Does the US-China trade crisis affect Vietnamese steel companies?

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Illustrative photo.

The US will still have to import steel

According to an analysis of BVSC Securities, the volume of steel exports to the US is not large, reaching about 679 thousand tons in 2017, accounting for 2% of US steel imports. On the Vietnamese side, steel exports account for 18% of total steel output, of which exports to the US account for only 2% of Vietnam's steel output. Therefore, BVSC said that the US protection of the steel industry will not affect Vietnam much.

However, the question is whether the steel slump from other exporting countries to the United States will move to Vietnam or not? China is the most worrying competitor, as it is the largest steel producer in the world, located adjacent to Vietnam and there are about 36% of steel imports in Vietnam originating from China National.

However, since China's steel exports surged sharply due to surplus (2014-2015), the US has repeatedly imposed import restrictions on Chinese steel. So far, the United States has been applying 28 tariff and non-tariff measures on many types of Chinese steel products. As a result, Chinese steel output exported to the US has fallen sharply since 2014.

In 2017, China's steel output exported to the US was only 740,126 tons, accounting for 2% of US steel imports and 1% of China's steel exports. Thus, it is almost not worrying that the Chinese steel which can not be exported to the US will find ways to move to other countries including Vietnam.

In the major steel import markets of Vietnam; the countries such as Japan, Korea and Taiwan are major export markets for steel to the United States, which will also be most affected by the import restrictions imposed by President Donald Trump. However, the proportion of exports to the US also accounts for only 5-12% of the export structure of these markets, thus having an impact, but not significant.

In addition, the steel exports of these countries to Vietnam are mainly steel products which Vietnam can not produce, such as alloy steel, sheets of steel or hot rolled steel. Meanwhile, the main products of steel companies in Vietnam including galvanized steel and construction steel are still pretty firmly protected by import taxes and trade taxes. Therefore, BVSC experts said that trade war was not a worrying issue for Vietnamese steel companies.

The United States is the largest importer of steel in the world, but US imports account for only 8% of global steel trade. The impact of the trade war on steel and steel materials will be quite small. In addition, the US will still be forced to import steel when its domestic production in the short term can not meet the demand.

In the past 10 years, the US steel industry was in a stable state when production capacity was almost unchanged (110-117 million tons / year). The sector's average utilization rate was 73.9% (2017). To meet the demand of 106 million tons in 2017, the average plants must run at is 95% of efficiency - an almost impossible level of performance that stands on the scale of the whole industry.

In addition, the products of the steel industry are very diversified (construction steel, steel sheets, steel pipes, alloy steel, stainless steel, railway steel, etc.), so basically, the United States will still have to import steel for at least two years before building new plants and meeting the demand for domestic production.

In the immediate future, steel prices in the US market will increase due to the impact of import duties, and output of major steel exporting countries to the United States will decline. However, with US imports accounting for only 8% of global steel trade, this means that the share of the steel sector is lower and the impact on prices of steel and raw materials is not really high.

Afraid of the wave of retaliation

From the analysis above, it can be seen that the impact of trade war on the steel industry is not high. It should be noted that the US administration's protectionist policy with the steel industry may have triggered retaliatory actions from other countries. Most recently, at the end of May 2018, after the United States announced it would impose a 25% import tax on neighboring countries including the EU, Mexico and Canada, steel import duties on these countries have caused grievances (the EU's import duty on steel to the US was only 3%).

According to BVSC experts, if these retaliatory actions are aimed at the US, it will not have any effect on the steel industry in Vietnam. However, on a broader scale, the protection of production and import restrictions from all countries can affect Vietnam.

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In Vietnam’s main steel products, the proportion of steel pipe and construction steel exports is only 11% -12%, while galvanized iron sheet is the most exported item with export proportion up to 47 % of consumption. Therefore, steel sheet manufacturers such as Hoa Sen Group, Nam Kim Thep will be most affected if the protection barrier is enhanced. Meanwhile, construction steel producers such as Hoa Phat, Thai Nguyen Iron and Steel and Pomina will be less affected by the war because of the low export share.