Discussion Paper No.349
The Vietnamese Iron and Steel Industry inTransition to a Market Economy—Attainments and Challenges—
Nozomu Kawabata

May 2016

TOHOKU ECONOMICS RESEARCH GROUPGRADUATE SCHOOL OF ECONOMICS AND
MANAGEMENT TOHOKU UNIVERSITY
27-1 KAWAUCHI, AOBA-KU, SENDAI,
980-8576 JAPANThe Vietnamese Iron and Steel Industry inTransition to a Market Economy—Attainments and Challenges—
Nozomu Kawabata
Graduate School of Economics and Management, Tohoku University
E-mail: kawabata@econ.tohoku.ac.jp
Abstract
The aim of this paper is to examine the attainments and challenges of the iron and steel
industry in Viet Nam. The demand for steel in Viet Nam is increasing, with a focus on
construction steel. While low-level industrialization is a restraining factor for the industry,
the high steel intensity of the economic structure is a promotional factor. Steel production
is increasing in line with domestic demand. Private and foreign-affiliated enterprises are
the main players in the expansion of steel production. Market selection based on survivalof the fittest is working well. In general, the transition to a market economy is showing
considerable results in Viet Nam. However, the industry still faces some challenges. Whilethe low operating ratio due to excess capacity is a by-product of market-oriented reform
rather than governmental intervention, the poor performance and governmental support ofstate-owned enterprises show an insufficiency of reform.

Keywords: iron and steel industry, Viet Nam, transitional economy, excess capacity

1. Introduction

1.1 The Purpose of this Study
The purpose of this study is to examine the achievements and challenges of theVietnamese iron and steel industry in transition to a market economy. In particular, it seeks
to confirm whether import substitution, production expansion, and streamlining ofproduction facilities has been promoted by the competitive pressures that result frommarket-oriented reforms. Such confirmation also means the inspection of any remainingdistortions to market competition by governmental interventions. Moreover, it tries toestablish the particular characteristics of the organization of this industry.

1.2 The Vietnamese Iron and Steel industry and Market-Oriented Reform
1.2.1 The Start of Industry Studies in Japan-Vietnam Joint Research
We first present the analytical perspective through a review of previous studies, which
are examined in parallel with an explanation of the industrial development process.
Until the first half of the 1990s, there was no academic research into the Vietnamese
iron and steel industry in the English language, because the size of the industry was verysmall. The Japan-Viet Nam Joint Research project (JVJR, 1995-2001) on market-oriented
reforms pointed to the issue of industrial development for the first time. 1
There were three phases in JVJR. Through the course of the research phase, theconception that Viet Nam has to promote market-oriented reforms and industrialization
under the condition of liberalization of international trade and investment became acommon understanding in the project (Imaoka and Ohno [1995], Ohno [2000], Ohno and
Kawabata eds. [2003]). In this process, the Viet Nam team demanded a policy that
promoted the iron and steel industry through the creation of a large-scale integrated ironand steel complex. The Japanese team maintained a cautious attitude to this policy until theend of the third phase; their approach was based on changes in development policy andprevious examples of steel industries in other developing economies. 2
Before the Viet Nam project was undertaken, POSCO in South Korea 3 , China SteelCorporation (CSC) in Taiwan 4 , and Bao Steel in mainland China 5 were considered as
successful examples of the promotion of the iron and steel industry in developing countries.
All of these projects involved newly designed integrated iron and steel works and started in
1

