Group 9 - Midterm - Report on steel industry PDF

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INS2005 INTERNATIONAL ECONOMICSA REPORT ONCOMPARATIVE ADVANTAGE OF THEVIETNAMESE ECONOMIC GROWTH IN STEELINDUSTRY UNDER THE EFFECTS OF COVID-Prepared by Group 09:1/ Nguyễn Thu Hương ID: 180711172/ Nguyễn Thị Thanh Hằng ID: 190713573/ Đỗ Thị Hồng ID: 170710754/ Lô Thị Trà My ID: 190714285/ Bùi Phương...

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INS2005 INTERNATIONAL ECONOMICS

A REPORT ON COMPARATIVE ADVANTAGE OF THE VIETNAMESE ECONOMIC GROWTH IN STEEL INDUSTRY UNDER THE EFFECTS OF COVID-19

Prepared by Group 09: 1/ Nguyễn Thu Hương

ID: 18071117

2/ Nguyễn Thị Thanh Hằng

ID: 19071357

3/ Đỗ Thị Hồng

ID: 17071075

4/ Lô Thị Trà My

ID: 19071428

5/ Bùi Phương Thảo

ID: 18071409

6/ Nguyễn Thị Minh Thư

ID: 19071514

Hanoi, October 2021

GROUP 09

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TABLE OF CONTENT INTRODUCTION............................................................................................... 3 •

About our group .............................................................................................................. 3

•

About this report ............................................................................................................. 4

CHAPTER 1: OVERVIEW THE VIETNAMESE ECONOMY AND STEEL INDUSTRY ............................................................................................ 5 1.1. Vietnamese Economy ...................................................................................................... 5 1.2. Vietnamese Steel Industry ............................................................................................... 5

CHAPTER 2: THE VIETNAMESE STEEL INDUSTRY’S GROWTH ...... 6 2.1. Value Chain Analysis ...................................................................................................... 6 2.2. Economic Factors............................................................................................................ 9 2.3. Production Situation...................................................................................................... 11 2.3. Main Businesses............................................................................................................ 13

CHAPTER 3: COMPETITIVE ADVANTAGES OF STEEL INDUSTRY. 14 3.1. Factor of Production ..................................................................................................... 14 3.1.1. Steel Production ..................................................................................................... 14 3.1.2. Labor Resources..................................................................................................... 15 3.2. Demand Conditions ...................................................................................................... 15 3.2.1. Global Demand ...................................................................................................... 15 3.2.2. Domestic Consumption .......................................................................................... 16 3.3. Supporting Industries .................................................................................................... 17 3.4. Strategies and Competition ........................................................................................... 17 3.4.1. Strategies ................................................................................................................ 17 3.4.2. Competition............................................................................................................ 18

CHAPTER 4: CONCLUSION......................................................................... 19 4.1. Summary ....................................................................................................................... 19 4.2. Assessment .................................................................................................................... 20 4.2.1. Advantages ............................................................................................................. 20 4.2.2. Disadvantages ........................................................................................................ 20 4.2.3. Recommendations .................................................................................................. 21

REFERENCES .................................................................................................. 23

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INTRODUCTION • About our group We are Group 9 with 6 members. Table 1 Members’ Contribution GROUP 09

No.

Name

Student

Contribution

ID

Rate

Being Responsible For

- Conduct report Nguyễn Thu Hương 1

18071117 100%

- Summary (4.1)

(Leader) - Contribute to other parts as adjuster 2

Nguyễn Thị Thanh Hằng

19071357 100%

- Chapter 3

3

Đỗ Thị Hồng

17071075 100%

- Value Chain Analysis (2.1) - Economic Factors (2.2)

4

Lô Thị Trà My

19071428 100%

- Production Situation (2.3) - Main Businesses (2.4) - Chapter 1

5

Bùi Phương Thảo

18071409 100% - Assessment (4.2)

6

Nguyễn Thị Minh Thư

19071514 100%

- Chapter 3

Note. All work-breakdowns are transparently assigned among every member.

