Iron and Steel Industry in Viet Nam: A New Phase and Policy Shift

Nozomu Kawabata∗

August 2007

Discussion Paper No. 9

Vietnam Development Forum

∗
Nozomu Kawabata is a professor at the Graduate School of Economics and Management, Tohoku
University in Sendai, Japan. The author may be contacted at [email protected].
Abstract:

The Vietnamese iron and steel industry is entering a new phase. The role of private enterprises has
been expanding, and more large-scale projects funded by foreign capital have been proposed.
State-owned enterprises are losing their special privileges and are thus being forced to find ways to
establish independence from the government. The new phase demands that the government takes new
approaches such as promoting competition and arranging systems for scrap trading while pursuing
environmental protection, controlling the trade liberalization process, evaluating proposed projects
with foreign investment, and expanding the role of business associations.

Keywords: Viet Nam, iron and steel industry, material flow, hierarchical division of labor,
state-owned enterprise, policy shift, capability of government, attraction of foreign direct investment,
environmental protection, Japan-Viet Nam EPA, business association

2
Introduction

1. Purpose

This paper will illustrate that the iron and steel industry in Viet Nam is entering a new phase and
that a policy shift is needed to fit the new phase. The paper also gives recommendations for the
direction of this policy shift. In the remainder of the Introduction, the issues are laid out and
contributions and limitations of earlier studies are discussed. Next, Section 1 outlines the structure of
trade and production in the Vietnamese iron and steel industry. Section 2 clarifies the characteristics
of large-scale steel projects with foreign investment. Section 3 analyzes the policy issues regarding
the industry. The final section concludes the paper.

2. Open Door Policy, Transition to a Market-Oriented Economy and Promotion of Steel Industry

It is widely known that promoting the iron and steel industry in developing countries is not easy
work. It is safe to speculate that fostering the domestic steel industry forces the country to face such
issues as a small domestic market, difficulties in financing, insufficient infrastructure, and shortages
of managers, engineers and technical experts that have the necessary skills.
Furthermore, developing countries today are forced to industrialize under the condition that they
have to integrate into the international economy at an early stage of economic development (Ohno,
2000; Kimura, 2003). For instance, by joining the World Trade Organization (WTO) and signing a
free trade agreement (FTA) or an economic partnership agreement (EPA), more countries in their
early stages of development are required to liberalize trade in goods and services as well as
investment. This makes it difficult for such countries to adopt traditional infant industry protection
policies under which domestic industries are protected and given time to grow and become strong.
Vietnamese industries, at large, are facing such a situation (Ishikawa, 2006: Chapter 6). The forecast
for the steel industry is a bleak one of pressure toward liberalization and international integration.
In fact, Viet Nam, after the Doi Moi policy was implemented, has been opening up to the world for
the last 20 years. Viet Nam reduced intraregional tariffs under the ASEAN Free Trade Agreement
(AFTA) in 2006 and joined the WTO in 2007. When studying the possible future of the Vietnamese
steel industry, it is necessary to consider this background regarding economic liberalization.
Also, Viet Nam is pushing forward economic reform to a market-oriented economy while claiming
to uphold socialism; thus, reform on state-owned enterprises (SOEs) and a policy shift from

3
industrial policy designed for SOEs are the action assignments in the steel industry as well as in the
whole economy. What this reform will look like in terms of the steel industry is also the subject of
this study.

3. Contributions and Limitations of Earlier Studies

The Vietnamese steel industry had not been studied in the field of economics in the Japanese or
English languages until recently. In 2001, the Japan International Cooperation Agency (JICA) and the
Ministry of Planning and Investment (MPI) released the Study on the Economic Development Policy
for the Transition toward a Market-Oriented Economy in the Socialist Republic of Viet Nam, also
known as the Ishikawa Project, which represented the first ever positive analysis (Fukui, Aiba and
Hashimoto, 2001; Ohno, 2001; Kawabata, 2001). Joint research done by JICA and National
Economics University (NEU) followed (Hoang Duc Than et al., 2002, 2003; Kawabata, 2003).
These studies pointed out the significant value of attracting foreign direct investment (FDI) and the
need to import foreign technology. They also envisaged, however, that Viet Nam Steel Corporation
(VSC), a state-owned general corporation, would be leading the industrial development.1 The road to
liberalization was illustrated clearly, but the studies emphasized the need for partial protection during
a certain period to encourage industrial formation.
Later, based on facts including the delay of the SOE projects, formation of private enterprises, and
acceleration of trade liberalization, Kawabata (2005) argued that SOEs would play an important role
in the initial period of development, but that in the following period, private and foreign enterprises
would take that place. Furthermore, for the long sector, the need for competition on equal footing was
emphasized, and for the flat sector, the importance of attracting FDI was pointed out.2
Although the general policy direction was covered in Kawabata (2005), specific changes in the
industry structure and concrete policy issues were not discussed. The purpose of this paper is to
investigate and discuss these areas.

1
VSC was founded in 1994 as one of the 18 state-owned general corporations under the Decision of the
Prime Minister No. 91. This type of general corporation (abbreviated as GC91) is under the immediate
control of the prime minister.
2
Ishikawa (2006) indicated that the theoretical rationale of the industrial policy study had shifted from
infant industry protectionism in the Ishikawa Project to intervention for FDI attraction in the NEU-JICA
Joint Research Project. In the case of the steel industry, it was, to be precise, a shift from assuming the
VSC group as a major agency to not assuming VSC to have the major role, fitting the situation that private
and/or foreign invested enterprises had entered into the industry. This is not to say that the protection
policy was completely rejected and taken over by the FDI attraction policy, but rather, that the shift of
emphasis from the former to the latter was based on the change in the industry situation. Furthermore, this
shift was made not necessarily in the process from the Ishikawa Project to the NEU-JICA Joint Research,
but from Kawabata (2003), which resulted from the NEU-JICA Joint Research, to Kawabata (2005).

4
I. Changing Structure of Production and Trade in the Vietnamese Steel Industry

1. Production Structure and Main Players

Table 1 shows the relation of supply and demand for Vietnamese iron and steel products. Demand
for steel mill products increased by a factor of 1.9 between the years 2000 and 2005. Despite this is
rapid increase, the demand level is still far below those of more industrialized countries in East Asia.
Although domestic production increased by a factor of 2.1, more than 40% of products consumed are
imported. Moreover, as indicated later, a large quantity of billet as a semi-product is imported.

Table 1 Demand and supply of steel in Viet Nam

(Unit:1000 tons)
Growth
2005 2005
from 2000 2005
Year 2000 2001 2002 2003 2004 2005 (South (Thailand
to (Japan)
Korea) )
2005(times)
Domestic Production
(Hot-rolled steel 1,589 1,900 2,123 2,389 2,764 3,264 2.1 101,188 49,374 9,409
products)
Import (Final steel
1,402 1,868 2,418 2,655 2,602 2,417 1.7 4,522 13,600 6,668
products)
Export (Final steel
11 0 52 14 55 151 13.7 27,584 15,282 1,935
products)
Apparent steel
2,980 3,768 4,489 5,030 5,312 5,529 1.9 78,126 47,692 14,143
consumption
Import/Apparent Steel
47.0% 49.6% 53.9% 52.8% 49.0% 43.7% 5.8% 28.5% 47.1%
Consumption
Note: Because of rounding error, it is possible that apparent steel consumption does not equal to production plus import minus expor
   The number in this table does not equal to the number on statistics by International Iron and Steel Institute (IISI）.
Source: South East Asia Iron and Steel Institute (SEAISI) (2006b).

Figure 1 shows the structure of production of the Vietnamese steel industry in 2005, sorted by
material flow based on classification of major product categories.
The upper half of the figure is about the long sector. Rolling capacity of long products was 6
million tons in 2005 (Vietnam Steel Association=VSA, 2007),3 which was more than domestic
demand (unless specified otherwise, production capacity is expressed per year). On the other hand,
steelmaking capacity is small, and over half of billet demand is satisfied with imports.

3
VSA, founded in 2002, is a business association whose members include the VSC and its affiliates,
private enterprises and foreign enterprises. Business associations in Viet Nam are under strict control of
governmental agencies by law, but the real situation varies (Fujita, 2004).

5
 Figure 1 Material Flow of the Vietnamese Iron and Steel Industry, Based on Classification of Major
Product Categories (2005)
Iron production
by blast furnaces Long rolling mills Market of long
202 EAF-Billet products 3,506
continuous Production 3,264
casting factories Export of long
Domestic supply
products 150
of scrap 433 Production 875

Scrap import
260
Import of billets
2,158
Import of long
products 504
Import of flat products 2,958
(In SEAISI statistics classified Pipe fitters Market of flat
by products, 1,367 for hot- Production 450 products and
rolled flat products, 857 for pipes 2,958
cold rolled and surface
treated products and 25 for Export of flat
Cold rolling mill
welded pipes. Total of these product and pipes
Production 80 Galvanizing and
three sub-categories is 2,250) 19
color coating
factories
Production 450

Unit:1000 tons. Source: Author compiled from SEAISI (2006a, 2006b).

