Market Trend and Analysis

MARKET TREND &

VIETNAM'S
A N A LY S I S

STEEL INDUSTRY:
CHARACTERISTICS
AND STEEL DEMAND FORECAST

Kiyong Jeon
Senior Principal Researcher, POSCO Research Institute
kjeon@posri.re.kr

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 Market Trend and Analysis

Figure 1. The Industrialization Phase of Developing Countries

Vietnam’s economic growth Creativity
Leading
Economic growth in Vietnam soared to 7.1% in 2018, its innovation
Technology
and design
highest point in a decade.1 With a 6.8% growth rate in the Absorption

first quarter of 2019, the International Monetary Fund (IMF) is Agglomeration

Production of
projecting that the Vietnamese economy will sustain its rapid high value-added
Development of products
grown of the previous year. FDI-led parts and
Development of resources
Vietnam’s accelerated economic growth has been bol- FDI-led simple industries
assembly and
stered by the effects of capital accumulation following re- processing
industries
form and opening policies and by foreign direct investment
(FDI). It has also been promoted by integration into the
1st Phase 2nd Phase 3rd Phase 4th Phase
world economy, such as through accession to the World
Source: Ohno (2009), “Avoiding the Middle Income Trap: Renovating Industrial Policy
Trade Organization (WTO). Vietnam has pursued economic Formulation in Vietnam”, pp. 6

reform and opening via its Doi Moi policy and worked to
shift its industrial structure by joining the Association of
Southeast Asian Nations (ASEAN) in 1995 and the WTO in
2007.2 The country emerged in 2010 as one of the world’s
important production bases for the textile and clothing in-
dustry. However, in order to sophisticate its industrial struc-
tures, Vietnam has focused on nurturing select industries,
including chemicals, electronics, construction, automo-
biles, and steel.
Characteristics of Vietnam’s economic growth
Vietnam’s rapid growth over the past two decades is a result
of its successful transition to an open market economy. The
Vietnamese government’s support for reform has accelerat-
ed the opening of the economy while its accession to inter-
national institutions has provided technical support for these
economic reforms. Unlike some Western countries that
shifted abruptly to market economies, Vietnam’s transition
was more gradual. Vietnam managed to transform itself from
a producer of simple products, such as clothing, shoes, and
home appliances, by attracting FDI at an early stage of de-
velopment. It was able to change from a raw materials and
parts importer into an intermediate goods producer in the
expanded consumer goods market. Vietnam also developed
by sophisticating its products through technology and man-
agement expertise.
In other words, the Vietnamese economy is leaping
from the second to the third phase of industrialization
of developing countries, illustrated in Figure 1. With the
massive FDI infusions following the 2000s, Vietnam has
registered steady growth with a CAGR of over 6%, thanks

1 Vietnam’s trade turnover reached USD 500 billion in 2018. Compared to a year earlier, exports grew by 13.8% to USD 244.7 billion and imports expanded
by 11.5% to USD 237.5 billion in 2018. Its trade surplus surged from USD 2.1 billion in 2017 to USD 7.2 billion in 2018. Foreign-invested companies contributed
USD 32.8 billion to this surplus, while Vietnamese companies ran a deficit of USD 25.6 billion.

2 The Doi Moi policy is based on the following principles: (1) formulating strategic and consistent long-term economic policies to increase productivity; (2) es-
tablishing an economic system that strikes a balance between centralized planning and a market economy; (3) implementing opening policies to boost foreign
cooperation for building manufacturing, service, and knowledge industries; and (4) achieving goals by establishing an independent and autonomous economy
and raising related awareness (Lee Young-Kwan, 2019).