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• About this report Nowadays, international trade is a tendency of commerce all over the world, so analytical skill is becoming increasingly important in the field of trade. In general, knowing the situation of home country’s economic is the basic fundamental to develop any businesses and operations. Face with the situation of Covid-19 pandemic, Vietnamese economy still has the advantages not to deeply influence. Then, steel industry is an emerging industry that provide a potential chance for Vietnamese economic growth along with the development of steel corporation. Given the importance of analytical skill, this paper will research in the Vietnamese economic growth in steel industry based on the real situation and its competitive advantages. In addition, this paper will give some assessment as long as recommendations to benefit from this industry.

By reading this report, you will have knowledge about the growth of Vietnamese economy in steel industry then aware about its competitive advantages in the context of Covid-19 pandemic.

HOPE YOU LIKE IT!

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CHAPTER 1: OVERVIEW THE VIETNAMESE ECONOMY AND STEEL INDUSTRY 1.1. Vietnamese Economy In recent years, Vietnam's economy has been spectacular. The economic and political reforms under renovation period have resulted in fast corporate finance growth, changing Vietnam to a middle-income country. Despite of the fact that the economy was severely impacted by the Covid-19 epidemic in 2020, the Vietnamese economy increased by approximately 3%, making it one of the few countries in the region and the world to have positive growth. The macro-economy is largely stable, and markets run smoothly, allowing people and businesses to concentrate on production and business. During the time 2016-2020, the inflation rate was steadily reduced from three digits in the early years of the renovation era to the goal level of 4%. With a slew of large-scale and high-tech projects, foreign direct investment capital soared, opening up a slew of prospects for domestic economic cooperation in production, business, and technology transfer. Recently, Vietnam has signed two high-potential accords, EVFTA and RCEP, and has gone from being a deficit country to balancing imports and exports, even having a trade surplus. Vietnam's economy grew solidly at 5.6 percent in the first half of 2021, according to a new World Bank assessment, but it faced major threats both within and outside.

1.2. Vietnamese Steel Industry The Covid-19 pandemic has hit many parts of the globe for a long time, the domestic steel industry continues to face challenges due to the stagnation of manufacturing industries

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using steel for construction industry, infrastructure, automobiles, motorbikes... and competitive pressure from increasing domestic supply. However, in 2020, despite facing many difficulties due to complicated developments of the Covid-19 epidemic, the steel industry still recorded good growth. In addition, in the face of opportunities from integration, especially the implementation of trade agreements, the removal of a series of tariffs will help Vietnamese steel enterprises expand the export market. Besides, the import of raw materials from countries in the bloc that have signed FTAs will also help Vietnam benefit in price. Facing opportunities from international economic integration, especially the implementation of new agreements, the steel industry is expected to have more conditions to attract investment, promote production and export to new markets. However, at present, the steel industry still has to compete fiercely with imported steel penetrating strongly into the Vietnamese market.

CHAPTER 2: THE VIETNAMESE STEEL INDUSTRY’S GROWTH 2.1. Value Chain Analysis The typical value chain in steel industry includes the production of hot rolled coil (HRC) from iron ore, as known from the raw materials. Iron ore, coal and lime are smelted into pig iron. From smelted cast iron to Steel slab, from rolled billet to hot rolled coil, then continue the cold rolling process to achieve the required thickness and hardness, the product is cold rolled steel (CRC). From cold rolled steel, people use it to galvanize, cold galvanize (GI/GL) to use or continue to color it into color coated corrugated iron (PPGI). Figure 2.1.1 Steel production process

