and 100,000 tons of bars).
Southern Steel Corporation (SSC): existing capacity of 500,000 tons of steel
billets and 400,000 tons of finished steel per year. There is a project for a new
plant with additional capacity of 200,000 tons of steel billets and 100,000 tons of
finished steel per year.

Total construction steel production of VSAs members


thousand tons
5,000

Production

10M2013 market share

Consumption

Pomina
16.1%

Others
22.2%

4,000
3,000

Kyoei VN
4.1%

2,000

Viet Duc
4.2%

1,000

VIS
5.1%

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 10M13
Source: Vietnam Steel Association (VSA)

www.VPBS.com.vn

Hoa Phat
14.8%

SSE
4.0%

TISCO
11.5%
SSC
(VNS)
8.1%

Vinakyoei
9.9%

Source: Vietnam Steel Association (VSA)

Page | 16

Along with construction steel, in recent years, Vietnam's steel industry began
producing cold rolled steel sheet. Currently, there are six companies manufacturing
this product, among which Hoa Sen Group and Posco Vietnam produce over 80% of
total volume.
The demand for steel pipes and galvanized steel products keeps increasing rapidly
with 2005 to 2012 five-year CAGRs of 17.3% for steel pipes and 18.8% for galvanized
steel. There have recently been many establishments involved in manufacturing
these items. During 10M2013, the three largest players represented a total of 46.4%
market share in steel pipes while Hoa Sen Group led the galvanized steel market with
a 38.3% share.
10M2013 market share
Steel pipe
Others
16.8%

Galvanized steel
SeAH VN
16.8%

Minh
Ngoc
6.0%

Hoa Phat
15.7%

Perstima Others
Vietnam 9.4%
4.4%
Blue Scope
Steel
5.5%

Hoa Sen
38.3%

Dai Thien
Loc
6.2%

Huu Lien
A Chau
7.1%
Viet Duc
7.2%
Nhat
Quang Cty 190
8.0%
8.6%

Hoa Sen
13.8%

Ton Phuong
Nam
6.5%
Sun Steel
7.7%
Nam Kim
10.7%

Ton Dong A
11.2%

Source: Vietnam Steel Association (VSA)

Investment projects
New investment projects make
supply further exceed demand
and leading to a fiercer
competition in the local market.

Vietnam has the largest number of new projects in the region. According to the
master plan for the industry, there are 44 projects for new investment or expanding
production to the 2020 to 2025 period, making supply further exceed demand and
leading to a more fierce competition in the local market. In addition, WTO
regulations will abolish some of the high tariffs on certain types of imported steel,
exacerbating competition from international players.
The most significant project to come on stream this year is a cold rolling steel plant
of China Steel Sumikin Vietnam (CSVC) which started operations in October 2013
with total capacity of 1.2 million tons per year. CSVC was established in 2009 with
total chartered capital of nearly VND9.2 trillion, of which China Steel Corporation
(Taiwan) holding a 51% stake, Nippon Steel and Sumitomo Metal Corporation
(Japan) 30%, Formosa Ha Tinh Steel Corporation (Taiwan) 5%, Sumitomo
Corporation (Japan) 5%, and Nippon Steel and Sumikin Bussan Corporation
(Japan) 5%.

www.VPBS.com.vn

Page | 17

Steel project pipeline


In-progress projects:

Annual design capacity

Location

Start date

1 POSCO Special Steel

1m tons of billets (EAF)


700,000 tons of sections
300,000 tons of bars

Ba Ria,
Vung Tau

Jun-12

Jul-14

594 million

2 Vinakyoei Steel Ltd

500,000 tons of billets (EAF)


100,000 tons of bars
400,000 tons of wire rods

Ba Ria,
Vung Tau

Jun-12

Jun-14

220 million

3 Southern Steel Sheet Co.

150,000 tons of metallic & color coated

Dong Nai

2013

N/A

70 million

4 Dong A Sheet JSC

800,000 tons of CRC

Binh Duong

Nov-13

2014

70 million

5 Formosa Ha Tinh Co., Ltd

10mn tons of billets

Ha Tinh

N/A

2015

15 billion

6 TISCO (2nd phase)

500,000 tons of billets (EAF)