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Figure 2. Foreign Direct Investment Trend in Vietnam

(USD millions) (Units)

80,000 New investment 5,000

Reinvestment
Number of investment (New investment + Reinvestment)
3,862 3,975
4,000
60,000
3,038
3,000
40,000 2.182
1,964 1,975
1,627 1,639 1,589 2,000
1,530
1,163 1,287
20,000
1,000

- -
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: General Statistics Office of Vietnam

to the FDI-centered growth strategy that the country pur-
sued from the early stage of reforms. In addition to its high
growth potential drawing upon on abundant natural re-
sources and labor, Vietnam has actively attracted FDI due
to its political and social stability, improved infrastructure,
and strategic importance within Southeast Asia. For this
reason, Vietnam was able to successfully fund its manufac-
turing development in close cooperation with South Korea,
Japan, and China.3
Development of Vietnam’s steel industry
Under shifting external and internal circumstances, Viet-
nam’s steel industry has expanded rapidly at a CAGR of
more than 10% since the 2000s. It has grown with the ac-
celerating introduction of an open market economy and as
private and foreign companies began growing or entering
the country after the 2000s. In the 1990s, the Vietnamese
government allowed monopoly and imposed import restric-
tions to protect state-owned steel companies, including
Vietnam Steel Corporation. Soon, however, it worked to re-
form state-owned steel companies and encouraged them to
independently increase their business capabilities.4 Lacking
the funds to build integrated steel mills (ISM), the country
decided to build downstream facilities first for producing
flat products and then upstream facilities to complete an
ISM. This step-by-step approach suited a Vietnamese steel
industry with insufficient capital accumulation for economic
growth.5 In order to complement the lack of upstream facil-
ities, Vietnam’s steel industry adopted electric arc furnaces
(EAF) as a means to expand production and buy the time
needed to achieve transfer of steel technology.

3 Major reasons for FDI development: low wages, high level of education, relatively simple investment regulations, free trade agreements, geography, eco-
nomic growth, stable governmental policies, improved infrastructure, soft factors, and more.

4 Na Hee-Ryang (2008), “Changes and Prospects for the Vietnamese Steel Industry from the Perspective of Market Opening,” The Southeast Asian Review,
Vol. 18, Issue 1, pp.151-180

5 Kawabata, N., 2001, “The Current Vietnamese Steel Industry and Its Challenges,” MEU-JICA Discussion Paper 6

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 Market Trend and Analysis

Figure 3. Product Structure in the Vietnamese Steel Industry

Iron making Steel making Continuous casting Long Flat

Iron BOF EAF Billet Slab Steel bar Wire rod Section HR FH CR GI Pre-painted

Hoa Phat

TISCO

Pomina

SS Vina

Vina Kyoei, ssc

VPS

FHS

P-Vietnam

CSVC

Hoa Sen, Nam Kim,

TDA, SUNSCO

Source: POSCO Research Institute

producing HR. The long product market has been prosper-

Structure and characteristics of
the Vietnamese steel industry
In 2017, Vietnam’s finished steel consumption reached 22
Mt and net imports recorded 13 Mt, according to the South-
east Asia iron and Steel Institute (SEAISI). Given its insuffi-
cient production capacity, Vietnam is highly dependent on
imports. Long products account for more than 50% of steel
production. The country’s self-sufficiency rate for flat prod-
ucts is only 48%, while it requires 8.7 Mt imports of HR and
1.5 Mt of plate.
The structure of the Vietnamese steel industry is clearly
divided between long and flat product makers. Before For-
mosa Ha Tinh Steel (FHS) entered the HR market in 2017,
Vietnam was totally dependent on HR imports with no ISM
ing in Northern Vietnam with leadership by the Hoa Phat
Group (HPG), while the flat product market, mainly coated
and pre-painted steel and steel materials for construction,
is flourishing in Southern Vietnam.6
When FHS was completed as an ISM in 2017, the land-
scape of the Vietnamese steel industry changed radically.
FHS currently has an annual production capacity of 7 Mt
with 5.3 Mt of HR and 1.2 Mt of wire rod. FHS’s HR pro-
duction has provided an opportunity to bolster the supply
chain of the Vietnamese steel industry.7
Meanwhile, long product makers have also begun chal-
lenging the flat product market. With long product makers
such as including HPG and Pomina recently entering the
coated and pre-painted steel markets, competition in the

6 Vietnam’s galvanizing companies maintain small reversing F/H facilities, but some of the demand is met from outside.

7 Taiwan’s Formosa Plastic Group (FPG) established Formosa Ha Tinh Steel (FHS) in the north-central Vietnamese province of Ha Tinh. FPG owns more than
10% of FHS, with China Steel Corporation (CSC) holding 25% and JFE Steel 5%.

