Unchecked growth puts steel industry in a bind

The domestic steel industry is caught in a legal and market tangle that has put production far ahead of demand, prompting a call to stop the licensing of new projects and to close sluggish firms.

As many as 32 unplanned projects have crowded the local industry, taking advantage of a legal loophole, according to the Ministry of Industry and Trade’s latest review of the industry’s development plans from 2007 to 2015.

The projects are scattered nationwide, mostly in the provinces of Ba Ria-Vung Tau, Hai Duong and Ha Tinh and Hai Phong city. Among them, only two have begun working and three others are exected to start operations this year.

Le Duong Quang, Deputy Minister of Industry and Trade, said the glut in the industry is a result of fluctuating market prices for steel.

“Before 2007, low prices made it impossible for domestic steel makers to launch expansion plans. However, as prices began rising in both international and domestic markets and the industry became lucrative, enterprises began pouring their money into it, breaking the Government’s development framework for the industry,” said Quang.

The ministry’s review also blames contradictory legal documents for causing the problem.

Based on the Investment Law, all metal producing projects whose investment is below 1.5 trillion VND (88.2 million USD) (also known as Type B) are not subjected to the industry’s strategic plan and do not have to be licensed by the ministry.

However, the Construction Law and its guidelines ask all these Type-B metal-producing projects to get permissions from relevant planning authorities. As a result, 24 and these 32 additional projects are on the list of law-breakers.

Despite its rapid growth over the past two years, the ongoing problems in the steel industry reveal the fact that the lack of sustainable development as well as a supply-and-demand imbalance has become a chronic shortcoming of the industry.

The ministry’s report further points out that steel-making capacity is forcing the industry to depend on recycled steel as its main source of raw material.

Moreover, it is estimated that only 15 and 20 million tonnes of steel are needed by 2015 and 2020 respectively, signalling a surplus of supply over demand that leads to fierce and unhealthy competition in the market.

The ministry admits in the review that the problems have not only risen from laws, but also from its planning approach. (VNA)