Recently a trend has emerged of investment in construction of steelmaking factories that include
electric arc furnaces (EAFs) and continuous casting mills. Steelmaking capacity has increased from
less than 1 million tons in 2004 to 2 million tons in 2006 (VSA, 2007). Problems in billet
procurement will turn into problems in scrap procurement as time passes.
The lower half of Figure 1 is about flat products/the pipe sector. Rolling capacity is small unlike
the case of the long sector. The first cold rolling mill begun operating in 2005, and its rolling
capacity is as little as 400 thousand tons. There is no hot strip mill in Viet Nam.
This imbalance between processes has existed since the late 1990s, but the composition of
producers in each process is changing. VSC and its affiliated companies were leading the way to
industrial development in the 1990s. VSC has jurisdiction over steel production and the market as
GC91. Its subsidiaries include small-scale integrated steel producers, EAF steel producers, rolling
producers, distribution firms and research and development companies. VSC also has a stake in joint
ventures with foreign enterprises that are engaged in long rolling, surface treatment, and secondary
processing. The master plan for the steel industry, proposed by VSC, was approved by the

6
government in September 2001. Its goal was industrial development with VSC leading the rest.4
VSC still plays a large part in the industry, and particularly notable are the new factories built by the
master plan.
One of those new steel factories is Phu My Steelworks, owned and operated by the Southern Steel
Corporation (SSC), one of the VSC affiliates. Its commercial operation started in 2006. Phu My
Steelworks is the most modern EAF-rolling mills in Viet Nam. It has an EAF with the capacity of 70
tons per charge of which the supplier is Danieli from Italy. It can produce up to 500 thousand tons of
crude steel per year and has a rolling capacity for 400 thousand tons of long products.5
Another new factory is Phu My Flat Steel (PFS), which was founded under VSC to operate the first
cold rolling factory in Viet Nam. This mill has been in operation since 2005, with a pickling facility,
two reverse cold rolling mills (one of which also acts as a temper rolling mill) and a batch type
annealing furnace. It can produce up to 400 thousand tons per year. The original plan was to build it
with only one cold rolling mill that would also act as a temper rolling mill for the production capacity
of 205 thousand tons (JICA, 2000), but with the addition of another cold rolling mill, it achieved the
production capacity of 400 thousand tons.6
These modern factories are significant for Viet Nam's steel industry because they can halt the
growing imports of billet and cold rolled sheets. At the same time, they have a great meaning to VSC
because not only can the enterprise improve corporate performance by controlling new factories, it
can also prove its managerial capability to both the domestic and international economic
communities by making these factories successful.
As discussed above, the forming of production facilities by SOEs has been significant in the
Vietnamese steel industry. At the same time, however, this picture is undergoing an enormous change.
Until around 2000, most of the private steel enterprises in Viet Nam were simply opportunistic
producers which produced irregular products using inadequate facilities. Also, there was only one
100% foreign affiliated steel producer. Nevertheless, today in 2007, two kinds of more up-to-date
producer groups are observed outside of the VSC group. One of them is a private enterprise and the
other is a foreign affiliated enterprise that has no relations with VSC.
There are more than ten firms operating that are 100% privately owned or foreign-invested in the

4
The organizational structure of the VSC group and the details of the process for developing the master
plan can be found in Chapter 5 of Kawabata (2005).
5
Originally, its rolling capacity was reported to be 300,000 tons per annum, but according to the Danieli
website, this should be 400,000 tons.
(http://www.danielicorp.com/Danieli_Morgardshammar/Danieli_Morgard_News/danielimorgardshammar
news.htm, accessed on March 1, 2007)
6
Confirmed by interviews with managers of PFS and factory visit at PFS on June 13, 2006. About PFS,
different sources give different capacity amounts. This is probably caused by this specification change.

7
long product rolling business, and they had 40% of the entire rolling capacity in 2004 (Kawabata,
2005, pp.180-181). In the steelmaking process, several private enterprises are operating, such as Hoa
Phat Steel, and about 30% of the EAF capacity was held by private enterprises in 2006 (Author
estimated from VSA, 2007).
Also, in the flat sector, investment from foreign or private enterprises in hot dip galvanizing, color
coating and cold rolling mills is increasing. Lotus Steel (Hoa Sen Corporation) completed the
construction of a cold rolling mill with the capacity of 180 thousand tons in April 2007. Sun Steel
(Sunsco) is building a cold rolling mill with the capacity of 200 thousand tons. Both of the mills
seem to be mainly for producing cold rolled sheets as host materials of hot dip-galvanized sheets (GI
sheets). 7
In short, while VSC still has a presence, producers are being diversified as foreign or private
enterprises have no relation with VSC. VSC has a plan to build two EAF-rolling mills as in the
master plan, but there might be some discussion over how appropriate it would be for an SOE to
make more investment in such competitive sector.
At the same time, it is very hard for VSC and private enterprises to finance adequately the future
projects in the flat sector and upstream processes because these require larger funds and more
advanced technology. Building a small cold rolling mill for PFS with no outside partners, VSC had a
difficult time financing 120–130 million dollars for it, and also caused two-year delay in the
construction (Kawabata, 2005, pp.204-205). At this point, investment projects of private enterprises
are limited to EAF-rolling mills, small cold rolling mills and small hot dip galvanizing lines. The
investment amount of each project is about 100 million dollars. It will be much more challenging for
both VSC and private enterprises to finance a construction project such as continuous cold rolling
mills or hot strip mills that requires over 300 million dollars. This is a different situation from the
steel industries of Indonesia, Thailand and Malaysia where big SOEs or local private conglomerates
have invested lavishly.
Obviously, attracting foreign capital is essential for larger-scale projects in Vietnamese steel
industry. In addition to that, to help compensate still developing Vietnamese steel technology,
transfer of technologies and managerial skills from foreign enterprises will be essential. Large steel
projects initiated by foreign companies, as described later, will be an important contribution to the

7
In the case of Lotus Steel, all products of cold rolling mill are host material for GI sheet. Confirmed
through the interview at Lotus Steel on May 5, 2005. For information on the start of cold rolling mill at
Lotus Steel, see the Lotus Steel website
(http://www.lotussteel.com/en/lotus_steel_en.asp?menu=en_job_opportunity&uid=150; accessed on June
5, 2007). Although GI is an abbreviation of “galvanized iron”, it is really “steel” sheet. It is called
“galvanized iron” due to historical reason.

8
development of the Vietnamese steel industry.

2. Trade Structure

Table 2 shows steel import in Viet Nam classified by exporter countries and items.

Table 2 Steel imports in Viet Nam by major countries of origin (2005)

(Unit：1,000 tons）
South Total
Japan Taiwan China Thailand Russia Ukraine
Korea Import
Pig Iron * * * 14 1 0 0 148
Ferroalloys * * * 7 0 0 0
Ingots and semi products 178 41 14 925 39 437 91 2158
Long products 60 65 42 157 12 25 0 504
Thick and medium plates (Non-alloy) 71 34 21 150 * 186 22 638
Hot rolled sheets and strip (Non-alloy) 177 16 72 191 112 27 56 729
Cold rolled sheets and strip (Non-alloy) 205 45 138 249 16 4 25 704
Galvanized sheets 41 11 11 5 1 0 0 50
Tinplates and tin-free plates 4 2 * 1 0 0
104
All other surface treated sheets 6 11 33 1 17 0 0
Electrical sheets 8 2 8 * 0 4 0 0
Alloy steel sheets 26 13 27 38 6 0 2 N.A.
Seamless pipe and tubing 19 8 1 13 * 3 5 68
Welded pipe and tubing 13 29 15 14 1 0 0 25
Wire products, cast tube and secondary products 4 6 17 61 13 1 0 73
Total steel 818 286 402 1824 219 688 201 5201
Note: All numbers are from statistics of exporters.
   * means less than 1 as a result of rounding off.
Items not specified as non-alloy or alloyed mean all kinds of steel.
Source: Author used data that Japan Iron and Steel Federation (JISF) compiled from customs statistics of each country.
Total import is from SEAISI (2006b) p.71, while the number of total import of long products was from SEAISI (2006a) p.V5.