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Note. Adapted from: http://www.vssi.com.vn/2014/11/chuoi-gia-tri-nganh-thep-viet-namva.html Currently, Vietnam's steel industry is lacking in two production stages in the steel industry value chain, which is the production of slabs (slab) and hot rolled coil (HRC) leads Vietnam have to import 100%. Domestic companies have not yet made any noticeable move to invest in HRC production plants, the reason why investing in this industry requires large capital investment and high-tech workforce. Investment capital in a hot rolled steel factory with a capacity of 1.2 million tons per year, produced from slab billets will cost about $ 400 million. In this value chain, Vietnam only owns 40%, may not meet the regulations on the proportion of domestically produced goods according to the rules of origin in the TPP: this ratio can fluctuate from 35-55 % depends on the specific industry. Therefore, after applying TPP, Japan has the advantage of supplying HRC to Vietnam. Because if using Japan's HRC, Vietnam's coated steel products will reach the origin of nearly 100% of domestic production in the TPP. Figure 2.1.2 Vietnam value chain in steel industry

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Note. Adapted from: http://www.vssi.com.vn/2014/11/chuoi-gia-tri-nganh-thep-viet-namva.html In the next few years, Formosa HT has the advantage of supplying HRC steel. The year 2020 is a lucky year for Vietnam's steel sector, particularly the galvanized steel industry. No one could have predicted such a significant comeback in galvanized steel demand, especially in the third quarter of 2020, from both the local and foreign markets. For three years in a row, the output of galvanized steel sheet manufacture has remained steady. 4.4 million tons in 2018, 4.2 million tons in 2019, and 4.4 million tons in 2020. In addition, Vietnam's galvanized steel products have a prominent international presence, with annual exports of 1.4-1.75 million tons earning over one billion dollars and helping to the reduction of the iron trade deficit. Every year, around 5 billion dollars are spent on steel.

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2.2. Economic Factors Vietnam's economy has been overgrowing for several years. The increasing development of steel demand has enticed numerous steel companies to invest in new production facilities in Vietnam. Figure 2.2.1: Vietnam GDP growth rate in 2016-2020

Note. Adapted from: https://baonghean.vn/gdp-cua-viet-nam-nam-2020-tang-291-thuocnhom-tang-truong-cao-nhat-the-gioi-279705.html. In 2020, Vietnam's GDP growth rate will be 2.91 percent, relatively high in Southeast Asia. The relationship between the increase in steel consumption and GDP growth is apparent, which entails requirements for developing and constructing infrastructure, roads, traffic, housing, and real estate to meet development needs. Therefore, the growth in high construction leads to an increase in steel demand. Moreover, Vietnam has low-interest rates in 2020 reported at 6,2729. Vietnam's steel consumption per capita is at 149.7kg/person in 2010. By 2019, the average steel consumption per capita has increased to 241kg, ranking 4th among the countries. ASEAN countries.

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Figure 2.2.2: Vietnam's per capita crude steel consumption ranks in four in ASIAN (2018)

Adapted

Note.

from:

https://www.spglobal.com/platts/zh/market-insights/latest-

news/metals/101119-analysis-aseans-2019-2020-scrap-needs-to-grow-amid-steel-glutconcerns. Balanced development Vietnam's steel industry in recent years has developed relatively quickly. Vietnam has high potential for export growth. Despite the COVID-19 pandemic, Vietnam exported 9.86 million tons of steel worth $5.26 billion in 2020, up 47.9% over the same period last year. In the 2016-2020 period, Vietnam's economy has always maintained macroeconomic stability, average inflation increased by 3.15%/year, lower than the 4% target set by the National Assembly. Inflation pressure will cool down from August to December 2021 thanks to a decrease in the CPI of the food group and keeping the forecast of the average CPI in 2021 increasing by 2.9% over the same period. In particular, construction steel price carried an uptrend in the context of the price of input materials such as iron ore, steel billet, scrap, and transportation costs continued to increase.

