Vietnam Suspends Investment in Overseas Steel

Vietnam Suspends Investment in Overseas Steel

According to relevant media reports, after carefully assessing the supply and demand situation and possible environmental impacts, the Vietnamese government has pressed the “stop button” for overseas investors to build a new cold rolled stainless steel project in Batu Vung Tau province in southern Vietnam. This also means that after a period of development, the Vietnamese government began to strengthen the planning and management of steel projects, and gradually raise the barriers to entry. It is understood that an important reason for the rejection of the  cold rolled stainless steel project is that the project may trigger a crisis of overcapacity in the Vietnamese cold rolled stainless steel industry. According to the local government, the average annual demand for stainless steel in Vatican is 490,000 tons, and the annual capacity of the proposed cold rolled stainless steel project is 600,000 tons. In the view of the local government, continuing to increase investment in the stainless steel sector will inevitably increase market saturation and intensify market competition, which is not conducive to the healthy development of the local cold rolled stainless steel industry.

In addition, the steel industry, as an energy-intensive industry, has high demand for power resources. However, in the face of the increasing demand for power resources in steel projects, the supply of electricity resources in Vietnam at this stage seems to be a bit incapable. In Batu Vung Tau province, only nine operating steel projects consume about 60% of the province’s total electricity generation. In order to alleviate the power supply pressure, it is reasonable for the local government to urgently stop the overseas investment in steel projects. In fact, in the past few years, as one of the fastest growing steel demand countries in Southeast Asia, Vietnam has attracted investment from many national steel companies including China. At present, Vietnam’s relatively well-known overseas investment steel projects include a cold rolled stainless steel mill with an annual production capacity of 1.2 million tons and a hot rolling mill with an annual capacity of 3 million tons, which is invested by Posco in Vietnam in Batu Vung Tau province, Vietnam. Essar Steel invests in a high-line production plant with an annual production capacity of 2 million tons.

According to the strategic development plan of the steel industry previously formulated by Vietnam, from 2007 to 2025, Vietnam needs to invest 12 billion U.S. dollars in the development of the steel industry, including 8 billion U.S. dollars from 2007 to 2015 and 4 billion U.S. dollars from 2015 to 2025. At that time, the annual domestic crude steel production capacity in Vietnam will reach 25 million tons. Considering the economic situation in Vietnam, a large part of the above investment will be filled by overseas capital. However, according to data released by the Vietnam Iron and Steel Association, Vietnam’s crude steel output in 2018 totaled 24.19 million tons, a year-on-year increase of 14.9%. From the data point of view, the output of crude steel will increase by 810,000 tons, and Vietnam can achieve its goal that was previously achieved by 2025.

With the advancement of production targets and tasks, the Vietnamese government’s adjustment of the foreign investment access policy for the steel industry is not difficult to understand due to environmental, domestic market demand and the safety of the steel industry chain. Especially after the Vietnamese government claims that it will not sacrifice the environment in exchange for economic development, it can be foreseen that Vietnam’s review of overseas investment in steel projects will become more stringent in the future. In summary, in the future, investment in steel projects in the Vietnamese market is likely to completely bid farewell to the era of easy approval. However, this doesn’t mean that there is no chance to invest in steel projects in Vietnam in the future.

On the one hand, the Vietnamese government really wants to ensure the healthy and stable development of the local steel market through project management and control. However, in terms of process level, the local market is still insufficient in the mid to high-end product market. Therefore, the future of high-end steel projects is still a welcome project of the Vietnamese government. For many steel companies that want to enter the Vietnamese market, they can still get the green pass of the local government with high quality steel projects.

On the other hand, cooperation with local steel projects through capital, technology, equipment, etc., to promote the upgrading of local steel enterprises will become a new choice for a future investment in the Vietnamese market by many steel companies including Chinese steel companies. Compared with the various risks faced by the direct construction of the factory, this method has a short investment cycle and is also more effective.