There are no formal statistics on the steel industry in Viet Nam and customs clearance statistics are
difficult to obtain outside of Viet Nam. Table 2 was compiled from exporters’ statistics, which were
sufficient to reveal the trend although they lack uniformity.
The biggest exporter is China, and Japan and Russia follow. Semi product (billet), imported more
than any other items, comes mainly from China and Russia, and partly from Japan. Long products are
imported from China; plates come from Russia and China; hot rolled sheets and strip come from
China, Japan and Thailand; and cold rolled sheets and strip come from China, Japan and Taiwan at
large. A high percentage of the imports from China and Russia consists of billet; imports from Japan
are concentrated on sheets and strip. Various types of surface treated sheets and seamless pipes which
are reasonably considered as high-grade steel are imported in only small quantities. Among those,
galvanized sheets are imported mainly from Japan, but for other items, exporters are Japan, China,
Korea, Thailand and Taiwan.
Table 3 shows unit prices of items imported in quantities over 10,000 tons, classified by products
and exporter countries. The export unit price of Taiwan is comparatively high. This reflects the fact
that Taiwanese producers make high-grade flat products. However, as the unit price of billet is also

9
high, it could be said that other factors such as exchange rate fluctuation might be reflected as well.
Comparatively, the export unit prices of Russia and Ukraine are ostensibly low, and that of China
follows. For the exception of thick and medium plates, it can be reasonably assumed that the items
from China are low-grade products.

Table 3 Unit price of imported steel in Viet Nam by major countries of origin (2005)
(Unit: dollar per ton)
South
Japan Taiwan China Thailand Russia Ukraine
Korea
Pig iron 312
Ferroalloys
Ingots and semi products 365 378 413 344 334 322 310
Long products 649 663 700 493 710 393
Thick and medium plates (Non-alloy) 461 658 514 575 456 422
Hot rolled sheets and strip (Non-alloy) 506 480 424 451 426 389 354
Cold rolled sheets and strip (Non-alloy) 698 586 616 532 672 469
Galvanized sheets 592 754 617
Tinplates and tin-free plates
All other surface treated sheets 994 848 927
Electrical sheets
Alloy steel sheets 1323 1862 1859 1140
Seamless pipe and tubing 1088 884
Welded pipe and tubing 838 720 1074 727
Wire products, cast tube and secondary products 1251 692 1658
Total steel 617 691 734 451 613 368 363
Note: Items of which the volume is over 10,000 tons as a result of rounding off are mentioned.
All numbers are from statistics of exporters.
Items not specified as non-alloy or alloyed mean all kinds of steel.
Source: Author used data that JISF compiled from customs statistics of each country.

Table 4 Unit price of steel export from Japan to Viet Nam and all countries of destination by products (2005)

Percentage
Percentage
of each Average Average
of each
products to price per ton price per
products to
total steel in (From Japan ton (From
total steel in B/A
physical term to all Japan to
physical term
(From Japan countries) Viet Nam)
(From Japan
to all (A) (B)
to Viet Nam)
countries)
Total steel 100.0% 100.0% 909 617 67.9%
Seamless pipe and tubing 4.3% 2.3% 2035 1088 53.5%
Alloy steel sheets 7.0% 3.2% 1530 1323 86.5%
Welded pipe and tubing 5.6% 1.6% 995 838 84.2%
Galvanized sheets 13.7% 5.1% 770 592 76.9%
Cold rolled sheets and strip (Non-alloy) 10.0% 25.0% 758 698 92.1%
Thick and medium plates (Non-alloy) 8.6% 8.7% 732 461 63.0%
Hot rolled sheets and strip (Non-alloy) 17.9% 21.6% 574 506 88.2%
Ingots and semi products 12.5% 21.7% 389 365 93.8%
Note: Price is denominated in US dollar.
Items not specified as non-alloy or alloyed mean all kinds of steel.
Source: The same as Table 3.

Comparing to other countries, import unit prices of hot rolled sheets and cold rolled sheets from

10
Japan are high but other products from Japan are not necessarily so. To clarify what this means, Table
4 compares the unit price between all exports from Japan and exports from Japan to Viet Nam only.
The export unit price of steel to Viet Nam is 617 dollars, whereas the aggregate export unit price of
steel to all countries is 909 dollars. The export unit price of steel to Viet Nam is much lower; in fact,
it is the lowest of all export unit prices to the major countries of destination.8 This can be explained
by two points: the first point is that a significant fraction of exports to Viet Nam is such inexpensive
products as semi-products (billet), and the second point is that even when the export unit price of the
same product is compared, that to Viet Nam is lower than that to others.
In essence, Viet Nam is an export market of lower grade steel products for Japan, compared to
other major destinations. Viet Nam imports low and medium grade steel even from Japan, which is a
production base of high-grade steel. Moreover, the grade of imports from Russia, Ukraine and China
are lower than that from Japan. This suggests that the high-grade steel market is very small in Viet
Nam.
However, it should be noted that the difference between export prices to Viet Nam and other
countries varies among flat products. Export unit prices of hot rolled sheets and strip (mostly hot
coil) and cold rolled sheets and strip to Viet Nam are close to those to other importers while unit
prices of plates and galvanized sheets are much lower. This may be because, while there is demand in
Viet Nam for high-grade hot coil and cold rolled sheets to manufacture mechanical products
including motorcycles, demand for other high-grade products such as heavy plates used for
shipbuilding and galvanized sheets used for cars is low. These different levels of demand correspond
with the composition of the Vietnamese manufacturing industry.

3. Hierarchical Division of Labor in Sheets and Strip Market

In order to understand the real situation of the competition between domestic and imported steel,
analysis of production and trading classified by product items and exporters is not enough, since even
in one particular product category, there are varieties of specification and application. This
sub-section focuses on sheets and strip, for which import substitution has partly begun. By analyzing
the material flow of sheets and strip classified by their application, product categories and
specifications, this section aims to illustrate the achievements as well as limitations of import
substitution. 9
Let us refer to the market segment for comparatively higher-grade sheets and strip as Market I and

8
The author calculated from JISF (2006), pp. 176–179.
9
Kawabata (2005) studied the Thai market for sheets and strip using this same method.

11
the market segment for lower grade sheets and strip as Market II. Market I in Viet Nam includes flat
products for firms manufacturing products for export or products for domestic use but requiring the
same quality level as the ones in industrialized countries. Steel for automotive bodies (galvannealed
sheet, cold rolled sheet and high tensile hot rolled sheet), motorcycles (cold rolled sheet), home
appliances (prepainted sheet and cold rolled sheet), steel furniture for export (cold rolled sheet), and
motors (electrical steel sheet) are included. Buyers of those steels are mostly foreign affiliated
manufacturers. Market II includes the other, lower grade steel sheets, which are referred to as
“conventional” in the industry. Here, most of the flat products for construction are included.
Moreover, sheets and strip for bicycles or home furniture for domestic consumption, welded pipe,
and parts for motorcycle repair and some other uses are included.10

Figure 2 Material Flow of Cold Rolled and Surface Treated Flat Products in Vietnam, Based on Classification
of Applications, Product Categories and Specifications (2005-2006)
Import of high grade surface treated Market I
sheets (Galvannealed sheet,
Electrolytic galvanized sheet, etc) (High grade
application for
Import of tinplates Automobile,
Electrical and
electronic
Competition equipment,
Import of high grade cold rolled motorbike, home
sheets (Deep drawing sheet, Tinplating factory
appliance for
electrical sheet, tin mill black (Perstima)
export)
plate, etc)

Import of cold
rolled sheets for Market II
conventional use Galvanizing and (Conventional
color coating application for
factories construction and
Competition (BlueScope, SSSC, manufacturing
etc) for domestic
Cold rolling mill
Import of hot (PFS)
consumption)
coils
Competition
Import of galvanized
sheet and prepainted
Source: Author compiled based on factory visits, galvanized sheet for
interviews and various materials. construction use

Figure 2 shows the material flow of sheet products to Markets I and II in Viet Nam. Ironmaking,
steelmaking and hot rolling process for sheets and strip are not done in Viet Nam. Thus, hot coils and

10
From the feasibility study report on building PFS (JICA, 2000) and the author’s field survey in Viet
Nam. Markets I and II are conceptual categorizations. In reality, sometimes I and II could share the same
customers that buy various specifications.

