Tightened dollar flows strangle steel imports
State-run Vietnam Steel Corporation sent a document to the governmental leader early last week, complaining local banks were refusing to loan it dollars to import scrap. The action was taken after five of the biggest joint stock firms jointly sent a letter to the prime minister in mid July, saying that they could not open letters of credit (L/C) for their scrap import deals because banks would not give them loans in dollars.
They included Song Da Steel Joint Stock Co, Thep Viet Co Ltd, Hoa Phat Group, Van Loi and Dinh Vu. “The lack of input materials has made our manufacturing activities stagnant since the beginning of this month,” said Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association (VSA).
The main reason for local banks to deny dollar loans to local steel millers is that steel and iron scraps are not included in the list of goods prioritised with forex loans. Steel firms have, meanwhile, found it hard to source foreign currencies in the black market, with the central bank’s tightening control over forex trading activities since early July to ensure stable foreign exchange rates.
According to Dinh Vu Steel Joint Stock Co, it had been unable to source dollars for its $4.5 million scrap import deals and could not even find 15 per cent of that amount to pay a security for opening L/C.
Local firms bought 250,000 tonnes of scrap steel in June, down 17.7 per cent against the previous month, according to the Ministry of Industry and Trade. Total scrap import volume in the first half of this year was 1.09 million tonnes.
Nghi said that if the blocked dollar loans continued for scrap imports, local firms would not be able to buy an additional one million tonnes to meet their demands from now to the year’s end. Domestic scrap production is anticipated to be 4.5 million tonnes for the whole of 2009, meeting only 60 per cent of the firms’ requirements.
“[The shortage of materials] can result in bankruptcy for tens of enterprises manufacturing steel ingot from scrap,” the five joint stock companies wrote in their letter. “It is possible that they do not have the ability to pay debts and will have to lay off tens of thousands of workers,” they noted.
VSA chairman Pham Chi Cuong suggested that the government loosen foreign currency credits for ingot producers, and redefine some steel materials and products that Vietnam was short of on the list of prioritised goods to import.