The formal title of JVJR was “The economic development policy in the transition toward amarket-oriented economy in the Socialist Republic of Viet Nam.” It was based on an agreement madeduring the Japan-Viet Nam summit meeting in April 1995. It was classed as a joint research between
Japan International Cooperation Agency (JICA) and the Ministry of Planning and Investment (MPI) of
Viet Nam. It was frequently called the “Ishikawa Project” in tribute to Professor Shigeru Ishikawa, who
was a chief director of joint research. For a retrospect of this research project, see chapter 5 of Ishikawa[2006].
2
In this section, the author replicates the recognition of the Japanese team of JVJR phase 3, while
researches that were published after JVJR are also referenced. In the author’s opinion, the recognition by
the Japanese team of JVJR of this policy is legitimated after carefully considering the latest research.
3
On the construction of POSCO, see Mitsubishi Research Institute [1981], Park [1989], Juhn [1991],
D’Costa [1994] [1999], Kojima and Watanabe [1983], Hogan [2001], Abe [2008a] [2008b], and Fujimoto[2009].
4
On the construction of CSC, see Syu [1995] and Yukihito Sato [1999] [2008].
5
On the construction of Bao Steel, see Meng [1994], Otsuka, Liu and Murakami [1998], a series of
Wang’s paper including Wang [1996] [2002a] [2002b], Li [2000] [2001], Inoue [2008], Sun [2005], and aseries of Liu’s papers including Liu [2003a] [2003b] [2005] [2011]. In JVJR, the Japanese team referredto Sugimoto [1998], an unpublished master ’s thesis.

2

1960s or 1970s. Moreover, the development of a major steel industry was considered to bea core element of industrialization or the upgrading of the industrial structure in eacheconomy. Governmental initiative was also strong, with the active participation ofstate-owned enterprises (SOEs). Protection policies for import substitution were
implemented. The researchers who investigated these successful cases generally expresseda degree of appreciation for the positive role of government.
Since the 1980s, however, these success stories have not been reproduced in South East
Asia. From the 1970s to the first half of the 1980s, the governments of ASEAN economies
adopted import substitution policies in capital-intensive industries. As part of these efforts,
they tried to promote active investments by state-owned enterprises and to apply protective
trade policies (Kitamura ed. [2007], Suehiro [2000] Chapter 6 and 7). However, this policy
failed, because of the overinvestment compared with domestic market size; difficulties in
obtaining funding under the world recession in the first half of the 1980s; and heavy
burdens on governmental budgets (Kitamura [1997]). In Philippines, Indonesia, andMalaysia, the construction of large-scale integrated steel companies was promoted by
SOEs. In Philippines and Malaysia, these projects collapsed. In Indonesia, Krakatau Steelinstalled a medium-sized integrated iron and steel complex, based on direct reduction
technology; however, it suffered from long-term managerial inefficiency. 6 Success stories
like POSCO and CSC were not replicated in South East Asia. After this experience,
ASEAN governments withdrew from protectionist approaches. Instead, they introduced
export-oriented policies on the premise of the liberalization of trade and investment. They
introduced foreign direct investment by multinational enterprises and promoted exports
based on the region’s comparative advantages. 7
Taking account of the previous cases, the Japanese team maintained a cautious attitude
when the Vietnamese government proposed the immediate construction of a large-scale
integrated iron and steel complex as a core element of industrialization.
However, the Japanese team accepted the modest efforts towards the promotion of theiron and steel industry. At first, Imaoka and Ohno [1999] found that exports ofmanufactured products led to major imports of parts and other capital goods to Viet Nam,because of its weak industrial base. This phenomenon was apparent in iron and steel,because these were materials required for machinery and the construction of houses and6

During the JVJR research, the real picture of Krakatau Steel could not be grasped by the participants
due to the lack of studies reported in English or Japanese. The situation was revealed in Yuri Sato [2008].
7
Regarding this change of industrialization model, see Ohno [2003] and Kimura [2004]. On steel
industry policy, see Kawabata [2005], pp.81-83. World Bank [1993], which had become popular in the
JVJR period, emphasized such open and export-oriented approaches, while making mention of the failureof the Heavy Industries Corporation of Malaysia Berhad (HICOM).