Thai Nguyen

2007

delayed

383 million

7 Hoa Binh Inox JSC

100,000 tons of CRC, stainless steel

Hung Yen

2010

N/A

37 million

Annual design capacity

Location

1 Kyoei Steel Vietnam

500,000 tons of billets (EAF)


500,000 tons of bars

Ninh Binh

2 Maruichi Sun Steel

378,000 tons of galvanized & coated steel

Operating projects in 2013:

Start date

Operating date Investment (USD)

Operating date Investment (USD)

Dec-11

Dec-13

200 million

Binh Duong

N/A

Dec-13

100 million

3 CSVC Sumikin

200,000 tons of HRC PO


200,000 tons of electrical steel
500,000 tons of CRC
300,000 tons of color coated

Ba Ria,
Vung Tau

2011

Oct-13

866 million

4 Viet Trung Steel Co., Ltd

550,000 tons of billets (BF)

Lao Cai

2011

Sep-13

337 million

5 Hoa Phat Steel

700,000 tons of billets (BF)


500,000 tons of bars

Hai Duong

Mar-12

Oct-13

161 million

6 Nghi Son Iron & Steel Corp 1mn tons of billets (EAF)

Thanh Hoa

Jun-11

Apr-13

142 million

7 Thai Trung Steel JSC

500,000 tons of bars, wire rods

Thai Nguyen

N/A

Aug-13

61.5 million

8 Lotus Group

120,000 tons of metallic, color coated

Ba Ria,
Vung Tau

Jun-12

Mar-13

10 million

9 An Hung Tuong Co., Ltd

250,000 tons of bars, wire rods

Binh Duong

N/A

2013

N/A

10 Central Steel JSC

250,000 tons of bars, wire rods

Da Nang

N/A

2013

N/A

Source: Ministry of Industry and Trade of Vietnam, VPBS

Although FDI steel projects had greatly contributed to the development of the local
steel industry, many projects have been delayed or terminated in recent years. This
indicates the low control of our governments licensing authority. Local
governments have accepted the FDI steel projects easily and not based on experts
advice, leading to the delay or termination of many projects because of not having
enough capital investment, techniques or raw materials. Moreover, the steel sector,
a heavy industry, is based much on foreign investment. This subjects the country to
divestment risk and causes pollution of environment. In addition, most approved
projects are slow going due to market prices, currency rate fluctuations, policy
changes, and global economic slowdown impact.
Therefore, the country should encourage investment in production of high-quality
steel products and select the investors who apply advanced technology and have
financial resources. Investors should be guided towards production of the steel
items that have not been produced at home or have not been sufficiently supplied.
The number of projects and project locations should be considered carefully to
avoid massive investment, causing a waste of land and money and leading to
overcapacity.

www.VPBS.com.vn

Page | 18

Legal framework
ASEAN Free Trade Area (AFTA)
New trade agreements (AFTA
and WTO) make it difficult for
Vietnams steel industry to
maintain competitiveness.

