2011 saw unpredictable happenings of the European sovereign debt crisis depressing the global economy. In Vietnam, unstable macroeconomic conditions and negative impacts of the global economy caused domestic companies to fall into bad situations and brought many of them into the verge of bankruptcy. Vietnam’s steel industry was affected by the negative effects of the following factors: increase in the cost of raw materials and the exchange rate caused the production cost to go up; tight monetary policy and reduction of public investment caused the demand to drop and selling prices to remain stagnant; and high interest rate and declining stock market led to higher interest expenses.

Vietnam is the third-largest steel consuming country in ASEAN with a demand of 9.70mn tonnes in 2011, down 8.3% year on year. Vietnam Steel Association (VSA) estimates the growth of domestic consumption for steel products to slowdown in 2012 amid restrictive government policies and lower demand from the construction and real estate sectors. This has also contributed to falling steel prices and higher inventories.

Steel businesses had lower profit margins in 2011 as higher interest rates increased financial expenses. Besides, volatile prices and short-term excess of supply exerted pressure on profit growth.

Key Points:

• Vietnam’s steel consumption declined 8.3% year on year to 9.70mn tonnes in 2011. As steel demand shrinks and stock increases, the VSA predicts that the steel industry might fail to raise production by 3% to 4% in 2012.

• Lower consumption, higher inventories and rigid competition from low-priced Chinese imports forced several steel companies to cut their prices and operate below full capacity.

• Steel exports made good progress in 2011 with a significant increase of 52.2% year on year to 2.07mn tonnes, mainly attributed to export promotion schemes and attractive prices.