3

buildings. Steel represented the highest value among import inducement coefficients ofproduction by industry in the period of 1989-95 (Imaoka and Ohno [1999], p.215). Taking
account of this result, the Japanese team argued that a strategy of gradual creation of thesteel industry was needed to fulfill the domestic demand for steel that would be induced byexport-oriented industrialization (Japanese members of Trade and Industry Group [2001],
Kawabata [2003], p.174, Kawabata [2005], p.174). 8
1.2.2 Steel Industry Promotion Policy by the Vietnamese Government
In JVJR, the Vietnam Steel Corporation (VNS), a group of SOEs, or joint ventures
between VNS and foreign companies, was assumed to be a business entity within the steel
industry. The Japanese and Viet Nam teams of JVJR thought it was possible for VNS tomake and carry out a reasonable development plan with modest protection that would notinterfere with international economic integration. However, the Japanese team added thatthe participation of a foreign company was necessary to execute large-scale investment
with state of the art technology (Japanese members of Trade and Industry Group [2001],
p.3, Kawabata [2001], p.164).
VNS drafted a master plan for the development of the iron and steel industry, in which a
gradual construction strategy was specified. Based on this plan, a cold-rolling company
and a mini-mill with an electric arc furnace (EAF) were installed. This was in line with therecommendations of JVJR. However, the Vietnamese government changed its attitude in
the mid-2000s. The decision-making process was not clear, but the commitment of thegovernment to VNS’s development plan weakened remarkably. Instead, the government
welcomed the entry of foreign and private companies, including 100% foreign capital
investments.
While this change was in line with progress to a market economy, it was accompanied by
one insufficiency and one overshooting. The insufficiency was that the government did notadequately follow through on VNS’s investment plan in the long products sector, in which
many private companies subsequently emerged. The overshooting occurred when thecentral and local government issued licenses to large-scale projects by foreign investors
without detailed examination. Some projects were very speculative , where promoters tried
to get licenses and occupy possible industrial sites without concrete plans for the8Some researchers paid attention to the backward linkage effect on steel from consuming industries in
research on South Korea (Kojima and Watanabe [1983], Imaoka and Ohno [1985]). After the completionof JVJR, this approach attracted more attention in the search for opportunities for the iron and steel
industry in developing economies under economic liberalization. See Hajime Sato [2014], pp.23, 24, 27,
and the research cited.

4

construction of factories (Kawabata [2007]). Under these policy changes, steel production
in Viet Nam nonetheless expanded.
After the completion of the JVJR project, an investigation of the Vietnamese steel
industry was carried out by the NEU-JICA Joint Research (2001-2004) team that was the
successor to the JVJR’s Trade and Industry Group, the Vietnam Development Forum(2004-) that was a center of a joint project between the National Graduate Institute of
Policy Studies (GRIPS) and the National Economics University (NEU), and a researchgroup that was organized by the Institute of Developing Economies (IDE). In these threeresearch groups, Nozomu Kawabata proposed the modification of industrial policy to fit
the prevailing global market economy, because the growth of private and foreigncompanies had elevated the industry to a new stage (Kawabata [2005] [2007]). With regard
to the long sector, he proposed competition on an equal footing between VNS and privatecompanies. With regard to large-scale projects in the flat products sector, he emphasizedthat government should check the quality of projects even during the transition to a market
economy (Kawabata [2005] [2007]). He also suggested the promotion of environmental
regulations and trade liberalization with a rational sequence and at a steady speed. Aroundthe same time, a member of Waseda University’s Vietnam Research Institute investigatedlarge-scale projects by foreign companies (Hokura [2010]).
In the 2010s, however, research on the Vietnamese iron and steel industry faded out.
Only two papers were published in the Japanese language. One involved research on thebusiness models of cold-rolling companies in Thailand and Viet Nam (Kawabata [2011]),
while the other was an overview of the steel industry in ASEAN economies (Hokura[2014]). An investigation is now required into the market situation after the global
financial crisis, focused on improvements in import substitution and the modernization of
production systems in the industry.
A noteworthy fact is that the construction of a large-scale iron and steel complex byFormosa Ha Tinh Steel (FHS) is scheduled to start in 2016. FHS will greatly change theproduction structure of the Vietnamese iron and steel industry. A total review of theachievements of the industry will be beneficial before this major change and is necessary
to reveal what kind of future will be possible for the industry—i.e., whether FHS will be astrong competitor or a business partner for the existing producers.
1.2.3 Vietnamese Iron and Steel Industry in ASEAN Economies
Iron and steel industries in ASEAN economies have shared the common challenge offinding a development path without large-scale integrated production systems. In 2000s, an