12
plates are all imported and there is no competition between domestic and imported products in these
markets. Therefore, only cold rolled sheets and strip and surface treated sheets are dealt with in
Figure 2.
A sole high-grade flat product produced in Viet Nam is tinplate from Perstima Viet Nam, which is
a 100% subsidiary of Perstima Berhad in Malaysia. All the rest of the high-grade steel is imported.
On the other hand, lower grade steel sheets are produced by various domestic steelmakers involved in
different stages of processing.
In June 2006, 70% of PFS’s product was the host material for GI sheets and the rest of the cold
rolled sheets and strip was sold mostly to pipe fitters. PFS was also producing a small amount of
press materials which are only sold to wholesalers. Thus, it would be reasonable to assume that they
were not taking direct orders of high-grade sheets and strip from manufacturing and assembling
companies. 11 That is a challenge of PFS’s technology and operation.
Surface treating enterprises such as BlueScope Steel Viet Nam (BSV) and Southern Steel Sheet
Corporation (SSSC) are producing galvanized sheet, 55% aluminum-zinc alloy plated steel sheet and
prepainted galvanized sheet (PPGI) all for construction.12 Those are rather high-grade products as
for construction. BlueScope, in particular, has successfully built a brand name in the construction
industry by not only processing sheets and strip but also handling building designing and installment
altogether. Nevertheless, no surface treatment enterprise is producing flat products for automobiles or
electrical/electronic equipment as yet.
In essence, Vietnamese markets for cold rolled sheets and strip and surface treated sheets are
structured in a hierarchical division of labor. The demand for high-grade steel was derived as the
manufacturing and assembly industry was brought into Viet Nam by foreign enterprises. Domestic
steel enterprises have not been able to supply this market. Thus, most high-grade sheets are being
imported. However, considering this situation along with the import composition analysis done in the
former sub-section, the market for high-grade flat products appears to be small. This reflects that
Vietnamese industrialization has made limited achievements so far.

II. Large-Scale Steel Projects with Foreign Direct Investment

1. Outline of Large-Scale Steel Projects

11
Interview with a manager at PFS on June 13, 2006.
12
55% aluminum-zinc alloy plated steel sheet is the steel sheet which is hot dip plated with zinc and 55%
aluminum combined. PPGI is a steel sheet which is hot-dipped with molten zinc and color-coated with
synthetic resin (Tekko Shimbun Corp. ed., 2006, pp. 19, 32–33).

13
 In Viet Nam, FDI attraction has been accelerated in the manufacturing industry overall, and that
includes the steel industry. According to the master plan, foreign investment meant joint venture with
VSC. However, some projects not addressed in the master plan have been proposed. Some of these
projects have been already approved. Not only joint ventures but some 100% foreign invested
projects obtained licenses.
Table 5 shows the large-scale foreign-invested projects that were either proposed or approved by
June 2007. In this sub-section, technology, amount of investment and investors of these projects are
examined. Then, the supply and demand balance will be examined in the next sub-section.
There is a rising criticism in Viet Nam toward approval of some large projects. Experts in the steel
industry believe that some of the projects are severely under-financed, and the government should
take a better and more careful review before giving approval (Vietnam Economic Times [VET],
October 1, 2006; VietNamNet Bridge [VNN], September 6, 2006). Especially, Pham Chi Cuong, a
vice-chairperson (currently serving as a chairperson) of VSA has been candidly stating that a project
by Tycoons Worldwide Group has serious problems (VNN, August 6, 2005). Characteristics of this
project, including this criticism, are discussed below.
Tycoons is planning to build an integrated steelworks with the crude steel production capacity of
4.5 million tons with 1.056 billon dollars of investment, and to produce billet in the first phase. In
addition, hot coil and cold rolled sheets and strip are planned to be produced in the second phase.
Tycoons is, however, a wire rod roller/bolt manufacturer with production bases in Taiwan and
Thailand, and it does not possess technology for pig ironmaking, steelmaking and flat product rolling.
Jinan Iron and Steel Group in China, which will provide 40% of the capital, may offer ironmaking
and steelmaking technology. However, Jinan has only brief experience in sheet rolling, because its
hot and cold strip mills just started operation in 2006 (China Iron and Steel Association [CISA], 2006,
pp. 20–23; Data from JISF).
Critics say that the amount of investment would not be enough for constructing integrated
steelworks. It is said that the technology style adopted in China in which Chinese and secondhand
facilities are used will save the investment amount but that productivity and environmental control
will be sacrificed (VET, October 1, 2006; VNN, September 6, 2006). Indeed, the chief of the
Administration Department of Dung Quat Economic Zone suggested that Tycoons would possibly
use Chinese or Taiwanese facilities (Vietnam Economy [VE], November 13, 2006).

14
Table 5 Large-Scale Steel Projects by Foreign Investment in Viet Nam
POSCO (South Essar Steel Tycoons Worldwide Sun Steel (Taiwan),
Korea):100% (India):65%, Group (Taiwan):60%, Koncett (Taiwan),
VSC:20%, Vietnam Jinan Steel and Iron Minmetan (Australia)
Investor
General Rubber Group (China):40%
Corporation
(GERUCO):15%
Phu My Industrial Phu My Industrial Dung Quat Economic Ha Tinh Province
Location Zone, Ba Ria Vung Tau Zone, Ba Ria Vung Tau Zone, Quang Ngai
Province Province Province
1st stage: Cold rolling Hot strip mill (2 million Integrated steelworks Integrated steelworks
mill (1.2 million t/y) t/y) (1st: 2 million t/y. Blast (4.5 million t/y) Thach
Process and
2nd stage: Hot strip furnace and Khe iron mine
Production
mill (3 million t/y), steelmaking) (2nd:
Capacity
Hot-dip galvanizing additional 2.5 million
line (0.4 million t/y) t/y. Integrated process)
1st stage: Cold rolled Hot coil 1st stage: Billet (Partly Unannounced
sheets and strip exported)
Products 2nd stage: Hot coil and 2nd stage: Hot coil and
hot-dipped galvanized cold rolled sheets and
sheet are added strip are added
1st stage: USD 491 USD 527 million 1st stage: USD 556 USD 1.95 billion
million million
2nd stage: 2nd stage: USD 500
Investment
Unannounced million
Amount
Total: Unannounced Total: USD 1.056
(Probably about USD billion
1.1 billion)
1st stage: 2007-end of Until 2009 1st stage: until 2009 Unannounced
Construction
2009 2nd stage: until 2014
Period
2nd stage: 2010-2012
Licensed in November Contract was placed in Licensed in September Applied for a license in
Status
2006 February 2007 2006 May or June 2006

15
Table 5 (continued)
Samoa Qian Ding POSCO, Vietnam Tata Steel (India), VSC
Group (Group firm of Shipbuilding Industry Steelworks: Tata 65%,
Chien Shing Stainless Corporation (Vinashin) VSC 35%
Investor Steel) (Taiwan) Thach Khe Mine: Tata
30%, details of
Vietnamese investors
not announced
My Xuan A Industrial Unannounced Ha Tinh Province
Location Zone, Ba Ria Vung Tau
Province
Stainless factory (0.72 Integrated steelworks Integrated steelworks
million t/y) (Probably (4-5 million t/y) (4.5 million t/y) Thach
Process and
EAF-rolling mill) Khe iron mine
Production
Capacity

Stainless sheet (80% is Unannounced Unannounced

exported to Taiwan)
Products

USD 700 million USD 4 billion USD 3–3.35 billion

Investment
Amount

Construction Unannounced Unannounced Unannounced

Period

Licensed in November Cooperation of MoU signed on May 29,

Status 2005 feasibility studies. MoU 2007
signed on May 23, 2007
Source: Author compiled from the following materials: VET, October 2, 2006; News of Quang Ngai Province,
November 13, 2006 (http://www.quangngai.gov.vn/quangngai/english/news/2006/14687/); Liberated Saigon Online,
September 22, 2006 (accessed via website of the Ministry of Industry
http://www.moi.gov.vn/EN/News/detail.asp?Sub=123&id=24312); VNN, June 5, September 6, 2006; Vietnam Agency,
September 18, 2006, May 29, 2007; Viet Nam News [VNS], September 17, 2005, August 24, 2006; Taiwan Economic
News [TEN], September 20, 2005, April 28, 2006; Vietnam Investment Review, February 10, 2004 (accessed via
website of VET on April 27, 2004); Reuters December 26, 2005; POSCO IR News, November 24, 2006, May 25,
2007 (http://www.posco.co.kr/homepage/docs/en/info/press/s91c1010015l.jsp); Essar Group News Release, February
12, 2007 (http://www.essar.com/steel/pr/2007_02_12.htm); Japan Metal Daily [JMD], September 27, 2006; Tata
Steel Press Release, May 29, 2007 (http://www.tatasteel.com/newsroom/tatasteelsign-mou.asp); Vietnam Business
Forum, May 25, 2007; answer to my question provided by VSA, February 14, 2007.