The Asean Free Trade Area (AFTA) is a trade bloc agreement by the Association of
Southeast Asian Nations (ASEAN) supporting local manufacturing in all ASEAN
countries. Vietnam joined ASEAN in 1995 while the AFTA agreement was signed in
January 1992 in Singapore. The objective of AFTA is the removal of trade barriers
for most goods within ASEAN including tariff and non-tariff barriers. In the tax
reduction roadmap, import duty tariffs for most steel products from ASEAN will be
reduced to 0% no later than 2015. However, the 0% tax rate is eligible for steel
products that must be produced by ASEAN countries instead of just coming from
an ASEAN country. Under the AFTA agreement, as of 2012, billets are subject to an
import tax rate of 3%; 5% rate on construction steel and 0% rate on alloy noncoated rolled steels and stainless steel.
According to Vietnam Steel Association (VSA), the period of 2008 to 2011 saw
imports from ASEAN countries account for 44% to 52% of total imports; China
accounted for over 20% and the remainder came from Japan, Korea and Taiwan.
Specifically, in 2009, imports from ASEAN accounted for nearly 70% as these
countries made many priority policies to encourage steel exports in order to
overcome global recession.
Imported steel from ASEAN countries is of finer quality and relatively cheaper
compared to domestic steel. According to Posco VST and Hoa Binh Inox, the price
of stainless steel (subject to 0% tax rate under AFTA agreements) imported from
China, Malaysia, Indonesia and Taiwan is 25% lower than that of domestic
stainless steel. Joining AFTA promotes free trade and lessens the degree of
protection of the domestic steel industry. At the same time, AFTA could make it
challenging for the industry as steel producers have to cope with reduced
capacity and mounting inventories.
Tax reduction roadmap for major steel products under AFTA and ACFTA
Item
code
7204
7214
7217
7305

Product
Scrap of alloy steel
Bars and rods of non-alloy steel
Wire of iron or non-alloy steel
Welded tube of stainless steel

AFTA
2006-2013
0%
5%
0%
5%

2014
0%
5%
0%
5%

ACFTA (China)
2006-2013
2014
0%
0%
18%
15%
5%
5%
5%
5%

Source: The Ministry of Finance (MoF)

World Trade Organization (WTO)


The average ad valorem rate of industrial products before joining WTO in January
2007 was 16.2%. Starting from 2010, there are different reductions per annum until
2014 or 2017 at the latest when a number of imported industrial products will have
a tax rate of 0%. After 2014, the domestic manufacturing sector will face strong
competition from the foreign producers. Regarding the steel sector, the
implementation of tariff reductions in the WTO framework will compromise the
protection of the steel industry. It is noted that most of steel imports are from China
and ASEAN countries. According to the Ministry of Finance (MoF), the average ad
valorem rate of imported steel products agreed in WTO is set at 13.0%,

www.VPBS.com.vn

Page | 19

much higher than 3.3% under AFTA by January 2006. The 13% rate is slightly
higher than the average ad valorem rate of industrial products (12.4%), which
indicates that the level of protection of the steel industry will remain higher than
that of other industries.
Tax reduction roadmap for major steel products under WTO
Item
code
7207
7208
7213
7217

Product
Semi-finished products of nonalloy steel
Flat-rolled products of non-alloy
steel, hot-rolled
Bars and rods, hot-rolled, of nonalloy steel
Wire of iron or non-alloy steel

Rates before
agreement

Agreed
rate

Starting date

20%

10%

2014

15-18%

10%

2014

30%

25%

2014

20%

10%

2014

Average ad valorem rate of industrial products

16.2%

12.4%

Duration: 3-5 years

Average ad valorem rate of steel products

17.7%

13.0%

Duration: 3-5 years

Source: WTO Center, The Ministry of Finance (MoF)

Trans-Pacific Partnership (TPP)


The Trans-Pacific Partnership (TPP) is a high-standard free trade agreement that
addresses new and emerging trade issues and 21st-century challenges. The TPP
brings together developed and developing economies across the Asia-Pacific into a
single trading community that represents approximately 30% of global GDP. Since
November 2010, Vietnam has been involved in official TPP negotiations together
with New Zealand, Brunei, Chile, Singapore, Australia, Peru, the United States,
Malaysia, Canada, and Mexico. As the most recent 20th formal round of TPP
negotiations did not reach a consensus regarding issues of intellectual property
rights between the United States and other countries, the establishment of TPP
could be delayed into January 2014.
While WTO trade agreements concern goods and services, intellectual property
rights, TPP negotiations, besides the above issues, address subjects related to
government procurement, labor, the environment, etc. WTO agreements are oneway negotiations as Vietnam has to open its markets to WTO members and no
right to ask them to do the same. However, TPP agreements have reciprocal nature
as other countries are also interested in expanding export opportunities for Vietnam.
Medium-segment steel
products will benefit the most
from TPP negotiations.

