MARKET TREND & ANALYSIS VIETNAM'S STEEL INDUSTRY · 2019. 8. 22. · STEEL INDUSTRY:...

VIETNAM'S STEEL INDUSTRY: CHARACTERISTICS AND STEEL DEMAND FORECASTMarket Trend and Analysis

80 Asian Steel Watch

VIETNAM'S STEEL INDUSTRY: CHARACTERISTICS AND STEEL DEMAND FORECAST

Kiyong JeonSenior Principal Researcher, POSCO Research Institute [email protected]

M A R K E T T R E N D & A N A LY S I S


Vol.07 August 2019 81



Vietnam’s economic growth

Economic growth in Vietnam soared to 7.1% in 2018, its

highest point in a decade.1 With a 6.8% growth rate in the

first quarter of 2019, the International Monetary Fund (IMF) is

projecting that the Vietnamese economy will sustain its rapid

grown of the previous year.

Vietnam’s accelerated economic growth has been bol-

stered by the effects of capital accumulation following re-

form and opening policies and by foreign direct investment

(FDI). It has also been promoted by integration into the

world economy, such as through accession to the World

Trade Organization (WTO). Vietnam has pursued economic

reform and opening via its Doi Moi policy and worked to

shift its industrial structure by joining the Association of

Southeast Asian Nations (ASEAN) in 1995 and the WTO in

2007.2 The country emerged in 2010 as one of the world’s

important production bases for the textile and clothing in-

dustry. However, in order to sophisticate its industrial struc-

tures, Vietnam has focused on nurturing select industries,

including chemicals, electronics, construction, automo-

biles, and steel.

Characteristics of Vietnam’s economic growth

Vietnam’s rapid growth over the past two decades is a result

of its successful transition to an open market economy. The

Vietnamese government’s support for reform has accelerat-

ed the opening of the economy while its accession to inter-

national institutions has provided technical support for these

economic reforms. Unlike some Western countries that

shifted abruptly to market economies, Vietnam’s transition

was more gradual. Vietnam managed to transform itself from

a producer of simple products, such as clothing, shoes, and

home appliances, by attracting FDI at an early stage of de-

velopment. It was able to change from a raw materials and

parts importer into an intermediate goods producer in the

expanded consumer goods market. Vietnam also developed

by sophisticating its products through technology and man-

agement expertise.

In other words, the Vietnamese economy is leaping

from the second to the third phase of industrialization

of developing countries, illustrated in Figure 1. With the

massive FDI infusions following the 2000s, Vietnam has

registered steady growth with a CAGR of over 6%, thanks

Figure 1. The Industrialization Phase of Developing Countries

1 Vietnam’s trade turnover reached USD 500 billion in 2018. Compared to a year earlier, exports grew by 13.8% to USD 244.7 billion and imports expanded

by 11.5% to USD 237.5 billion in 2018. Its trade surplus surged from USD 2.1 billion in 2017 to USD 7.2 billion in 2018. Foreign-invested companies contributed

USD 32.8 billion to this surplus, while Vietnamese companies ran a deficit of USD 25.6 billion.

2 The Doi Moi policy is based on the following principles: (1) formulating strategic and consistent long-term economic policies to increase productivity; (2) es-

tablishing an economic system that strikes a balance between centralized planning and a market economy; (3) implementing opening policies to boost foreign

cooperation for building manufacturing, service, and knowledge industries; and (4) achieving goals by establishing an independent and autonomous economy

and raising related awareness (Lee Young-Kwan, 2019).