16
 The Chinese steel industry is keeping construction costs low by using domestically manufactured
facilities and secondhand facilities. Also, Dung Quat Economic Zone offers developed infrastructure
for heavy industries, possibly helping lower the necessary investment amount. Even so, Tycoons’
amount of 1.056 billion dollars is far from sufficient. To date two pre-feasibility studies on integrated
steelwork projects in Viet Nam have been conducted, one by JICA and the other by Arcelor.
According to JICA, crude steel production capacity of 4.53 million tons requires 5.728 billion dollars
(JICA, 1998, p. IV-2-8-1). Arcelor says crude steel production capacity of about 4 million tons costs
about 3 billion dollars (VNN, August 6, 2005). Some of the other East Asian projects of similar sizes
and for similar product mixes are listed in Table 6. All of these projects have investment amounts of
over 2 billion dollars. In contrast, the much smaller investment amount for the Tycoons project
naturally seems questionable.

Table 6 Some Projects of Integrated Steelworks in East Asia

Location South Korea Taiwan China China
Enterprise Hyundai Steel Dragon Steel Ningbo Iron and Anshan Iron and
(China Steel holds Steel (Subsidiary Steel Group
47.88%) of Hangzhou Iron
& Steel Group)
Status Under Under construction Licensed Under construction
construction
Production 7 million t/y 2.268 million t/y 4 million t/y 5 million t/y
capacity of crude
steel
Major products Hot coil, medium Hot coil Hot coil, cold Wide medium and
and thick plate rolled sheets and thick plate, hot coil
strip, galvanized and cold rolled
sheet sheets and strip
Investment amount KRW 5.24 trillion TWD 110 billion CNY 17 billion CNY 26.6 billion
(Local currency)
Investment amount USD 5.58 billion USD 3.33 billion USD 2.18 billion USD 3.41 billon
(USD)
Remarks First stage
Source: Author compiled from JMD, January 29, 2007; YONHAP NEWS, October 25, 2006; and materials
from JISF.

Sunsco's plan for mining development and integrated steelworks construction also has some
unclear points. Originally, the firm was founded as Vina Ta Phong in 1996 using Taiwanese capital. It
began by manufacturing pipes and expanded its business to bar and wire rod rolling and flat product

17
painting. 13 At the beginning of 2004, the firm was licensed to build an EAF-rolling mill (VET,
February 10, 2004, accessed on April 27, 2004).
However, this plan did not make any progress and the firm’s bar and wire rod line operation
stopped with poor business results. Sunsco then shifted its business focus to flat products. The firm
began to operate a hot dip galvanizing line and prepared for the operation of a reverse cold rolling
mill. However, the firm found itself in financial difficulties after experiencing material shortages and
market slowdown. In November 2006, Sunsco announced that it would form a business alliance with
Maruichi Steel Tube, Ltd. from Japan. Sunsco will gain capital and Maruichi Steel Tube will own
35.3% of Sunsco’s share and will provide support in terms of the pipe and flat products business.14
It is hard to imagine that Sunsco will be able to carry out the project with 1.95 billion dollars
investment; it is currently in the throes of corporate rehabilitation and its corporate capital is as little
as 74.42 million dollars even after the capital increase from its recently formed alliance. Also, it is
not certain whether the invested amount of this plan covers both integrated steelworks and the Thach
Khe mine project. If the mine project is included in the plan, the amount is too low. Additionally,
Sunsco does not possess the technology for ironmaking and steelmaking. Although the business
alliance with Maruichi Steel Tube will bring them the possibility to bring their pipe and flat product
business back to health, it is highly doubtful that Sunsco will succeed in the mining and integrated
steelworks project.
Samoa Qian Ding Group, a subsidiary of Chien Shing Stainless Steel Co., Ltd. from Taiwan, has
yet another questionable project. Chien Shing’s sales in 2006 were 149 million dollars, and the firm
posted a loss of 5.25 million dollars after tax deduction (TEN, April 28, 2006). According to its
annual report and the website, Chien Shing is a stainless steel roller that manufactured 120 thousand
tons in 2003.15 An integrated stainless steelworks project with production capacity of 720 thousand
tons and investment of 700 million dollars is quite large for Chien Shing to take on, considering its
current business size. In fact, there is no report that the construction has begun, and Chien Shing is
nowhere to be found in the report on EAF installation from VSA. It is speculated that there is not
much progress to report on the Chien Shing project.
POSCO, an integrated steel producer, has a project with an investment of about 1.1 billion dollars
to build a cold rolling mill with the capacity of 1.2 million tons, a hot strip mill with 3 million tons,
and a hot dip galvanizing line with 400 thousand tons. The original plan was to build a cold rolling

13
Sunsco Website (http://www.sunscogroup.com/english/english.htm#).
14
JMD, December 20, 2006; Maruichi Steel Tube, Ltd. Press Release, November 8, 2006
(http://www.maruichikokan.co.jp/ir/news.html).
15
Annual report of Chien Shing Stainless Steel Co., Ltd., 2003 edition (Chinese Language) and some data
on Chien Shing Stainless Steel Co., Ltd. website (http://www.csssc.com.tw/en/index.html).

18
mill with 700 thousand tons in the first phase, and to increase the capacity to 1.1 million tons in the
second phase of construction. However, the production capacity in the first phase was changed to 1.2
million tons. 16 POSCO is the largest integrated steel producer in South Korea and ranks fourth in
world crude steel production.17 It can be considered an owner of proven steel technology. Dinh Huy
Tam, secretary of VSA, also agrees, saying that POSCO will be able to take advantage of the state of
the art technology (Viet Nam Economic News Online, December 14, 2006). POSCO is already
operating three joint venture companies—VSC-POSCO (a long product rolling firm), POSVINA (a
galvanizing firm), and Vinapipe (a pipe producer)—and it has considerable experience.
A joint venture project of Essar Steel, VSC, and Viet Nam General Rubber Corporation
(GERUCO) is to build a 2 million-ton hot strip mill with a 527 million dollar investment. Essar is an
integrated steel producer with hot briquette iron (HBI) technology, and is the largest exporter of flat
products in India. 18 The company has hot rolling technology for flat products, but it is adopting HBI
technology instead of blast furnace. Thus, it is a reasonable speculation that Essar is not as
experienced as POSCO when it comes to high-grade steel production.
Although the investment amounts of POSCO and Essar are not larger than those of Tycoons and
Sunsco, these amounts are reasonable for constructing cold rolling mills and hot strip mills.19 Those
projects will possibly push forward the import substitution for flat products, for which demand is
likely to increase as Viet Nam’s industrialization accelerates. This is similar to the case with the
investment of Japanese affiliated firms in Thailand (Kawabata, 2005, Chapter 4). Notably, POSCO,
with its technology for high-grade flat products, will have an advantage when the high-grade product
market expands. The key will be whether the firm can provide high-grade sheets to foreign affiliated
manufacturing firms, especially Japanese affiliated firms, in Viet Nam. POSCO will not have an
advantage if lower grade products dominate the market.

16
Originally reported investment amount was 1.128 billion dollars. After the modification to the rolling
mill plan, there has been no report on the investment amount. About 1.1 billion dollars is the author’s
estimate. POSCO IR News, November 24, 2006
(http://www.posco.co.kr/homepage/docs/en/ir/news/s91b1010030l.jsp).
17
JISF (2006) pp. 54–55. Original source is Metal Bulletin, a ranking in 2005.
18
Essar Steel website (http://www.essarsteel.com/steel/profile.htm), accessed on June 19, 2007.
19
This can be compared with the Thai case of the modern flat rolling mill construction projects in 1990s.
Sahaviriya Steel Industries (SSI), which was founded by a local business group, built a hot strip mill with
a capacity of 2.4 million tons with 520 million dollars of investment. SSI reported the amount to be 13.3
billion baht. This was converted to US dollars at the exchange rate of 1 dollar = 25.5 baht. See SSI
website (http://www.ssi-steel.com/en/investor/investor.htm). The Siam United Steel (SUS) (1995), which
was a joint venture between a Thai enterprise and Nippon Steel from Japan, installed a cold strip mill with
a capacity of 1 million tons with an investment of 700 million dollars. Thai Cold Rolled Steel Sheet
(TCRSS), which was a joint venture between SSI and NKK (now JFE Steel) from Japan, installed a cold
strip mill with a capacity of 1 million tons with an investment of 542 million dollars (Kawabata 2005, p.
156). In the cases of SUS and TCRSS, Japanese technology was introduced. From these cases, it is clear
that the investment plans of Essar and POSCO are reasonable.