5

IDE research project investigated the real situations of Thailand, Malaysia, Indonesia, andViet Nam (Hajime Sato ed. [2007][2008]). On the one hand, this research revealed how thepeculiar social and economic conditions of each country defined the developmental path of
its industry. On the other hand, based on the investigation of the Thai case, the research
revealed common tendencies that were brought about by export-oriented development led
by foreign investment (Kawabata [2008]). The tendencies are that the room to grow isprovided by the backward linkage effect from exporting industries ; and that early
expansion of the demand for high-grade steel leads to segmentation of the steel market.
Such segmentation was also observed in Viet Nam, while demand within the high-grade
segment was very small (Kawabata [2007][2011]).
Though the Vietnamese steel industry is a latecomer even among ASEAN economies, it
is growing rapidly. An analysis of its import-substitution path and production structures incomparison with other ASEAN economies is needed and provides the focus of this paper.
1.2.4 Market-Oriented Reform under Worldwide Excess Capacity
In the 2010s, the situation of excess capacity in the global iron and steel industry gainedmuch attention. According to statistics from the OECD Steel Committee, the volume ofglobal capacity reached 2.164 billion tons, while total demand of the world was 1.648
billion tons. The demand-supply gap was thus 516 million tons (OECD [2015], p.7). The
capacity has increased since that estimation. The OECD indicates governmental
intervention as a major cause; more specifically, excessive issuance of licenses, provisionof subsidies for additional facilities, and the existence of outdated facilities are found to
distort market functions (OECD [2015]). However, OECD does not identify these issues
with any particular economies.
With regard to excess capacity, it is natural that China stands out, as it carries the most
unutilized capacity in the world. However, other emerging economies like Viet Nam arealso causing concern. In the prevailing situation of excess capacity, a rapid expansion is
likely to be considered as anti-competitive behavior. Viet Nam in particular is questioned
by other economies as to whether its current expansion is the fruit of a free market or
represents continued governmental intervention, given that it is a transitional economy thatstill proclaims itself to be a socialist state.
Previous studies from JVJR to VDF tried to identify the most desirable policies for theindustrialization of Viet Nam, while recognizing the reforms leading toward a market
economy and international economic integration. Instead, what is now required is to check6whether the current policies are anti-competitive or market-distorting from the perspectiveof the world steel industry.

1.3 Perspective and Outline of this Study
1.3.1 Analytical Perspective
This study assesses the development of the iron and steel industry in Viet Nam, inparticular to establish whether production and import substitution have progressed in linewith market expansion; whether this expansion is the result of market-oriented reforms;
and whether competition is used as a primary criterion of development.
First, domestic demand is analyzed and its nature is compared with that of other ASEAN
economies. High importance is attached to the relationship by which domestic demandconditions the structure of production.
Next, capital investment and production are analyzed. On the one hand, we review theissue of whether modern technology that meets international standards has been adopted.
On the other, the extent to which the technology chosen is adapted to domestic market
needs is investigated. Such a dual approach is necessary, because even technology that isinferior from an international perspective could serve the Vietnamese market.
Moreover, when the technology and investments are investigated, not only the level at
any given time must be assessed; chronic trends also weigh heavily. Small production
scales and technology that is not state of the art do not necessarily lead to a low valuation.
Instead, the issues to be emphasized are whether there is a tendency to modernize thetechnology to meet demand and whether companies that do not receive governmental
subsidy tend to dominate the market. If the trend of the survival of the fittest is observed,
we can say that market-oriented reform in Viet Nam is working in the iron and steel
industry and is promoting industrial development.
In conjunction with the analysis of industrial organization, an assessment ofgovernmental trade and industry policy is needed. The criteria include progress in thereform of SOEs, the growth of private and foreign companies, and interventions with
exports and imports.
1.3.2 Structure of the Paper
In section 2, the expansion of the Vietnamese steel market is analyzed. In comparison
with other ASEAN economies, the degree of expansion and the market mix of customers
and products are evaluated. In Section 3, steel production and capital investment are
analyzed. First, the types of customers and products that have featured in the promotion of
7

import substitution are investigated. Second, the kinds of enterprises that have promoted
capital investments in the industry, and the types of technology they use, are revealed. The
importance of the emergence of FHS is also emphasized. In section 4, the steel trade inViet Nam is validated. The nature of the export and import of steel products is revealed.
The main issues are whether the export drive intensified because of excess capacity or not
and the extent to which the impact of import penetration was reinforced by excess capacity
abroad. Concluding remarks are presented in section 5.