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Figure 4. Share of Steel-Consuming Industries in the Major ASEAN Countries

2% 5%
4% 6%
6%
8%

7%
19%

Vietnam Indonesia Thailand

93% 65% 19% 60%
4%

Construction Shipbuilding Construction Shipbuilding Construction Automobile

Automobile Others Automobile Machinery/Industry Machinery/Industry
Electrical and electronics Others Electrical and electronics
Source: SEAISI (2016)

Vietnamese flat product market is growing fierce. In 2018,
HPG opened facilities with an annual production capacity
of 0.6 Mt for CR, 0.5 Mt for coated and pre-painted steel,
and 0.12 Mt for pre-painted steel, while Pomina installed fa-
cilities with an annual production capacity of 0.2 Mt for CR
and 0.2 Mt for coated and pre-painted steel. Coated steel
makers, including HSG, Nam Kim, and TDA, are also active
in facility expansion. In particular, Northern Vietnam-based
HPG is gearing up to transform itself from a long product
maker to an integrated steel mill and is currently building a
hot-rolling line, following FHS.
Vietnam, a steel-consuming country particularly
in terms of construction
The rising production of long products and the introduction
of an HR line to produce construction steel are attributable
to the fact that Vietnam’s steel-consuming industries are
highly dependent on construction. Vietnam has lower steel
demand for automobiles and machinery compared to Thai-
land and Indonesia, so its flat product market is mainly led
by the construction industry.8
After experiencing negative growth during the global
financial crisis of 2008, Vietnam’s construction industry
recovered to a CAGR of 8%. The Vietnamese construction
market recorded USD 12.7 billion in 2017. Apace with the
country’s overall development, demand for transportation,
energy, telecommunications, and housing has increased.
Vietnam’s construction industry is expected to maintain a
CGAR of 7.2% for the 2018–2022 period, and its construc-
tion market is projected by BMI Research to reach USD
34.7 billion in 2027. 9 The number of construction com-

8 Agriculture, forestry and fisheries account for 8.7%, manufacturing and construction 48.6%, and service 42.7% of industrial contribution to GDP, while
forestry and fisheries account for 3.8%, manufacturing and construction 8.85%, and service 7.0% of industry growth. This means that manufacturing and con-

struction grew by 8.85%, contributing 48.6% to economic growth.

9 Under its rural development plan, the Vietnamese government plans to invest USD 8.6 billion by 2020 in the construction of infrastructure, including schools,
hospitals, roads, and water treatment facilities.

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Table 1. Construction Companies in Vietnam

2015 2016 2017

Number of companies M/S (%) Number of companies M/S (%) Number of companies M/S (%)

State-owned 97 1 94 1 93 1

Private 13,412 97 13,018 97 13,043 97

Foreign 293 2 320 2 374 3

Total 13,802 100 13,432 100 13,510 100

Source: General Statistics Office of Vietnam

panies increased from 13,432 in 2016 to 13,510 in 2017.
It is particularly a positive sign that the number of foreign
construction companies increased from 320 in 2016 to
374 in 2017, as shown in Table 1. This is the result of the
Vietnamese government’s active drive for attracting private
and foreign investment in real estate and infrastructure.10
The country has been implementing railway modernization
projects under the “Vietnam Railway Development Strategy
by 2020 with Vision to 2050” and development projects for
seaports and port-related infrastructure in six areas (north,
north-central, central, south-central, southeast, and the
Mekong River Delta) under the “Master Plan on Develop-
ment of Vietnam’s Seaport System through 2020-2030”
as well as projects to increase connections among major
roads and regions.11 The road and railway infrastructure
markets are expected to rise at CGARs of 7.0% and 5.4%,
respectively, over 2018-2027, bolstering sustainable rapid
growth in the construction industry, as suggested by BMI
Research.
The Vietnamese government plans to increase the sup-
ply of middle housing for grassroots and low-wage workers
and expand social housing programs for rural low-income
households. One representative example is the construc-
tion of 12.5 million homes in urban areas with an aim to
increase the average floor area per person to 25m 2 by
2020. In particular, the country plans to increase the share
of commercial housing (apartments) to over 90% in Hanoi
and Ho Chi Minh City, where there is high-quality urban
infrastructure and accounts for the lion’s share of commer-
cial housing transactions.12 In addition, the Vietnamese
government amended the Vietnam Housing Law in 2015 to
allow foreigners to trade, lease, and sub-lease real estate