19
 The challenge for both POSCO and Essar will be adequately securing host materials such as slabs
and hot coils. POSCO is considering procuring the host materials in the future from new integrated
steelworks currently under construction in Orissa state in India. But meanwhile, they will bring the
materials from South Korea (JMD, November 21, 2006). It is reported that Essar will be obtaining
the host materials from India (International Herald Tribune, February 12, 2007).
As illustrated above, the projects of POSCO and Essar are realistic and have some potential to help
further development of the Vietnamese steel industry. In contrast, the three projects with Taiwanese
investors seem to have questionable feasibility. Regardless of the industry, direct investment from
Taiwan tends to have a lower execution rate (percentage of actual investment amount from the
licensed amount). 20 In many cases, they apply for licenses before the projects are fully planned.
These steel projects might reflect such characteristics of Taiwanese investors.
Most recently, two large-scale projects were added to the list. One is cooperation on a feasibility
study of integrated steelworks between POSCO and Vietnam Shipbuilding Industry Corporation
(Vinashin). The other is cooperation on a feasibility study of integrated steelworks and iron ore mines
between Tata Steel and VSC. Both of these projects have only reached the stage of signing a
memorandum of understanding. The progress of these projects should be watched.
Additionally, Eminence Group announced in May 2007 that it will construct integrated steelworks
and other facilities in Thanh Hoa Province with the surprisingly high capital of 30 billion dollars.21
However, Eminence has not provided sufficient information about itself. Its name is not known in the
steel business. The chairman of the group announced that a press conference would be held to explain
the details of this project. However, the conference was canceled. Eminence’s project is not shown in
Table 5 because the information available suggests that the project is extremely unrealistic.

2. Market Issues

In this sub-section, large-scale flat product projects are discussed in terms of supply-demand
balance. The method of forecasting demand is complicated. Among the flat products, all hot coils and
some medium and thick plates can be produced by hot strip mills. The remaining medium and thick
plates have to be rolled by specialized rolling mills. Hot coil is the host material of all sheet products
and most welded pipes. The total potential demand for hot strip mills in Viet Nam can be calculated

20
For the accumulated investment from 1988 to 2005, the execution rate of Taiwan was 36%. During the
same period, the rates were 75% for Japan, 49% for South Korea, and 48% for Singapore (Japanese
Embassy in Viet Nam, 2006, p.17).
21
Information about the Eminence Group’s project was found in VE, May 17, 2007 and VNN, May 5,
May 22, May 25, May 30, 2007 (accessed on June 28, 2007).

20
by adding imported flat products to imported welded pipes and subtracting the plates that have to be
rolled with specialized mills. Here it is assumed that 70% of medium and thick plates need to be
rolled with specialized rolling mills.
The estimate was calculated using two formulas. One is adding up imports of some categories
including hot rolled sheets and strip, cold rolled sheets and strip, surface treated sheets, welded pipes,
and 30% of medium and thick plates. This yields a demand estimate of 1.803 million tons. The other
formula is subtracting 70% of plate import from the total import of flat products. The result is an
estimate of 2.511 million tons. Thus, the demand for hot strip mills can be anywhere between 1.803
million and 2.511 million tons.22 Using a similar method, the demand for cold rolling mills can be
calculated by adding the imports of cold rolled sheets and surface treated sheets to the produced cold
rolled sheets. This amount is approximately 0.937 million tons.
The demand for steel mill products has been increasing by about 10% per annum since 2001.
Based on the assumption that this trend continues, 10% growth can be considered as a standard
scenario. Then a pessimistic scenario with 7% growth and an optimistic one with 13% growth can be
assumed.
Table 7 shows the minimum and maximum possible estimates of demand along with the estimated
capacity of production for the purpose of comparison. The minimum estimate of demand means that
the demand increases by 7% from the estimated minimum volume of current demand; the maximum
estimate of demand means that the demand increases by 13% from the estimated maximum volume
of current demand. In this estimate, it is assumed that all facilities begin operating fully in the year
following their construction.
The demand for cold rolled sheets and strip in the year 2010 is predicted to be 1.314–1.726 million
tons. Production capacity will be around 1.98 million tons. The size of the domestic market is not
large enough for all of the cold rolling mills to work at full production. In addition, if the cold rolling
mill of Tycoons produces 1.25 million tons annually, 23 the production capacity in 2015 will be 3.23

22
Calculated based on SEAISI (2006a, 2006b). The minimum estimate was calculated by adding up the
figures from the SEAISI import statistics by product category. The maximum was estimated from the
import value of total flat products reported from VSC to SEAISI. A large gap appears even though the
sources for both values are the same institute. Though the reason is unknown, it can be said that
Vietnamese steel statistics is still undeveloped.
In this estimation, it is assumed that the demand for final products also means the demand for host
materials. However, it is noted that domestic demand for host materials does not exist if production
capacity for final products runs short. For instance, demand for surface-treated sheet is considered also to
be the demand for cold rolled sheets and hot coils in this calculation. However, surface-treated sheets will
have to be imported if the capacity of the galvanizing line is insufficient, so there will be no domestic
demand for cold rolled sheets and hot coils. Even if there is sufficient capacity among hot strip mills and
cold rolling mills in Viet Nam, they cannot operate without buyers. This is a limitation of this estimation
procedure.
23
Production capacity of Tycoons’ cold roller has not been announced. Here it is assumed to be 1.25

21
million tons whereas the demand will be 1.843–3.181 million tons. Even in the most optimistic
demand scenario, the production capacity will be more than demand.

Table 7 Forecast of demand-supply relations in flat steel sector, Viet Nam

（unit: 1000 tons）
Capacity
Demand of cold rolled Capacity
Demand of hot rolled of hot
Year sheets and strip of cold Facilities that start full operation
sheets and strip strip mill
(CRM) rolling mill
(HSM)
Maximum
Minimum
estimate + 13%
estimate + 7% growth
13% growth
7% growth per annum
growth per annum
per annum
per annum
2005 1803 2511 937 937 0
2006 1929 2837 1003 1059 400 400 of CRM (PFS)
2007 2064 3206 1073 1196 400
2008 2209 3623 1148 1352 780 200 of CRM (Sunsco) and 180 of CRM (Lotus Steel)
2009 2363 4094 1228 1528 780
2010 2529 4626 2000 1314 1726 1980 2000 of HCM (Essar-VSC-GERUCO) and 1200 of CRM (POSCO)
2011 2706 5228 2000 1406 1951 1980
2012 2895 5907 2000 1505 2204 1980
2013 3098 6675 5000 1610 2491 1980 3000 of HSM (POSCO)
2014 3315 7543 5000 1723 2815 1980
2015 3547 8524 7500 1843 3181 3230 2500 of HSM (Tycoons) and 1250 of CRM (Tycoons)
Note: Demand as host material is included.
Source: Author compiled from the SEAISI data.

The demand in 2010 for flat products that can be rolled by hot strip mills (hot coil and some
plates) is 2.529–4.626 million tons while joint venture between Essar-VSC-GERUCO will produce 2
million tons. At that point, operation at a high capacity utilization rate can be maintained while
achieving some import substitution. Then, in 2013, the demand will be 3.098–6.675 million tons
while production capacity will be 5 million tons since POSCO will begin full production with the
capacity of 3 million tons. In addition to that, if Tycoons begins full production in 2015 with the
capacity of 2.5 million tons, the total capacity will be 7.5 million tons whereas the demand will be
3.547–8.524 million tons. In order to keep high capacity utilization rates at all mills, the industry
needs 12% or more annual increase in the demand starting from the maximum point of current
demand.
These scenarios are only forecasts; they will be uncertain as long as it remains unknown whether
all the large-scale projects will be carried out. Moreover, the POSCO-Vinashin and Tata-VSC
projects are not included in the calculation because their details have not been released. Despite these
shortcomings, these figures make it clear that it is not easy to carry out large-scale steel projects in
Viet Nam, where the domestic market is still small. The foreign firms might end up considering
exporting because their large facilities produce more quantity than Viet Nam's domestic market can
consume, a factor that causes high risks for projects. Another way to look at the situation is that these

million tons, which is half of hot strip mill capacity.

22
investors might be proposing large-scale investment plans intentionally so as to acquire oligopolistic
power by deterring other firms from entering the Vietnamese market. In this case, feasibility of those
projects becomes questionable.

III. Future Policy Issues for the Vietnamese Steel Industry

Policy issues are also shifting as the structure and players in the Vietnamese steel industry are
changing. In this section, the major issues are discussed and examined.