Vietnams steel producers will benefit from expanded export opportunities ushered
in by the scheduled conclusion of TPP negotiations. The membership will help the
countrys steel sector reduce excess stock and capitalize on substantial tariff
reductions. For instance, domestic steel products are of medium quality segment,
joining TPP means that they could be sold to countries with high demand for these
products. There are opportunities for Vietnams firms to purchase value-added
steel products from countries with advanced technology at an attractive price.
However, there is concern that if Vietnam becomes a TPP agreement partner, it could
become a major transshipment points for exports from China and other countries
seeking to circumvent U.S trade remedy orders. Given Chinas close proximity to
Vietnam, it will have every incentive to capitalize on Vietnams zero duty access to
the U.S. market by engaging in the transshipment of goods through Vietnam.

www.VPBS.com.vn

Page | 20

Protectionism
Import and export duties are
the main tools which
government uses to protect the
industry.

The government remains heavily involved in the steel industry by manipulating


value-added taxes and imposing import duties and export taxes for strategic
purposes.
The government directly owns the largest steel producer in Vietnam, Vietnam Steel
Corporation (VSC). The government also holds indirect ownership interests in steel
making joint ventures between VSC and various foreign investors, including the
Essar Group, Posco, and Tata Steel.
The Vietnamese government routinely exploits its ownership stake in the steel
industry to influence prices. In mid-2008, at a time when rising inflation rates were
of major concern, the government asked VSC to keep its price unchanged. That
policy, while consistent with governments policy of combating inflation, was not
good for companies.
To help manage the demand for steel products, the Vietnamese government has
started, stopped and restarted large construction projects. It has manipulated
import duty rates and export tax rates to protect and support the domestic steel
industry. In 2013, The Ministry of Industry and Trade has proposed to remove the
tax rate on some product lines which are currently in shortage or cannot be
produced by domestic manufacturers: 0% tax rate on coking coal; 3% tax rate on
semi coke of coal; 0% on carbon steel wire. Importing products which are
overproduced is imposed higher tax rate to encourage domestic consumption. In
particular, tax rate on steel reinforced concrete is raised from 15% to 20%, and 12%
to 15% for structural steel (U, I, H-shaped) from its current level of 10%.

www.VPBS.com.vn

Page | 21

2014 OUTLOOK
Global apparent steel use to grow by 3.3%
According to the World Steel Association (WSA)s Short Range Outlook (SRO) in
October 2013, global apparent steel use is forecast to grow by 3.3% to 1,523 million
tons for next year, following the increases of 3.1% in 2013 and 2.0% in 2012. Chinas
steel demand in 2014 is expected to slow to 3.0% growth as the Chinese
governments efforts to rebalance the economy continues to restrain investment
activities, while Indias steel demand may grow by 5.6% helped by accelerated
attempts to implement structural reforms.
In 2014, the WSA is forecasting further growth for steel demand despite economic
conditions for the global steel industry remaining uncertain and challenging. The
WSA expects to see continued recovery in global steel demand with the developed
economies overall returning to positive growth and slower growth in China. With
risks within the developed world receding, there is some uncertainty emerging from
developing countries due to unresolved structural issues, political instability and
volatile financial markets.