Source: Ohno (2009), “Avoiding the Middle Income Trap: Renovating Industrial Policy Formulation in Vietnam”, pp. 6

1st Phase 2nd Phase 3rd Phase 4th Phase

Development of FDI-led simple assembly and

processing industries

Development of FDI-led parts and

resources industries

Production of high value-added

products

Leading innovation and design

Agglomeration

Technology Absorption

Creativity



to the FDI-centered growth strategy that the country pur-

sued from the early stage of reforms. In addition to its high

growth potential drawing upon on abundant natural re-

sources and labor, Vietnam has actively attracted FDI due

to its political and social stability, improved infrastructure,

and strategic importance within Southeast Asia. For this

reason, Vietnam was able to successfully fund its manufac-

turing development in close cooperation with South Korea,

Japan, and China.3

Development of Vietnam’s steel industry

Under shifting external and internal circumstances, Viet-

nam’s steel industry has expanded rapidly at a CAGR of

more than 10% since the 2000s. It has grown with the ac-

celerating introduction of an open market economy and as

private and foreign companies began growing or entering

the country after the 2000s. In the 1990s, the Vietnamese

government allowed monopoly and imposed import restric-

tions to protect state-owned steel companies, including

Vietnam Steel Corporation. Soon, however, it worked to re-

form state-owned steel companies and encouraged them to

independently increase their business capabilities.4 Lacking

the funds to build integrated steel mills (ISM), the country

decided to build downstream facilities first for producing

flat products and then upstream facilities to complete an

ISM. This step-by-step approach suited a Vietnamese steel

industry with insufficient capital accumulation for economic

growth.5 In order to complement the lack of upstream facil-

ities, Vietnam’s steel industry adopted electric arc furnaces

(EAF) as a means to expand production and buy the time

needed to achieve transfer of steel technology.

3 Major reasons for FDI development: low wages, high level of education, relatively simple investment regulations, free trade agreements, geography, eco-

nomic growth, stable governmental policies, improved infrastructure, soft factors, and more.

4 Na Hee-Ryang (2008), “Changes and Prospects for the Vietnamese Steel Industry from the Perspective of Market Opening,” The Southeast Asian Review,

Vol. 18, Issue 1, pp.151-180

5 Kawabata, N., 2001, “The Current Vietnamese Steel Industry and Its Challenges,” MEU-JICA Discussion Paper 6

Source: General Statistics Office of Vietnam

Figure 2. Foreign Direct Investment Trend in Vietnam

5,000

4,000

3,000

2,000

1,000

-

80,000

60,000

40,000

20,000

-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

New investment Reinvestment Number of investment (New investment + Reinvestment)

1,9641,627

1,975

1,163

1,639 1,5891,287

1,530

2.182

3,038

3,862 3,975

(USD millions) (Units)



Structure and characteristics of the Vietnamese steel industry

In 2017, Vietnam’s finished steel consumption reached 22

Mt and net imports recorded 13 Mt, according to the South-

east Asia iron and Steel Institute (SEAISI). Given its insuffi-

cient production capacity, Vietnam is highly dependent on

imports. Long products account for more than 50% of steel

production. The country’s self-sufficiency rate for flat prod-

ucts is only 48%, while it requires 8.7 Mt imports of HR and

1.5 Mt of plate.

The structure of the Vietnamese steel industry is clearly

divided between long and flat product makers. Before For-

mosa Ha Tinh Steel (FHS) entered the HR market in 2017,

Vietnam was totally dependent on HR imports with no ISM

producing HR. The long product market has been prosper-

ing in Northern Vietnam with leadership by the Hoa Phat

Group (HPG), while the flat product market, mainly coated

and pre-painted steel and steel materials for construction,

is flourishing in Southern Vietnam.6

When FHS was completed as an ISM in 2017, the land-

scape of the Vietnamese steel industry changed radically.

FHS currently has an annual production capacity of 7 Mt

with 5.3 Mt of HR and 1.2 Mt of wire rod. FHS’s HR pro-

duction has provided an opportunity to bolster the supply

chain of the Vietnamese steel industry.7

Meanwhile, long product makers have also begun chal-

lenging the flat product market. With long product makers

such as including HPG and Pomina recently entering the

coated and pre-painted steel markets, competition in the

6 Vietnam’s galvanizing companies maintain small reversing F/H facilities, but some of the demand is met from outside.

7 Taiwan’s Formosa Plastic Group (FPG) established Formosa Ha Tinh Steel (FHS) in the north-central Vietnamese province of Ha Tinh. FPG owns more than

10% of FHS, with China Steel Corporation (CSC) holding 25% and JFE Steel 5%.