1. Reform of State-Owned Enterprises and VSC’s future

VSC is keeping the status of GC91, an SOE under the immediate control of the prime minister, but
this status itself is changing because of the open-door policy and SOE reform. VSC is losing its
original status as a supervisor of production and the market of the Vietnamese steel industry.
Investors are now more diversified and large-scale projects include not only joint ventures with VSC
but also 100% foreign invested enterprises.
Despite these changes, VSC is still enjoying privileges as an investor based upon the governmental
master plan. As mentioned above, VSC has a plan to build, within its group, EAF-rolling mills in the
central and northern area in addition to Phu My Steelworks.24 This had been planned before the time
of private enterprises emerged. Now that private enterprise is viable enough to invest in the long
sector (at least in long construction steel), If VSC continues to invest in this sector as privileged SOE
group, the corporation may end up crowding out private sector investment and encouraging excessive
capacity of rolling plants.
All GC91s, including VSC, were under the strict control of the government in the 1990s
(Marukawa, 2001). However, the Vietnamese government is pushing forward with their restructuring
and conversion to stock corporations. VSC's privileged status will be diminished by its conversion to
a joint stock corporation, although this process is not moving as quickly as planned (Ishida, 2004:
45-49). If the corporation loses its privileged status, it will reconsider the feasibility of the
EAF-rolling mill projects. It means that the barrier to private investment would be removed.
Therefore, the government should take away the VSC’s privilege and help it to become one
independent business group in the market.

24
This EAF-rolling mill to be built in the central area is not a part of the governmental master plan. It is
an independent project of VSC.

23
 Taking away its privileged status would not automatically mean the downfall of the VSC group.
VSC and its affiliates, SSC and PFS, founded the very first cold rolling mill and the most modern
EAF-rolling mill in Viet Nam. Governmental tasks that promote the investment of SOEs have been
finished. However, there are new managerial tasks. VSC and its affiliates will have to establish
autonomous management and make profit without governmental support.
VSC still has the advantage of knowledge and experience in the steel business in Viet Nam even
though they might not be enough as a player of the global steel industry. Additionally, VSC can
maintain good communications with the government even without its privileged status. In the steel
industry, the larger the investment is, the more necessary policy support becomes in terms of securing
the land, improving infrastructure, communication with the local community, and environmental
measures. Foreign enterprises might try to create business partnerships with an SOE which retains
good relations with the government (these relations should be based on fair communications, not
corruption). So VSC does have an opportunity to become a business partner with a powerful foreign
investor if it keeps sound management. VSC’s managerial skills can be evaluated based on the
operation of SSC Phu My Steel Factory and PFS and also the joint venture project with Essar. VSC
and its subsidiaries should build their future through the success of those projects.

2. Scrap Procurement and Environmental Control

As discussed above, steel factories based on EAF and continuous caster are becoming popular in
Viet Nam. This will make for progress on import substitution of billets. However, as the demand for
scrap increases, its procurement is becoming a problem. Although it has never been studied
systematically, scrap yielded in Viet Nam is as little as 700–800 thousand tons, according to VSA
(VNN, December 11, 2006). In 2005, 260 thousand tons of scrap were imported (Figure 1), but VSA
estimates that the amount will increase to 700–800 thousand tons in 2006, 1.3 million tons in 2007,
and 2 million tons in 2008 (VNN, December 11, 2006).
Development of a system for domestic scrap recovery and facilitation of import is an urgent matter.
The first tasks to be undertaken to address this matter are an industry survey, standardization of scrap
specification, and compiling of industrial statistics.
At the same time, there is a definite need for a system and policy to prevent contamination and
pollution due to harmful substances. VSA agrees on this point. 25 An appropriate policy has to be
created based on the study of experiences in other countries.26 Environmental control at EAF plants

25
Interview with VSA executives on June 15, 2006.
26
Examples in other countries include the following: (1) Radioactive material being found in scraps; (2)

24
as well as methods for handling scrap will become important issues. Air pollution control, treatment
of slag, and collection of dust will be of particularly high importance. Standardized guidelines for
environmental control at EAF plants will be needed for the entire industry.
Recently, a conflict occurred between scrap procurement and environmental regulations. Though
steel scrap is not listed as hazardous in the Basel Convention (on the Control of Transboundary
Movements of Hazardous Wastes and Their Disposal), in Viet Nam import and export of steel scrap
was banned in the Law on Environmental Protection, which was enacted in 1994. After that, in April
2004, the import ban was lifted to allow scrap as recyclable material (Kojima and Yoshida, 2006).
However, tight restrictions were put back in place by the revised edition of that law, which was
adopted in National Assembly in 2005 and was enforced on July 1, 2006. The Ministry of Natural
Resources and Environment (MONRE) interpreted the revised law as meaning that only steel
producers with scrap yards and scrap recycling facilities should be allowed to import scrap.27 This
means that traders engaged in proprietary trading cannot import scraps(VNN, December 11, 2006).
This caused the disruption of import procedures, and even the scrap VSC ordered was withheld
temporarily at Hai Phong Port (VNN, October 26, 2006; VNS, October 31, 2006).
Even before the revised Law on Environmental Protection took effect, VSA had been arguing that
this interpretation would not only cause import disruption but would also impede import substitution
of billet. Since the law took effect, VSA has been pushing strongly for flexible implementation of the
law. As a result, in February 2007, the Ministry of Trade (MOT) and MONRE reached an agreement
that allows trading firms with scrap yards and recycling facilities to import scrap. This agreement
will be legalized in a circular guiding the implementation of the Law on Environmental Protection
(VNN, February 12, 2007).
Viet Nam needs to develop EAF construction and scrap recovery while considering environmental
protection from the early stage of industrial development. This is not easily done considering the
current financial and administrative capacity of the government and enterprises. The case of scrap
import restriction revealed that steel scrap is not recognized to be essential material for steel
production, and that the administrative authorities and business associations did not maintain
sufficient communication with each other. Cooperation should be arranged among the relevant
government ministries and industry organizations to establish distinct measures appropriate for the
steel industry's conditions.
It may be helpful for Viet Nam that industrialized countries have already established systems and

An exporter shipping motor cores and electrical switchboards as steel scraps without intermediary
treatment; and (3) Discarded machinery being imported as a scrap source and the dismantlement process
causing pollution. Various measures have been taken to solve those problems in industrialized countries.
27
Also confirmed in an interview with VSA (June 15, 2006).

25
policies in the field of scrap treatment. These matters may be considered as a topic for international
cooperation. For Viet Nam, however, overseas aid for environmental protection and recycling is more
readily available than that for steel industry promotion.

3. Japan-Viet Nam EPA and Steel Industry

Viet Nam has no alternative but to move ahead with liberalization of trade and investment. The
country is moving in that direction, and the steel industry is no exception.
Table 8 shows import tariff rates on steel mill products and the domestic producer of each product
category correspondingly. Higher tariffs are put on products that are produced domestically. However,
the tariff rates are not very high in general; the highest one is 12%. Until 2001, imports of bars and
wire rods were banned and a 30% tariff was put on galvanized sheets (Kawabata, 2005:198-199).
Considering that fact, Viet Nam is now moving forward with liberalization.

Table 8 Import tariff rates for major steel products in Viet Nam
Domestic
production
(○
Tariff rate Producers in Viet Nam
=produced,
×=not
produced)
Billet 2 ○ EAF mills
Bar 5-10 ○ EAF mills and rolling producers (Only construction steel)
Wirerod 5-10 ○ EAF mills and rolling producers (Only construction steel)
Slab 2 ×
Hot rolled sheets and strip (Width is 600 mm or more) 0 ×
Cold rolled sheets and strip (Width is 600 mm or more)
 -Tin mill black plate 3 ×
-Others 7 ○ PFS and Lotus Steel
Non-alloy
Electrolytic galvanized sheet(Width is 600 mm or more) 5-10 ×
steel
Hot dipped galvanized sheet(Width is 600 mm or more)
 -Carbon content is under 0.04% or less 0 ×
 -Others 10-12 ○ Producers of GI sheets
Galvanized aluminum alloy sheet (Width is 600 mm or more) 10-12 ○ BlueScope Vietnam
Prepainted electrolytic galvanized sheet (Width is 600 mm or more) 5-10 ? No electrolytic galvanizer. There might be painters
Prepainted hot-dipped galvanized sheet (Width is 600 mm or more) 10-12 ○ PPGI producers and painters
Tinplate (Width is 600 mm or more) 7 ○ Perstima Vietnam
Tin free plate (Width is 600 mm or more) 3 ×
All kinds of Seamless pipe and tubing 0-10 ? No information
steel Welded pipe and tubing 5-10 ○ Pipe fitters (Product mix is limited)
Stainless Stainless sheets and strip 0 ×
Source: Tariff rates are from World Tariff Online Database (http://www.worldtariff.com/ Accessed on February 24, 2007)..
Producers information is from the interview records, company documents and websites, and newspapers.