Apparent steel use (finished steel products)


Region

2012

(Unit: mn tons)

2013E

% y-o-y

European Union (27)


140
Other Europe
35
CIS
57
NAFTA
132
Central & South America
47
Africa
27
Middle East
49
Asia & Oceania
943
World
1,430
Developed Economies
390
Emerging & Developing Economies
1,040
China
660
BRIC
799
MENA
63
World excl. China
770

(9.5)
135
4.3
37
4.5
59
8.4
132
3.1
49
7.9
28
(1.3)
49
2.8
986
2.0 1,475
(1.7)
384
3.4 1,091
2.9
700
2.8
843
2.2
64
1.1
775

% y-o-y

2014F
% y-o-y

(3.8) 138
5.5
38
3.0
61
0.2
136
2.8
51
4.3
30
1.3
53
4.6 1,016
3.1 1,523
(1.6) 390
4.9 1,133
6.0
721
5.6
871
1.7
69
0.7
803

2.1
4.6
3.5
3.2
5.0
8.2
6.3
3.0
3.3
1.7
3.8
3.0
3.3
7.3
3.5

mn tons
1,200

2012

2013E

2014F

1,000
800
600
400
200
0
Developed Emerging &
Economies Developing
Economies

China

World excl.
China

Source: Short Range Outlook of World Steel Association

Vietnamese governments master plan


In 2014, the local steel
consumption is expected to
not have wide fluctuations
and post a 2%-3% y-o-y
increase.

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In the master plan on the development of Vietnams steel industry to 2020 which
was approved in January 2013, the Ministry of Industry and Trade (MoIT) forecasts
that total domestic demand for finished steel products will grow from around 14
million tons by 2013 to 16 million tons by 2015 and 24 million tons by 2020.
Production output aims to reach 13 million tons of finished products in 2015 and
climb to 23 million tons by 2020. Besides, in term of all kinds of steel, the country
targets to increase export proportion into 15% of production while reducing import
volume to 35% of consumption by 2015.

Page | 22

Domestic consumption forecast

Governments targets

Total domestic consumption (million tons)


kg
Steel consumption per capita (kg)
400
373

mn tons
40

252

30
20

156

10

14

176

37

300
200

24

16

100

0
2013

2015

2020

2025
Source: Master plan

Unit: mn tons/year
2012
1.9
Pig iron, spongy iron
Semi-finished casting 7.7
Billet
7.7
Slab
Finished products
12.5
11.9
Long products
Hot rolled coil
0.6
Export (% of production)
Import (% of consumption)

Capacity
2015 2020
9.5 23.5
21.3 42.0
15.3 24.0
6.0 18.0
15.0 35.5
10.5 16.5
4.5 19.0

2025
33.3
51.1
25.6
25.5
42.5
18.7
23.9

Production
2015 2020 2025
6.0 17.0 28.0
12.0 25.0 40.0

13.0

23.0

39.0

15%
35%

20%
25%

25%
15%

Source: Master plan

CONCLUSION
Vietnams manufacturing industry is still immature and the country is becoming
more urbanized, so over 80% of steel materials are used for construction. In
addition, the correlation between per-capita steel consumption and per-capita GDP
is strong among Asian countries. We, therefore, see considerable upside for long
term.
Potential for long-term expansion may be strong, but the Vietnamese steel sector
still faces many difficulties and challenges.
1) The prices of gasoline, electricity and raw materials keep increasing. According
to a draft decision of the Ministry of Industry and Trade (MoIT), price of 22-110
kilovolt (KV) power, which is often used by industry, will increase by 2%-7%.
Steel and cement firms will pay 2%-16% more than others to offset losses
made by the state-owned Electricity of Vietnam (EVN) when selling power to
them. Meanwhile, retail prices of electricity increased by 5% from August 2013.
The power price increase will cause a greater financial burden on steel
businesses that are now facing a lot of difficulties.
2) Some steel products under WTO regulations route will no longer enjoy
preferential treatment and protection of high import duties on steel products.
3) The new steel projects operation will exacerbate the imbalance between
supply and demand of the market. Besides, imports of steel with the
advantages of favorable prices from China make competition fiercer.
4) The local steel makers have trouble accessing bank loans to expand production
despite constant interest rate reductions.
5) In the event of energy shortages, heavily polluting and energy-intensive
industries such as steel will be the first targets of energy rationing and
shutdowns. Steel companies profit margins could remain under pressure.