Source: POSCO Research Institute

Figure 3. Product Structure in the Vietnamese Steel Industry

Iron making Steel making Continuous casting Long Flat

Iron BOF EAF Billet Slab Steel bar Wire rod Section HR FH CR GI Pre-painted

FHS

VPS

P-Vietnam

CSVC

Hoa Sen, Nam Kim, TDA, SUNSCO

TISCO

Vina Kyoei, ssc

Hoa Phat

SS Vina

Pomina



of an HR line to produce construction steel are attributable

to the fact that Vietnam’s steel-consuming industries are

highly dependent on construction. Vietnam has lower steel

demand for automobiles and machinery compared to Thai-

land and Indonesia, so its flat product market is mainly led

by the construction industry.8

After experiencing negative growth during the global

financial crisis of 2008, Vietnam’s construction industry

recovered to a CAGR of 8%. The Vietnamese construction

market recorded USD 12.7 billion in 2017. Apace with the

country’s overall development, demand for transportation,

energy, telecommunications, and housing has increased.

Vietnam’s construction industry is expected to maintain a

CGAR of 7.2% for the 2018–2022 period, and its construc-

tion market is projected by BMI Research to reach USD

34.7 billion in 2027.9 The number of construction com-

Vietnamese flat product market is growing fierce. In 2018,

HPG opened facilities with an annual production capacity

of 0.6 Mt for CR, 0.5 Mt for coated and pre-painted steel,

and 0.12 Mt for pre-painted steel, while Pomina installed fa-

cilities with an annual production capacity of 0.2 Mt for CR

and 0.2 Mt for coated and pre-painted steel. Coated steel

makers, including HSG, Nam Kim, and TDA, are also active

in facility expansion. In particular, Northern Vietnam-based

HPG is gearing up to transform itself from a long product

maker to an integrated steel mill and is currently building a

hot-rolling line, following FHS.

Vietnam, a steel-consuming country particularly in terms of construction

The rising production of long products and the introduction

8 Agriculture, forestry and fisheries account for 8.7%, manufacturing and construction 48.6%, and service 42.7% of industrial contribution to GDP, while

forestry and fisheries account for 3.8%, manufacturing and construction 8.85%, and service 7.0% of industry growth. This means that manufacturing and con-

struction grew by 8.85%, contributing 48.6% to economic growth.

9 Under its rural development plan, the Vietnamese government plans to invest USD 8.6 billion by 2020 in the construction of infrastructure, including schools,

hospitals, roads, and water treatment facilities.

Source: SEAISI (2016)

Figure 4. Share of Steel-Consuming Industries in the Major ASEAN Countries

Construction Shipbuilding Automobile Others

Construction Automobile Machinery/Industry Electrical and electronics

Construction Shipbuilding Automobile Machinery/Industry Electrical and electronics Others

93%

4%2%

Vietnam

65%4%

19%

6%

Indonesia

60%19%

7%

8%6%

Thailand

5%



panies increased from 13,432 in 2016 to 13,510 in 2017.

It is particularly a positive sign that the number of foreign

construction companies increased from 320 in 2016 to

374 in 2017, as shown in Table 1. This is the result of the

Vietnamese government’s active drive for attracting private

and foreign investment in real estate and infrastructure.10

The country has been implementing railway modernization

projects under the “Vietnam Railway Development Strategy

by 2020 with Vision to 2050” and development projects for

seaports and port-related infrastructure in six areas (north,

north-central, central, south-central, southeast, and the

Mekong River Delta) under the “Master Plan on Develop-

ment of Vietnam’s Seaport System through 2020-2030”

as well as projects to increase connections among major

roads and regions.11 The road and railway infrastructure

markets are expected to rise at CGARs of 7.0% and 5.4%,

respectively, over 2018-2027, bolstering sustainable rapid

growth in the construction industry, as suggested by BMI

Research.