2. The Steel Market in Viet Nam

2.1 Growth of Domestic Demand
Figure 1 shows the changes of steel demand in ASEAN economies. 9 Demand in VietNam grew year by year in the first half of 2000s and surpassed 9 million tons in 2007.
After that it showed an up-and-down trend, but reached its historical record at 11.769
million tons in 2013. Though the volume was at the bottom of the ASEAN 6 in 1990, it
rose to third position behind Thailand and Indonesia in 2013.
Total GDP in Viet Nam is ranked fifth and GDP per capita is at the bottom of theASEAN 6 nations. Viet Nam’s third position in steel demand reveals the high steel
intensity (steel consumption per GDP) of the Vietnamese economy. The intensity in Viet
Nam is 24.7 g/USD, the highest among the ASEAN 6, while Thailand is second at 17.9
g/USD.10 This means that economic growth in Viet Nam relatively strongly induces steel
demand.

9This paper frequently uses statistical data from the South East Asian Iron and Steel Institute (SEAISI).
When figures for production, exports, imports, and consumption are noted without citation footnotes, allof these are cited or calculated from SEAISI [various years].
In this paper, apparent consumption in physical terms is considered to represent demand. Apparent
consumption equals production plus imports minus exports. That is to say, apparent consumption
represents a demand indicator that does not consider changes in inventory. Production methods in theiron and steel industry include multi-stage processes, like iron making, steel making, rolling, and surface
treating. Rolling includes hot rolling and cold rolling. Tu bing processes are added after steel production
to make pipe and tube products. In such multi-stage processes, demand volume varies depending on thestage involved. In SEAISI statistics, apparent consumption is measured by production of hot-rolled
products plus imports of total steel products minus exports of total steel products. In ASEAN economies,
many companies make cold-rolled sheets from imported hot-rolled sheets, or make surface-treatedproducts from imported cold-rolled products. For this reason, using hot-rolled products as a measure of
production is better than using total steel products in order to avoid a duplicate count.
10
GDP and GDP per capita are cited from World Bank database (http://data.worldbank.org/) (RetrievedApril 28, 2015). Purchasing power parity in 2011 prices is used.

8

Figure 1. Changes in Steel Demand in ASEAN Economies

Source: Calculated by author from SEAISI [various years].

Changes in demand show a strong relationship with fluctuations in the macro economy,
especially with regard to investment. The Viet Nam economy recorded a growth of 8-9%
per annum from 2005 to 2007, in which time the investment boom occurred (CIEM [2013],
p.44). Since the world financial crisis began in 2008, however, the growth rate has declined.
Though the governmental stimulus policy temporarily lifted the economy, it turned torestrictive policies in 2010-11, because inflation occurred. The average growth rate of total
investment in Viet Nam was 13.4% in 2002-2006, but this shrank to 8.3% in 2007-2011. In
the latter period, the rate for each year showed sharp fluctuations at 27.0%, 7.8%, 11.4%,
7.8%, and -9.3%, respectively (CIEM [2013], pp.80-81). Such fluctuations in investment
affected the apparent consumption of steel after a certain time lag.