www.VPBS.com.vn

Page | 23

STEEL TICKERS ON THE STOCK EXCHANGES


Currently, there are 17 steel companies listed on the HSX and HNX, representing
2.8% of the total aggregate market cap of both exchanges. As of December 16,
2013, these listed steel companies slightly outperformed the market as they rose by
an average of 29.3% YTD while the VN-Index and HNX-Index increased by 21.3%
and 16.5% YTD, respectively.
VN-Index vs. steel stock price index
350

Steel stock price index

VN-Index

1400

HNX-Index

300

1200

250

1000

200

800

150

600

100

400

50

200

0
Dec-07

0
Jul-08

Feb-09 Sep-09 Apr-10 Nov-10 Jun-11

Jan-12 Aug-12 Mar-13

Oct-13

Source: Bloomberg
In the domestic steel market,
the struggle to boost sales
continues, but a recovery
remains unforeseeable due the
frozen real estate sector.

Nearly half of the listed companies in the steel sector experienced a slowdown in
revenues for the recent two years while four of 17 companies, including POM, VIS,
BVG and NVC, are operating at losses. The peer group grew by an average of
11.6% y-o-y in revenues during 9M2013, improving from 1.7% in 2012, but still
lower than 18.1% in 2011 and 36.8% in 2010. Gross margins have declined from
around 10% in 2010 and 2011 to 6.4% in 2012 and 7.8% in 9M2013. The business
results this year saw a slight recovery thanks to interest rate cuts and the
decreasing prices of imported raw materials. The average ROA and ROE ratios in
2012 of steel firms reached 2.8% and 7.8%, respectively.
9M2013 business results of listed steel companies
Sales
EBIT margin