The Vietnamese government plans to increase the sup-

ply of middle housing for grassroots and low-wage workers

and expand social housing programs for rural low-income

households. One representative example is the construc-

tion of 12.5 million homes in urban areas with an aim to

increase the average floor area per person to 25m2 by

2020. In particular, the country plans to increase the share

of commercial housing (apartments) to over 90% in Hanoi

and Ho Chi Minh City, where there is high-quality urban

infrastructure and accounts for the lion’s share of commer-

cial housing transactions.12 In addition, the Vietnamese

government amended the Vietnam Housing Law in 2015 to

allow foreigners to trade, lease, and sub-lease real estate

Table 1. Construction Companies in Vietnam

Source: General Statistics Office of Vietnam

2015 2016 2017

Number of companies M/S (%) Number of companies M/S (%) Number of companies M/S (%)

State-owned 97 1 94 1 93 1

Private 13,412 97 13,018 97 13,043 97

Foreign 293 2 320 2 374 3

Total 13,802 100 13,432 100 13,510 100

10 By sector, real estate ranked third in FDI in Vietnam in 2017. Top FDI Sectors in 2017: manufacturing USD 15.876 billion; power-gas-water-air conditioning

USD 8.374 billion; real estate USD 3.054 billion; wholesale and retail and repair of vehicles USD 2.446 billion

Source: General Statistics Office of Vietnam, MPI

11 The government-led infrastructure and construction projects that merit close attention are as follows: the expansion project for Tan Son Nhat International

Airport in Ho Chi Minh City; the construction project for Long Thanh International Airport in Southern Vietnam; and the Thu Thiem district development project

in Ho Chi Minh City. Some projects are expecting foreign investment, including the Ninh Binh - Thanh Hoa Expressway project, the first phase of the Long

Thanh International Airport project, Cam Lanh International Airport, Lao Cai Airport, and Lien Chieu seaport.

12 According to a report by CBRE Vietnam in 2018, housing in Vietnam is classified into four categories: commercial housing or apartments, separate housing,

social housing, and official duty housing.



and housing in an effort to create a more market-friendly

environment.13 This amendment is intended to attract FDI

to complement the lack of state finances, ease complaints

for delayed projects, and ensure high growth in the con-

struction market, according to the Ministry of Planning and

Investment.

Correlation between industrial structure and steel demand in Vietnam

Steel demand is naturally determined by steel-consuming

industries, in that it is a derived demand. Changes in steel

demand can be calculated by analyzing the requirements

for steel products in steel-consuming industries and the

status of and forecast for the consumption structure of steel

products. Vietnam’s construction industry and actual steel

use has a positive correlation (0.81, P<0.01), meaning that

it is statistically significant. By analyzing social factors and

production in steel-consuming industries, it is possible to

predict medium- to long-term changes in the steel industry

caused by the evolving structure of steel-consuming indus-

tries and shifts in demand for materials.

As part of the basic materials manufacturing sector, the

steel industry has a high inter-industry effect. Steel demand

for construction in Vietnam is expected to rise due to the

expansion of residential areas, plans for increasing social

housing, and the spread of apartments and high-rise build-

ings coming with rapid urbanization. In 2018, just like in

the previous year, steel demand in Vietnam reached 22 Mt,

with the long and flat product markets at a similar size. By

product type, the country is 100% dependent on plate and

EG imports.

As of 2017, it imported about 8.7 Mt of HR to meet

the total demand of 9.9 Mt. Demand for coated steel

mostly used in construction stood at 4.38 Mt, 0.75 Mt of

which was demand for GI, 0.39 Mt for GL, and 0.28 Mt for

pre-painted steel, according to the Vietnamese Steel Asso-

ciation (VSA).

Looking at demand structure by steel type, with the rise

of the construction market, long products now account for

49% of total steel consumption. Flat product consumption

is also on the rise, mainly for construction. In line with the

13 In the Socialist Republic of Vietnam, all land is collectively owned by the state. With the amendment to the Housing Law (effective July 1, 2015), the man-

agement scope of real estate by foreigners has been expanded. In the amended Housing Law, the scope of application is expanded to foreigners, foreign-in-

vested enterprises, branches and representative offices of foreign enterprises, foreign investment funds, and branches of foreign banks operating in Vietnam.