2.2 The Composition of Domestic Steel Demand
2.2.1 Small Demand in Manufacturing
9What are the features of the Vietnamese steel market in comparison with the other
ASEAN economies? We will start with the demand by industry.
It is not easy to grasp the demand volume by industry. Such statistics are not available in
ASEAN economies. The only investigation that was carried out over many countries is theannual review done by Japan Iron and Steel Federation (JISF) in cooperation with trading
companies in each country. A review in 2012 that was contained in a report from the
Ministry of Economy, Trade and Industry of Japan (METI [2014], p.7) found that steel
demand in construction was as high as 65% in Viet Nam; it was 54% in Thailand, 38% in
Malaysia, and 61% in Indonesia. Conversely, demand in manufacturing was as small as 3%
in Viet Nam; it was 16% in Thailand, 14% in Malaysia, and 19% in Indonesia.
Let us estimate the concrete situation of demand in manufacturing , based on the
production of steel-intensive products (Table 1). 11 In Viet Nam, the production volume offour-wheel (4W) vehicles and electrical home appliances is smaller than that of Thailand orIndonesia. In particular, the production of 4W vehicles is small at 44.7 thousand units in
Viet Nam, while 2.4 million units are produced in Thailand and 1.1 million in Indonesia.
Estimation of steel demand for the production of 4W vehicles is achieved as follows: avalue of 1.152 thousand kilograms is used, being the estimated steel use per sub-compact

Table 1. Production of automobile and electrical equipment in ASEAN economies

Four wheel vehicle(2012)
Motor cylcle(2012)
Refrigerator(2011)
Washing machine(2011)

Viet Nam
40,4703,634,500(911,000)(582,000)

Thailan
2,429,142
2,606,161
6,505,000
5,872,000

Indonesia
1,065,557
7,079,721
2,857,000
729,000

Malaysia
569,620422,000
312,000

Philippines
55,360588,458
301,000
645,000

Japan
9,943,077
563,169
2,006,995
2,292,249

Note: Refrigerator and washing machine in Viet Nam is the number in 2010.
Original Data: Japan Electrical Manufacturers' Association (JEMA) for refrigerator and washing machine
in ASEAN economies. Ministry of Economy, Trade and Industry for those items in Japan.
Source: General Statistical Office of Vietnam (2014), p.505 for motor cycle in Viet Nam. Japan
Automobile Manufacturers Association (JAME) for motor cycle in other economies. Matsuoka (2012)
for electrical home appliance in ASEAN economies.
Website of JEMA in Japan (http://www.jema-net.or.jp/Japanese/data/data1.html) (Retrieved March 6,2015).

11

In manufacturing, the physical indicators of production volume of various products are available,
while steel demand in a specific industry does not imply the use of specific steel products. For example,
thick plate is used not only for shipbuilding, but also for construction ; galvanized sheet is used not only
for automobile bodies, but also for house roofs. For this reason, the steel demand of a particular
manufacturing industry cannot be estimated by the kind s of steel products required. Instead, this demand
can reasonably be estimated through the production level of manufactured products and the steel use perunit product.

10car in Japan (Tamaki, Daegu, Hayashi, Matsudo, and Adachi [2009]), because this number
is not available for Viet Nam. 12 By multiplying this by the number of units produced,
demand from 4W vehicle production is obtained, this being 2.798 million tons in Thailand,
1.228 million tons in Indonesia, and only 47 thousand tons in Viet Nam. This represents
differences of more than 2.3 million tons behind Thailand and more than 1 million tons
behind Indonesia.
The production of motor cycles in Viet Nam is greater than in Thailand, while smaller
than that in Indonesia. This is sure to lead to a steady demand for cold-rolled sheet andstructural pipe. However, the steel use per motorcycle is much smaller than for 4W
vehicles. A value of one tenth is a reasonable estimation. 13 Motor cycle production in Viet
Nam is about 1 million units greater than in Thailand. However, the difference of steel use
in motor cycle production is only equal to 100 thousand units of 4W vehicles. Such aslender superiority does not compensate for the inferiority in 4W vehicles, at about 2.3
million units.
2.2.2 The Central Role of Demand for Long Products in Construction
The next checkpoint is steel demand by product. Figure 2 shows the steel demand
divided into long and flat/pipe products in ASEAN economies in 2011-2013. It is
immediately obvious that Viet Nam has the largest demand for long products in ASEAN.
In comparison, it is third in flat/pipe products, the same as the case for total demand. The
share of long products in the domestic total is 52.9% (SEAISI [2014]); this is higher thanThailand and Indonesia, while lower than Malaysia.
In developing economies including Viet Nam, long steel products are consumed inconstruction, 14 while there are a variety of applications for flat/pipe products. Therefore,
while Viet Nam’s steel market has essentially expanded to the level of advanced ASEAN
economies like Thailand and Indonesia, its demand depends heavily on construction.
12