VNDtn
21

Market cap
Net margin

Gross margin
20%

producing

processing

NVC

KKC

HMC

TNA

-50%
SMC

0
SSM

-40%
NKG

3
DTL

-30%

BVG

DNY

-20%

VGS

HLA

-10%

TLH

12

VIS

0%

POM

15

HSG

10%

HPG

18

trading
Source: VPBS

www.VPBS.com.vn

Page | 24

Listed peer comparison


Stock price
Company name

Market
Capital

TEV

VNDbn

VNDbn

HPG

Hoa Phat Group

16,050

HSG

Hoa Sen Group

POM

Pomina Steel Corp

VIS

Avg traded value

Dec 16

VND

VND

VNDmn

VNDmn

VNDbn

% y-o-y

21,619

45.0%

38,300

82.4%

40,800

19,200

15,866

15,342

18,500

8.0%

1,200

6.5%

16.4%

4,122

7,347

35.1%

42,800

122.9%

52,500

17,700

12,407

10,789

11,000

9.0%

400

3.6%

8.7%

2,348

5,172

6.5%

12,600

-1.6%

14,300

11,700

70

71

12,000

2.2%

200

1.7%

n/a

Vietnam - Italy Steel

566

2,496

4.5%

11,500

38.6%

16,000

6,600

7,728

8,959

3,651

-5.7%

30

0.8%

n/m

TLH

Tien Len Steel Corp

562

883

0.8%

7,500

47.1%

9,000

4,000

8,318

12,337

3,514

24.6%

101

2.9%

143%

DTL

Dai Thien Loc Corp

539

1,455

0.6%

11,500

-9.4%

15,400

10,800

158

195

3,000

87.9%

65

2.2%

393%

SMC

SMC Investment Trading

369

1,364

12.0%

12,500

0.0%

18,000

11,800

230

60

9,800

9.3%

70

0.7%

2.1%

NKG

Nam Kim Steel JSC

260

1,452

0.0%

8,700

-9.4%

15,800

6,100

765

920

4,500

53.7%

38

0.8%

n/m

HLA

Huu Lien Asia Corp

176

1,642

3.3%

5,100

0.0%

8,200

4,300

2,517

3,550

3,520

-29.3%

35

1.0%

119%

VGS

Vietnam Germany Steel Pipe

198

636

1.4%

5,500

17.0%

6,900

4,100

3,052

4,382

2,000

-29.0%

14

0.7%

8.9%

TNA

Thien Nam Trading

193

495

5.5%

24,100

58.6%

24,800

14,300

35

46

1,100

-8.5%

30

2.7% -21.4%

HMC

Hochiminh City Metal Corp

174

706

1.1%

8,300

2.5%

9,000

6,600

27

38

5,000

16.0%

24

0.5% -11.7%

DNY

DANA-Y Steel

232

1,209

0.2%

8,600

65.9%

8,900

5,111

27

17

3,000 146.2%

75

2.5%

KKC

Produce & Trading Metal

62

138

1.8%

13,200

61.0%

14,200

7,800

76

101

500

SSM

Steel Structure Manufacture

42

63

2.4%

8,400

37.7%

9,200

5,200

69

91

226

BVG

Bacviet Steel

31

298

0.3%

3,200

-15.8%

4,300

2,100

36

53

345

NVC

Nam Vang Corp

18

397

1.0%

1,200

0.0%

1,700

400

42

70

1,000

-0.8%

Ticker

Sale growth
Ticker

YTD 52-Week 52-Week


change
High
Low

FY2013 Management target

Foreign
owned

VND

FY2012

6M

3M

Sales

Profits after tax

22.8%

VNDbn % margin

% y-o-y

635%

1.5% -13.5%

24.5%

3.2%

53.4%

-35.2%

n/a

n/a

n/m

0.5%

n/m

9M-FY2013
ROE

Net sales

FY2011

FY2012

ROA

P/E

P/B

VNDbn

% y-o-y

VNDbn

% margin

VNDbn

% margin

HPG

75.6%

25.1%

-5.7%

5.4%

12.8%

12,474

-1.2%

2,184

17.5%

1,520

12.2%

78%

127%

1.14x

HSG

73.0%

66.7%

23.5%

6.6%

19.4%

8,558

9.7%

1,364

15.9%

538

6.3%

87%

135%

1.04x

0.79x

9.79x

1.76x

1.64x

7.15x

POM

48.6%

7.1%

-2.1%

0.1%

0.2%

7,973

-4.8%

181

2.3%

(242)

n/m

n/m

n/m

1.84x

1.06x

1.24x

n/m

VIS

49.1%

26.9%

-1.0%

n/m

n/m

2,406

-13.7%

178

7.4%

(10)