The permitted subjects allowed are purchase, lease-purchase, receipt as a donation or heritage, and possession of up to 250 houses in any one administrative

ward. It allows the effective provision of a registered 50-year leasehold title giving foreigners the same rights as Vietnamese given that they can now purchase,

lease, own, and receive as a donation or heritage. The 50-year homeownership period for foreigners can be extended.

Table 2. Steel Supply and Demand in Vietnam (2017)

Source: Compiled by POSRI from VSA and SEAISI data

(1,000 tonnes) Production Import Export Demand

Long 9,924 1,831 1,206 10,549

Flat 1,378 13,191 3,481 11,088

Total 11,302 15,022 4,687 21,637

HR 1,378 8,712 215 9,875

Plate - 1,495 125 1,370

CR (FH/CR) 3,505 636 504 3,637

STS (HR/CR) 199 718 65 852

Electrical steel 121 125 78 168

Coated steel/Pre-painted steel 4,575 1,220 1,414 4,381

GI 1,766 774 747 1.1%

GL 1,715 11 390 49.1%

Pre-painted steel 1,094 435 277 0.2%

EG - 224 15 209

TP 72 37 6 103

Pipe 2,307 323 645 1,985



consumption structure by steel type, steel demand in the

construction industry seems to be growing stably. As the

housing supply ratio increases and the construction of ur-

ban infrastructure increases, Vietnam’s steel consumption

is expected to reach 25 Mt in 2020.

In 2020, supply is expected to rise, by 5 Mt for HR,

because of FHS’s increased HR production which began

operation in 2017 and HPF’s new production. By product

type, the supply of flat products including coated steel will

rise through revamp, resulting in new investment.

Reflecting investment plans already underway, HR

production is expected to reach 6 Mt in 2020. Taking into

account the growth rate of steel demand, import increases

will slow with the rise in the self-sufficiency rate. Vietnam’s

HR products are generally used for galvanizing and surface

treatment, so the re-input rate is relatively high at 73%. HR

products are mostly semi-products for construction, in-

cluding housing and SOC.

As a result, Vietnam’s steel demand is expected to

reach 25.4 Mt in 2020, namely by the government’s active

drive for construction projects. If Vietnam’s GDP growth

maintains a CAGR of 6.5% until 2020, finished steel de-

mand will rise to 25.4 Mt; flat product demand is expected

to grow by a CAGR of 5.0% to 12.8 Mt, and long product

demand by a CAGR of 5.9% to 12.5 Mt.

Steel demand forecast

Vietnam’s steel demand is projected to continue to show sta-

ble growth since the Vietnamese economy is growing rapidly

and the government is actively investing in the construction

of infrastructure and housing. Construction for urbanization

will continue for some time. The burgeoning urban popula-

tion will drive rising demand for urban housing. However, in-

creasing trade restrictions stemming from the global spread

of protectionism, rising electricity rates, and the slowing real

estate market in Vietnam will have negative impacts on steel

demand. Nonetheless, the Vietnamese steel industry will

continue to grow considering its current low per capita steel

consumption and stable FDI inflows.

Reference

• Lee Young-Kwan (2019), “Vietnamese Culture and Discussion of

Economic Development and Sustainability in the Vietnamese Econo-

my after the Doi Moi Policy”, Korean Thought and Culture, Vol. 97

• IMF, World Economic Outlook (April 2019), https://www.imf.org/ex-

ternal/datamapper/datasets/WEO

• Ohno, K., 2009, “Avoiding the Middle Income Trap: Renovating

Industrial Policy Formulation in Vietnam,” ASEAN Economic Bulletin,

Vol. 26, No. 1, pp.25~43

• The World Bank, Data Bank

Figure 5. Demand Forecast by Steel Type for Vietnam (1,000 tonnes)

Source: POSCO Research Institute

Flat product

Galvanized steel Finished steel

Long product

2017 11,088

2017 3,637

2020 12,833

2020 3,932

2017 21,637

2020 25,369

2017 10,549

2020 12,535

CAGR5.0%

CAGR11.9%

CAGR5.9%

CAGR5.4%

MARKET TREND & ANALYSIS VIETNAM'S STEEL INDUSTRY · 2019. 8. 22. · STEEL INDUSTRY:...

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