10 By sector, real estate ranked third in FDI in Vietnam in 2017. Top FDI Sectors in 2017: manufacturing USD 15.876 billion; power-gas-water-air conditioning
USD 8.374 billion; real estate USD 3.054 billion; wholesale and retail and repair of vehicles USD 2.446 billion
Source: General Statistics Office of Vietnam, MPI

11 The government-led infrastructure and construction projects that merit close attention are as follows: the expansion project for Tan Son Nhat International
Airport in Ho Chi Minh City; the construction project for Long Thanh International Airport in Southern Vietnam; and the Thu Thiem district development project
in Ho Chi Minh City. Some projects are expecting foreign investment, including the Ninh Binh - Thanh Hoa Expressway project, the first phase of the Long
Thanh International Airport project, Cam Lanh International Airport, Lao Cai Airport, and Lien Chieu seaport.

12 According to a report by CBRE Vietnam in 2018, housing in Vietnam is classified into four categories: commercial housing or apartments, separate housing,
social housing, and official duty housing.

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Table 2. Steel Supply and Demand in Vietnam (2017) industries, in that it is a derived demand. Changes in steel
(1,000 tonnes) Production Import Export Demand demand can be calculated by analyzing the requirements

Long 9,924 1,831 1,206 10,549 for steel products in steel-consuming industries and the

Flat 1,378 13,191 3,481 11,088 status of and forecast for the consumption structure of steel

Total 11,302 15,022 4,687 21,637 products. Vietnam’s construction industry and actual steel
HR 1,378 8,712 215 9,875 use has a positive correlation (0.81, P<0.01), meaning that
Plate - 1,495 125 1,370 it is statistically significant. By analyzing social factors and
CR (FH/CR) 3,505 636 504 3,637 production in steel-consuming industries, it is possible to
STS (HR/CR) 199 718 65 852 predict medium- to long-term changes in the steel industry
Electrical steel 121 125 78 168 caused by the evolving structure of steel-consuming indus-
Coated steel/Pre-painted steel 4,575 1,220 1,414 4,381 tries and shifts in demand for materials.
GI 1,766 774 747 1.1% As part of the basic materials manufacturing sector, the
GL 1,715 11 390 49.1% steel industry has a high inter-industry effect. Steel demand
Pre-painted steel 1,094 435 277 0.2% for construction in Vietnam is expected to rise due to the
EG - 224 15 209 expansion of residential areas, plans for increasing social
TP 72 37 6 103
housing, and the spread of apartments and high-rise build-
Pipe 2,307 323 645 1,985
ings coming with rapid urbanization. In 2018, just like in
Source: Compiled by POSRI from VSA and SEAISI data
the previous year, steel demand in Vietnam reached 22 Mt,
with the long and flat product markets at a similar size. By
product type, the country is 100% dependent on plate and
and housing in an effort to create a more market-friendly EG imports.
environment.13 This amendment is intended to attract FDI As of 2017, it imported about 8.7 Mt of HR to meet
to complement the lack of state finances, ease complaints the total demand of 9.9 Mt. Demand for coated steel
for delayed projects, and ensure high growth in the con- mostly used in construction stood at 4.38 Mt, 0.75 Mt of
struction market, according to the Ministry of Planning and which was demand for GI, 0.39 Mt for GL, and 0.28 Mt for
Investment. pre-painted steel, according to the Vietnamese Steel Asso-
ciation (VSA).
Looking at demand structure by steel type, with the rise
Correlation between industrial structure and of the construction market, long products now account for
steel demand in Vietnam 49% of total steel consumption. Flat product consumption
Steel demand is naturally determined by steel-consuming is also on the rise, mainly for construction. In line with the