Viet Nam needs to further liberalize trade through EPA negotiation with some countries, including
Japan. Though it is hard to imagine that Viet Nam would go back to strong protectionism, the
government and the industry might be more cautious or reluctant about further liberalization.
It is useful to discuss some issues that will be brought up in EPA negotiation with Japan.
According to EPAs that have been reached between Japan and such countries as Malaysia, Thailand,
and Indonesia, tariffs on steel will be totally eliminated after a certain period. Until then, a tariff-rate

26
quota system or a user-specific duty free scheme is being applied. In the tariff-rate quota system,
tariffs are lifted for specific amounts of goods in particular categories. In the user-specific duty free
scheme, tariffs are lifted for goods in particular categories that are imported for the use of particular
industries.
For the ASEAN countries involved in these agreements, this scheme means that fostering
manufacturing industries such as automobile and electrical/electronic appliance, which are the buyers
of Japanese high-grade steel, takes precedence over import substitution of high-grade steel. At the
same time, those countries can keep protection during a certain period for the low-grade markets that
domestic producers are supplying. Since most export from Japan is high-grade steel for certain
industries, even such transitional measures mean large-scale tariff reductions for Japanese exporters.
It is reported that the tariff quota or user-specific duty free schemes will give Japan no tariff for 80%
of its exports to Indonesia, 50% of its exports to Thailand, and almost all of its exports to Malaysia. 28
What will happen if Japan enters into the same type of EPA with Viet Nam? In Viet Nam, there is a
problem with taxation on import of high-grade steel that is not produced within the country. 29 Such a
problem occurs in cases of import of high-grade cold rolled sheets for motorcycles and their parts,
and high-grade galvanized flat products for automobile and electrical/electronic appliances. The
former does not compete with PFS’s products, and the latter does not compete with domestically
produced galvanized sheet. Both of them, however, are subject to taxation. Tariff-rate quota or
user-specific duty free schemes would be appropriate to solve this.
However, as mentioned above, the high-grade steel market of Viet Nam is small, and the export
unit price from Japan to Viet Nam is lower compared to the price to other countries. It is reasonable
to assume that steel export from Japan to Viet Nam includes some lower grade steel products. For
instance, billet from Japan has to compete with billet made by EAF mills in Viet Nam, and cold
rolled sheet for GI materials from Japan has to compete with PFS’s products.
If the Japan-Viet Nam EPA turns out to be the same type of agreement as the EPAs with other
ASEAN countries, it will bring the following to the Vietnamese steel industry. Having no tariffs on
steel will be strenuous work because harder competition with Japanese steel will be expected in the
market of lower grade steel. Tariff-rate quotas on high-grade steel and a user-specific duty free
scheme will be easier to accept, as tariffs will be kept on steel products that are domestically
produced, without hurting the cost competitiveness of the downstream manufacturing industries.
If negotiation toward liberalization is unavoidable, what is left for the Vietnamese steel industry is
28
Comments from the chairman of JISF, May 25, 2005; August 1, 2005; and November 28, 2006
(http://www.jisf.or.jp/news/comment/index.html) (in Japanese). Articles from several newspapers also
refer to this.
29
From several interviews with managers of Japanese firms.

27
to strive to move forward with liberalization as reasonably as possible. Both parties need to
understand the structure of the steel trade not just in terms of import composition
exporter-by-exporter and product-by-product, but also in terms of the total material flow in terms of
products, specifications, and applications. If mutual understandings are reached at the negotiation,
that will bring out more reasonable and desirable results. Also, understanding the material flow helps
in developing the recycling systems as mentioned in the preceding sub-section.
This paper has illustrated some clues to understanding the material flow. Viet Nam does not yet
have sophisticated and published statistics on the steel industry. If Japan and Viet Nam start from
arranging this and work cooperatively toward understanding the material flow, they will establish a
solid foundation for liberalization in a reasonable sequence and at an appropriate speed, as well as
industrial cooperation.

4. FDI Attraction and Review for Licensing Projects

Foreign capital is essential for carrying out large steel projects in Viet Nam. However, FDI
attraction cannot be achieved through a simple laissez-faire system. A special effort for FDI
attraction is also necessary. In general, policy to attract import substitution-type FDI in developing
countries poses some difficult problems because of the small market and the absence of supporting
industries (Kimura, 2003). This is true for large steel projects with some additional factors specific to
this industry. For large-scale projects in the steel industry, available locations are limited because
developed infrastructure including deep seaports, and the supply of water and electrical power is
necessary. Also, in many cases infrastructure improvement is impossible without governmental
support. In addition, the domestic market is limited. Considering these conditions, there is a
limitation on the number of feasible large-scale steel projects in a developing country. Therefore, a
well-planned system is needed where the government carefully examines each project and licenses
only good ones. This is true even in the process of dismantling the command-control system and the
transition to a market-oriented economy.
Recently questions have come up regarding some large projects. This means that questions are
arising toward the government's examination process on projects. Individuals or organizations with
expert knowledge in the steel industry are not allowed to participate in the examination process, and
this is why criticisms of the Tycoons project are being brought up.
There is a concern that business associations or related individuals will try to protect their vested
interests by expressing negative attitudes toward projects by foreign enterprises when they

28
participate in the examination process. However, this depends on the characteristics of each
organization or individual. VSA, founded in 2002, has diversified membership including not only
SOEs but also private enterprises, foreign affiliated joint ventures, and 100% foreign enterprises.
In some cases, VSA has expressed different views from VSC on behalf of private enterprises. 30 VSA
is not obsessed with protecting the vested interests of domestic firms; one of its executive members
strongly values the POSCO project. Listening to the opinions of industrial experts from VSA and
other steel-related institutions during project review will probably enable reasonable and realistic
assessment and will probably not lead to protection of vested interests.

Conclusion

In Viet Nam, the steel market has been under-developed in terms of both quality and quantity, and
domestic enterprises have been weak and fragile. In this situation, the government's development
plan and investment by relatively modern SOEs (i.e., VSC and its subsidiaries) have been playing
important roles. Construction of modern facilities by SOEs had a profound meaning as the basis of
industrial development. Though accelerated liberalization tended to leave behind the steel industry,
some protection policies like import restriction and high tariff rates were arranged. Such combination
of SOE’s investment and protection was a feature of the development of the Vietnamese iron and
steel industry from the mid-1990s to the mid-2000s. This development phase started when the master
plan was first being considered and ended when PFS and SSC Phu My Steelworks began operating.
The Vietnamese steel industry is entering a new phase in its development in which market
competition works effectively and private and foreign enterprises play larger roles. Private
enterprises are establishing their status in the long steel for construction. In the flat sector and
upstream processes, FDI attraction is gaining importance and large-scale projects are becoming more
realistic. In the course of these developments, VSC is losing its privileged status. The challenge for
VSC is to establish sound management and become an attractive business partner for foreign
enterprises.
To facilitate development in this new phase, the government is expected to play a new role. The
urgent question is whether the government can shift its policy from promoting SOEs’ production to
promoting competition on equal footing, arrangement of trading rules, and attraction of FDI with

30
When the billet tariff was raised in 2003, VSC supported it, whereas VSA was against it. This may be
because VSC can produce some billets but VSA has many members which are private rolling mills
dependent on imported billets. From an interview by the author with VSA executives on March 24, 2003.

29
proper review. To promote competition on equal footing, conversion of SOEs to joint stock
companies is important. In terms of the long sector, arrangement of trade legislation on scrap
procurement and environmental protection will be the key tasks. The issues regarding trade
liberalization policies including EPAs and the content of protection policies have to be carefully
reconsidered; these policies must be suited to the reality of competition between domestic and
imported steel. It is important to work toward making reliable industrial statistics on the levels of
material flow, with assistance from industrialized countries like Japan. These statistics will be a solid
base for reasonable trade policies and international industrial cooperation. In regard to FDI attraction,
it is necessary to examine and assess the quality of projects using expert knowledge. For all of these
tasks, the key will be giving an expanded role to VSA as a business association instead of the
government taking over the entire control of policy issues.
The Vietnamese iron and steel industry has many problems to solve. Multiple tasks must be
addressed to achieve industrial development under the trends of liberalization and international
integration. Corporate capability to lead development in the new phase and the government's
capability to push ahead with policy shifts are being tested. The future of the industry will be decided
by the results of these tests.

30
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＜Online newspapers quoted＞

(Japanese Language)
YONHAP NEWS
http://japanese.yna.co.kr/

(English Language)
International Herald Tribune
http://www.iht.com/

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Reuters
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(All online sources were accessed on February 27, 2007, unless specified otherwise.)

This paper was originally published as Nozomu Kawabata, “Betonamu no Tekkogyo: Shin
Kyokumen to Seisaku Tenkan,” in Sato ed. (2007) (Japanese). The paper has been translated into
English and some modifications have been made.

34
Editorial Note
26/6/2007 1st version.
28/6/2007 One paragraph on Eminence project was added in 1-2-1 (p.20). Information was added to
Table 5.
2/8/2007 English expression was revised thoroughly.

35