Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Vietnam Steel Association (VSA) has petitioned the government against a proposed plan to add a 5pc export tax on semi-finished products and lower import tax on some steel products. VSA represents most leading mills in the country.  


The association has expressed concerns on the plan to tax exports of semi-finished products, including steel billets with HS codes 7206 and 7207, and to cut import taxes for construction steel products under the HS codes 7213, 7214, 7215, 7216, and 7210.


On July 14, prompted by an increase in exports, the Vietnamese finance ministry had announced a plan to impose a 5pc export tax on the steel billets and to cut the import tax on some steel products to 10-15pc from 15-25pc.


Steelmakers are not in favor of cutting production and seek to continue steel exports. Most market participants are confident that Vietnam will not impose an export tax on billet because it could hurt its foreign currency inflows. 


Exports offer sustainability to Vietnamese steel producers and help avoid losses amid high raw material costs. Mills are bound to offer finished steel at higher prices for exports to maintain their profit margins. 


In Jan-May 2020, Vietnam accounted for almost 30pc of total Chinese billet imports. Vietnam’s billet export volumes to China increased to over 1.1mn mt, which is a record, according to a source. With mills offering over $710-720/mt cfr China, a 5pc export tax would add around a $35/mt extra cost, which could potentially push Vietnamese mills out of the competition. 


Vietnamese mills are competing against Russian and Indian exporters who are aggressively offering at prices lower by around $30/mt. In the domestic market, competition could further increase if the proposed import tax cut is implemented, stated VSA.


COVID resurgence

Vietnamese mills were disappointed by this move. Major steel mills opt for exports which are usually above the domestic prices when the domestic demand is bearish or hit by some domestic factor, like the resurgence of COVID-19. The worsening COVID situation has led to lockdown for the next 14 days in the capital Hanoi. Ho Chi Minh City has been under extended lockdown from July 9 till Aug 1. Only government offices, hospitals and essential businesses are allowed to stay open. 


Imported ferrous scrap

Demand has been very low in Vietnam during the last two months. Japanese sellers are worried about rising supply and are pushing offers to newer destinations. The country has lowered bulk ferrous scrap imports from the US West Coast and Australia as well. 


Weak domestic steel demand

A few mid and small-scale steel mills have cut production since June 2020 amid weak steel demand. Monsoon season and fluctuations in Chinese steel price impacted sentiments. In June 2020, production dropped to 2.56mn mt, down by 12pc from May. Sales of steel products dropped to 2.09mn mt, down by 15pc. Exports rose by 4pc to 1.02mn mt, while imports rose by 18pc to 1.12mn mt from May 2020. 


Outlook for H2

In the first six months of 2021 (H1), steel production increased to 15.92mn mt, up by 37pc from H1 2020. Steel product sales reached 14.06mn mt, up by 35pc from the prior year, while exports were 3.42mn mt, up by 84.4pc from a year ago.


Steel demand has been muted in the last two months which could further impact demand recovery in the second half, fears Vietnam Steel Association. 

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