When the domestic demand for steel is forecasted to continue to increase, along with China’s cut in iron and steel exports will benefit Vietnam’s steel producers in general.
China changes tax policy with steel industry
In an effort to further curb domestic steel production and the skyrocketing price of steel ore, China recently eliminated import duties on some raw materials used in steel production, making exports less expensive. steel of this country’s exporters becomes more expensive.
Accordingly, effective from May 1, the import fee of pig iron, steel billet and scrap steel will be 0. These are input materials for steel production instead of using iron ore to make steel in furnaces. high. At the same time, the steel export tax refund is also eliminated. The purpose of these moves, the Chinese side explained, is to “reduce import costs, increase imports of steel resources, and support the reduction of domestic crude steel production”. In other words, China is trying to encourage imports and reduce steel exports.
Before, China, which produces more than half of global steel production, pledged to reduce steel output this year as part of a plan to reduce carbon emissions from one of the most polluted industries.
The tax changes come amid soaring raw material prices, with iron ore prices reaching historic highs. In addition to tax and fee measures, administrative measures are also applied, such as the Tangshan government (in Hebei province, China) requiring 23 local manufacturers to cut steel output in the year. 2021 to reduce carbon emissions by 30-50%.
China’s change in tariffs and fees will have an impact on global steel production and import and export because of its leading position in production (nearly 1 billion tons of crude steel in 2019 in total world production 0.9 billion tons per year), exports (64 million tons of steel of all kinds in 2019 out of the world’s total exports of 438 million tons) and imports (1.1 billion tons of iron ore in 2019 out of total world imports). 1.6 billion tons).
In the short term, the removal of material incentives in China’s steel exports will significantly narrow the scale of China’s exports of 64 million tons as in 2019, thereby reducing the competition of steel imported from China. Countries in markets, mainly in the region such as Southeast Asia (Vietnam alone in the first 2 months of the year imported more than 1 million tons of steel from China, accounting for 48% of Vietnam’s total steel imports, according to the number of countries). data of the Vietnam Steel Association).
More importantly, the shift of the Chinese government to encourage Chinese manufacturers to use more imported pig iron, billet and scrap to produce steel by electric arc furnace technology will increase dramatically. import demand, so the price of these materials on the world market will increase.
On the contrary, this import of iron ore substitutes for steel production will correspondingly reduce China’s huge import demand for iron ore and coking coal, thereby reducing the pressure on ore prices. iron, coking/coking grease and flux for blast furnace steel manufacturers in the world.
Note that spot iron ore prices are at an all-time high, reaching $194.5/ton CFR on April 27, much higher than $86/ton a year ago. Similarly, the price of coking coal at the Chinese port of Qinhuangdao has also climbed to an unprecedented level of 275 USD/ton. If China reduces imports of iron ore and coking coal, the price of iron ore and coking coal on the world market will drop significantly.
Impact on Vietnam’s steel industry
For Vietnam, the above tax and fee policy changes from China will firstly benefit Vietnamese steelmakers using/depending on iron ore and coking coal with blast furnace technology. In Vietnam, there are a number of manufacturers using blast furnace technology such as TISCO, Viet Trung Minerals and Metallurgical Company (VTM), Hoa Phat, Formosa Ha Tinh…
In terms of scale, by 2020, Formosa Ha Tinh has taken the lead, far ahead of domestic competitors with a total capacity of 7.5 million tons/year from 2 blast furnaces with a capacity of 4,350 m3 each, installed in 2017 and 2020. In 2015, Hoa Phat has 3 furnaces of 550 m3. According to the press, in 2021, Hoa Phat will install and put into operation some 1,350 m3 blast furnaces, bringing the total steel capacity to nearly 8 million tons/year, surpassing Formosa Ha Tinh. The remaining competitors usually have only one or a few blast furnaces with much smaller capacity.
For steel manufacturers using electric arc furnace technology, the above policy change in China will negatively affect these manufacturers, in terms of increasing the cost of input materials of the technology. this, especially scrap steel. In Vietnam, there are still dozens of manufacturers of this type such as Vietnam Italy Steel, Southern Steel, with a total capacity of 7 million tons in 2018, accounting for 38% of the country’s total steel capacity (according to data of the Vietnam Steel Association).
In general, while domestic steel demand is forecasted to continue to increase rapidly thanks to a strong increase in investment in infrastructure (such as the North-South Expressway) and real estate projects, the The country’s reduction in iron and steel exports will benefit Vietnam’s steel producers in general, no matter what technology they produce steel.
However, the impact of China’s removal of import tax on scrap steel on global steel production and export in general and Vietnam in particular may not be too great, because scrap steel supplied in the country of China is much cheaper than imported scrap steel. In addition, the source of imported scrap steel in the world is also limited in size compared to China’s domestic supply.
In summary, recent policy changes related to China’s steel industry are expected to benefit steelmakers using Vietnam’s blast furnace technology by reducing the cost of imported materials such as iron ore and steel. coke/cup. The continued high selling price of finished steel will also benefit all steel producers in Vietnam.
Information resource: Stock investment