Tamaki et al. [2009] found that steel use per car in Japan is 1633 kilograms in compact vehicles, 1152
kilograms in sub-compact cars, and 794 kilograms in light vehicles. As an experimental rule, this value isaround 700-800 kilograms (Sugimoto [2007], p.49, Daily Steel News, January 29, 2015). The differenceis due to the fact that Tamaki's group adopted the steel input required in production, while theexperimental rule uses steel per unit in manufactured cars. The calculation by Tamaki’s group includes
scrap steel generated in the vehicle production process.
13
The estimate is as follows: the total weight of a motorcycle is one tenth that of a sub-compact car,while the steel rate—the total weight of steel per unit—is equal between motor cycles and sub-compact
cars.
14
In SEAISI statistics, long products include rails and accessories, sheet pile, shape, bar, and wire rod.
Among these, rail and accessories are used for railroads. The other four kinds of products are mostly
used for construction in developing economies. In advanced economies, the rate of machine structuraluse of bar and wire rod becomes high. That is to say, steel demand from construction has strong tie s withparticular steel products. Meanwhile, there are no internationally recognized physical indicators ofconstruction activity, in contrast with manufacturing. For that reason, analysis by product is reasonable
for an investigation of steel demand in construction.

11

Figure 2. Demand for steel mill products by product in ASEAN economies (average in2011-2013)

Source: Compiled from SEAISI [2014].

Table 2. Consumption of steel mill products by product in Viet Nam (average in2011-2013)Total
Sub total of long products
Sub total of flat and pipe products
Shape
Bar and wire rod
Other long products
Hot rolled sheets and plates
Cold rolled sheets and strip
Surface treated sheets
Pipe ans tube

Consumpti
Estimate ofShare in Share in
on in
final
Share
long
flat andSEAISI
consumption
products pipe
statistics
10,808 100.0%
5,721
52.9%
5,087
47.1%
248
5,458
15
4,929
1,976
1,751
768

248
5,458
15
2,366
201
1,751
768

2.3%
50.5%
0.1%
21.9%
1.9%
16.2%
7.1%

4.3%
95.4%
0.3%
46.5%
4.0%
34.4%
15.1%

Unit: 1000t.
Source: SEAISI [2014].

Figure 2 shows the demand by product in detail. Bar and wire rod comprises 95.4% oflong products. This suggests that construction of reinforced concrete structures provides
the major use of long products. In Viet Nam, not only office buildings and condominiums,
but modern detached houses are constructed with reinforced concrete. In one provisional
12calculation, 7 tons of bar and wire rod are needed for a tri-level house of 180 square
meters. 15
2.2.3 Growing Demand for Flat and Pipe Products
Though the share of flat products and pipes in the total demand is smaller than that oflong products, its growth rate is higher than that of long products. The growth rate of
demand from 2005 to 2013 was 1.8 times in long products, but 2.4 times in flat and pipe
products.
The rate of manufacturing use of flat and pipe products is in general higher than that oflong products. In Viet Nam, however, this is not necessarily the case, as is suggested by thedemand structure for flat products.
The leftmost column of Table 2 shows the average consumption by product in2011-2013 in SEAISI statistics. However, this does not represent consumption of final
products, because it includes the consumption required in subsequent production processes.
Concretely, consumption of hot-rolled sheets and plates includes consumption as an input
for cold rolling and tubing. Consumption of cold-rolled sheets and strip includes
consumption as a host material for surface treating. When the consumption as final productis calculated, the result is 2.376 million tons of hot-rolled sheets and plates, only 201
thousand tons of cold-rolled sheets and strip, and 1.751 million tons of surface-treatedsheets. 16 Hot-rolled and surface-treated products occupy the major share of the final
demand for flat products in Viet Nam. Most cold-rolled sheets and strip are the hostmaterial for surface treating, rather than final product.
In general, cold-rolled sheets and strip are mainly used for manufacturing products likebodies of automobiles, home appliances, metallic barrels, etc. In contrast, surface-treatedsheets are used both in construction and in manufacturing. Roofs and walls of factories,
warehouses, and individual residences are examples of the former. Automobiles and home
appliances represent the latter. In Viet Nam, demand for pre-painted sheets in construction
is expanding, while the demand in manufacturing is small. With these points in mind, thesmall share of cold-rolled sheets and the large share of surface-treated sheets indicate thatthe consumption of flat products is concentrated in construction in Viet Nam.