n/m

n/m

1.00x

n/m

0.97x

3.12x

n/m

TLH

28.1%

-1.3%

-4.8%

2.7%

5.5%

2,174

5.7%

63

2.9%

140

6.4%

0.87x

276%

138%

1.43x

0.45x

3.38x

DTL

18.0%

2.4%

-13.8%

0.7%

1.8%

1,463

42.6%

115

7.9%

10

0.57x

0.7%

-58%

16%

1.02x

1.40x

47.82x

SMC

30.3%

30.4%

0.3%

3.0%

11.9%

7,389

9.3%

209

2.8%

0.73x

23

0.3%

-43%

33%

1.10x

2.09x

8.85x

NKG

79.9%

0.3%

13.7%

n/m

n/m

3,168

42.5%

220

0.65x

6.9%

42

1.3%

n/m

113%

0.93x

3.78x

n/m

HLA

13.5%

51.2%

13.5%

0.7%

3.3%

3,565

8.1%

0.81x

212

6.0%

16

0.4%

n/m

46%

1.04x

3.03x

2.38x

VGS

95.5%

19.9%

7.6%

1.0%

2.6%

1,770

0.35x

-10.9%

76

4.3%

0.4%

88%

51%

1.08x

1.03x

11.69x

TNA

53.2%

24.1%

13.0%

5.7%

15.9%

0.41x

1,121

21.4%

84

7.5%

26

2.3%

-15%

87%

1.40x

1.36x

5.44x

HMC

55.4%

45.1%

-31.9%

2.4%

0.74x

7.9%

2,522

-25.4%

91

3.6%

15

0.6%

-29%

62%

1.13x

1.64x

8.60x

DNY

18.9%

39.3%

16.9%

0.52x

0.6%

2.9%

1,745

124.2%

100

5.7%

11

0.6%

9%

15%

0.91x

2.69x

12.34x

KKC

-27.0%

-5.1%

0.63x

22.2%

4.8%

11.0%

285

17.3%

24

8.3%

10

3.6%

179%

137%

1.48x

1.40x

4.02x

SSM

-19.3%

0.77x

-37.7%

58.2%

3.1%

5.9%

189

109.5%

16

8.2%

3.1%

132%

82%

1.64x

0.76x

6.98x

BVG

0.53x

43.9%

19.8%

-28.0%

n/m

n/m

136

-67.1%

24

17.3%

(4)

n/m

n/m

n/m

1.00x

3.28x

n/m

0.37x

NVC

-11.9%

-6.9%

-52.5%

n/m

n/m

254

-69.3%

(13)

n/m

(99)

n/m

n/m

n/m

0.82x

n/a

n/m

n/a

Average
Median

36.8%
43.9%

18.1%
19.9%

1.7%
0.3%

2.8%
2.7%

7.8%
5.9%

3.0%
1.3%

64%
78%

80%
82%

1.13x
1.06x

1.86x
1.52x

10.70x
7.87x

0.79x
0.69x

11.6%
8.1%

Gross profits

Current Debt to
Ratio
Equity

FY2010

7.8%
7.2%

Profits after tax


% y-o-y % of target

Source: Company's consolidated and audited financial statements, exchange data, Bloomberg

Only Hoa Phat Group (HPG) and Hoa Sen Group (HSG) have operated at high
margins with gross margins of 17.5%, 15.9%, and EBIT margins of 15.3%, 9.1%,
compared with the sector averages of 7.8%, 2.9%, respectively, according to
9M2013 consolidated data. HPG is the largest listed company in steel sector,
making up 62% of the sectors total market cap, and also ranks tenth in the list of
top market cap on the Vietnamese stock exchanges. In 10M2013, Hoa Phat holds
market share of 14.8% in construction steel and 15.7% in steel pipes, up from 13.7%
and 15.0% in 2012, respectively. With a steel billet capacity of 400,000 tons per
year, Hoa Phat is one of the few companies which are able to produce steel billets
in Vietnam. The second largest market cap is Hoa Sen Group (HSG) with 38.3%
market share in coated steel sheets during 10M2013. The company is the largest
local cold rolled steel manufacturer in term of production volume.

www.VPBS.com.vn

Page | 25

Both HPG and HSG, the leading companies, remained profitable thanks to the
domination and improvement of their market shares. From the beginning of this
year, HPG and HSG strongly outperformed the market with 82.4% and 122.9% YTD
increases in share prices and strong liquidity, respectively.
Currently, only steel companies with competitive advantages may attract the
investors' cash flows. Given the macroeconomic situation in the sector, we have a
cautious view for the next quarter amidst the recent run-up in share prices.
Steel stock price performance
HPG

POM

HSG

VIS

TLH

DTL

VN-Index

700%
600%
500%
400%
300%
200%
100%
0%
-100%
Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Source: Exchange data

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Page | 26

Disclaimer
Research report is prepared and issued by VPBank Securities Co. Ltd. (VPBS). This report is not
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required to observe restrictions.

Barry David Weisblatt


Head of Research
barryw@vpbs.com.vn
Luu Bich Hong
Director - Fundamental Analysis
honglb@vpbs.com.vn
Chau Hao Nhi
Research Assistant
nhich@vpbs.com.vn
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