13 In the Socialist Republic of Vietnam, all land is collectively owned by the state. With the amendment to the Housing Law (effective July 1, 2015), the man-
agement scope of real estate by foreigners has been expanded. In the amended Housing Law, the scope of application is expanded to foreigners, foreign-in-
vested enterprises, branches and representative offices of foreign enterprises, foreign investment funds, and branches of foreign banks operating in Vietnam.
The permitted subjects allowed are purchase, lease-purchase, receipt as a donation or heritage, and possession of up to 250 houses in any one administrative
ward. It allows the effective provision of a registered 50-year leasehold title giving foreigners the same rights as Vietnamese given that they can now purchase,
lease, own, and receive as a donation or heritage. The 50-year homeownership period for foreigners can be extended.

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Figure 5. Demand Forecast by Steel Type for Vietnam (1,000 tonnes)

Flat product Long product

2017 11,088
CAGR 2017 10,549
CAGR
5.0% 5.9%

2020 12,833 2020 12,535

Galvanized steel Finished steel

2017 3,637
CAGR 2017 21,637
CAGR
11.9% 5.4%

2020 3,932 2020 25,369

Source: POSCO Research Institute

consumption structure by steel type, steel demand in the

construction industry seems to be growing stably. As the
housing supply ratio increases and the construction of ur-
ban infrastructure increases, Vietnam’s steel consumption
is expected to reach 25 Mt in 2020.
In 2020, supply is expected to rise, by 5 Mt for HR,
because of FHS’s increased HR production which began
operation in 2017 and HPF’s new production. By product
type, the supply of flat products including coated steel will
rise through revamp, resulting in new investment.
Reflecting investment plans already underway, HR
production is expected to reach 6 Mt in 2020. Taking into
account the growth rate of steel demand, import increases
will slow with the rise in the self-sufficiency rate. Vietnam’s
HR products are generally used for galvanizing and surface
treatment, so the re-input rate is relatively high at 73%. HR
products are mostly semi-products for construction, in-
Steel demand forecast
Vietnam’s steel demand is projected to continue to show sta-
ble growth since the Vietnamese economy is growing rapidly
and the government is actively investing in the construction
of infrastructure and housing. Construction for urbanization
will continue for some time. The burgeoning urban popula-
tion will drive rising demand for urban housing. However, in-
creasing trade restrictions stemming from the global spread
of protectionism, rising electricity rates, and the slowing real
estate market in Vietnam will have negative impacts on steel
demand. Nonetheless, the Vietnamese steel industry will
continue to grow considering its current low per capita steel
consumption and stable FDI inflows.
Reference
• L
 ee Young-Kwan (2019), “Vietnamese Culture and Discussion of

cluding housing and SOC. Economic Development and Sustainability in the Vietnamese Econo-

As a result, Vietnam’s steel demand is expected to my after the Doi Moi Policy”, Korean Thought and Culture, Vol. 97

reach 25.4 Mt in 2020, namely by the government’s active • I MF, World Economic Outlook (April 2019), https://www.imf.org/ex-

drive for construction projects. If Vietnam’s GDP growth ternal/datamapper/datasets/WEO

maintains a CAGR of 6.5% until 2020, finished steel de- • O

 hno, K., 2009, “Avoiding the Middle Income Trap: Renovating

mand will rise to 25.4 Mt; flat product demand is expected Industrial Policy Formulation in Vietnam,” ASEAN Economic Bulletin,

to grow by a CAGR of 5.0% to 12.8 Mt, and long product Vol. 26, No. 1, pp.25~43

demand by a CAGR of 5.9% to 12.5 Mt. • T

 he World Bank, Data Bank

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