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2.3. Production Situation Although the unexpected pandemic made the situation difficult for the steel industry, the case has been improving as the government's control of the health crisis and the prime minister's drastic directions sped up public investment. Steel production of all kinds hit 2.45 million tons in November, rising 4.34 percent month over month and 15.6 percent year over year. In addition, sales were 2.45 million tons, a significant rise of 36.9% over October. In 2020, Vietnam's steel industry has risen to 14th place in the world. This is a very good step forward on the world steel industry map, Vietnam's crude steel production has reached a very high level of 19.5 million tons/year. Figure 2.3.1 Steel production in 2020

Note. Adapted from: https://vir.com.vn/support-recovery-for-the-steel-sector-81622.html In terms of crude steel, steel companies in Vietnam produced 3,192,000 tons during this time, up 28% from the same period in 2020. Consumption increased by 35% year on year to 3,126,000 tons. When it comes to construction steel, both manufacturing output and consumption have declined since January 2021 and the same period in 2020 but this increased somewhat in the first two months of 2021 compared to the same period last year.

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The Covid-19 pandemic has had a minor influence on Vietnam's steel output. Still, it has had a considerable impact on other nations, providing the opportunity for Vietnamese manufacturers to extend their market share, especially in the EU, China and Thailand. Figure 2.3.2 Vietnam’s steel export volume, by country (tons)

Note. Adapted from: https://hanoitimes-vn.translate.goog/vietnam-steel-export-in-2021-set-togrow-further-316030.html?_x_tr_sch=http&_x_tr_sl=en&_x_tr_tl=vi&_x_tr_hl=vi&_x_tr Then, in the export field, according to the General Department of Vietnam Customs, Vietnam exported 9.86 million tons of steel and received $5.26 billion in 2020, representing a growth of 47.9% and 25% year over year. Furthermore, according to World Steel, 1.65 billion tons of crude steel will be produced this year, with production rising by 3.8% to 1.71 billion tons in 2021. Figure 2.3.3 Steel export growth, by segment

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Note.

Adapted

from:

http://m.hanoitimes.vn/vietnam-steel-export-in-2021-set-to-grow-

further-316030.html. On the other hand, the total amount of iron and steel imported into Vietnam in 2020 was approximately 13.26 million tons, worth nearly $ 8.1 billion; the average price per ton was 608.4 USD. Its volume, turnover, and price have all decreased by 8.9%, 15.2%, and 6.9%, respectively, when compared to 2019.

2.3. Main Businesses In the first half of 2020, due to the impact of the Covid-19 pandemic. Having many members of the Vietnam Steel Association (VSA) experienced a decrease in revenue. However, the market started to have positive changes in the second half of 2020 that prominent businesses gain profit back. First of all to mention is Formosa Ha Tinh Steel Corporation. The company's total sales in the first quarter of 2021 were 1,094 million dollars, up 56 percent over the same period in 2020. Sheet billet, large plate billet, and small plate billet output totaled 1,627 thousand tons, an increase of 17% over the same year.

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Secondly, Hoa Phat Group is one of Vietnam's leading industrial manufacturing conglomerates. Hoa Phat Group is Vietnam's most significant construction steel and steel pipe maker, with market shares of 32.5 percent and 31.7 percent, respectively, with a capacity of over 8 million tons of steel of all kinds. Last but not least, Hoa Sen Group Joint Stock Company was the first private company in Vietnam to develop a cold-rolled steel plant. Hoa Sen Group expects to sell 1.8 million tons of steel of all kinds in 2021, up 11% from the previous year.

CHAPTER 3: COMPETITIVE ADVANTAGES OF STEEL INDUSTRY 3.1. Factor of Production 3.1.1. Steel Production The general technology level of Vietnam's steel industry is not high but most steel factories in our coutry perform the final stage of rolling steel as pushing the advantage. Some enterprises with geographical advantages such as Thai Nguyen exploit ore and produce steel by blast furnace technology. Some enterprises established in recent years scrap steel and use electric arc furnace to produce billet and steel. Although the highest furnace in Vietnam is only 500 m3 like Thai Nguyen steel, this still produce the suitable amount of production to meet the demands. In Vietnam, most of the scrap steel is used to produce billets and completely square billets to make construction steel. Domestic production of square billet can meet about 50% of steel rolling demand, the remaining 50% is from imported sources. So, domestic steel prices do not fluctuate too much with the world billet prices.

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GROUP 09 3.1.2. Labor Resources

Steel industry is increasingly scale up and tend to attra...