15

Interview with an executive of Kyoei Steel Vietnam (August 17, 2015).
Some types of surface-treated sheet are made from thick-sized hot-rolled sheets. The share of suchtypes of sheet is considered trivial here and is excluded from the calculation. Accurate values for theshares of such types of sheet are not available in any statistics.
1613

3. Steel Production and Capital Investment

3.1 Improvements in and Limitations of Import Substitution
3.1.1 Separated Material Flows
From the perspective of the broad category of steel mill products, long products, flat
products, and pipe/tube products are differentiated. Moreover, the manufacturing processesof iron and steel have many stages of production. The major classification of theseprocesses is iron making, steel making, rolling, and surface treating like galvanizing andpainting. Tubing processes are the next step in steel making or hot rolling or cold rolling;these processes vary, depending on the products. 17 There are three typical patterns ofenterprises among iron and steel companies. The first is the integrated producer or
integrated mill. These have iron making, steel making, and rolling processes in the same
company. The major material is iron ore. In most cases, a blast furnace (BF) and aconverter are used for iron making and steel making, respectively. The second is thesemi-integrated producer or mini mill. This has only steel-making and rolling processes.
The major material is steel scrap. EAFs are used for steel making. The third type includes
re-rollers, surface-treating companies, pipe-fitters, etc. These companies do not haveiron-making or steel-making processes; they have only downstream processes.
The material flow of the iron and steel industry in Viet Nam is shown in Figure 3. The
flow is decoupled between the long, flat, and pipe sectors. In domestic production, thethree flows are isolated from each other. 18 In the long sector, all three of the major
processes are installed in Viet Nam. In the flat and pipe sector, however, there are noiron-making, steel-making, or hot-rolling processes within the country. Only cold-rolling,surface-treatment, and pipe-fitting processes are installed.
3.1.2 The Rise of the Self Sufficiency Rate in Crude SteelThe production expansion of crude steel is a major indicator of the development of aniron and steel industry. In Viet Nam, this is limited to the long sector in which crude steel
is cast into billets as a semi-product; that is, crude steel production is almost equal to billet
production.

17

In Viet Nam, only welded pipe is made from hot-rolled sheets. Seamless pipe, which is made frombillets by boring, is not manufactured.
18
In a country in which hot-rolled sheets and plated products are made, the flat and pipe sectors share
the hot-rolling process. In a country in which integrated mills make all kinds of products, the threesectors share iron-making and steel-making processes.

14

Figure 3. Material flow of the Vietnamese iron and steel industry in 2013

Unit: 1000 tons.
Source: Compiled from SEAISI [2014].

Figures 4 and 5 show the changes in the demand-supply relationship of long products
and billets. In Viet Nam, self-sufficiency in long products was achieved in the early 2000s.
Production increases in long products initially induced the import of billets. After 2005,
production of billets rapidly increased while the import volume decreased. Production has
increased from downstream to upstream processes in response to domestic demand. 19 The
supply chain from crude steel to final products has now been instituted in the long sector.
The next step is the stable procurement of scrap or pig iron as an input for crude steel.

Figure 4. Change in demand-supply relations of long steel products in Viet Nam

Source: Compiled from SEAISI [various years].

19

This type of development conjures the theory of the flying geese pattern (Akamatsu [1962]). However,the production change from downstream to upstream is not a single pattern of product diversification andproduct change. A change from crude product to fine product can be supposed. Moreover, the response to
the increase in domestic demand is not the only principle of production change; response to changes ofcomparative advantage is possible. There is not enough space in this footnote for a theoreticalexplanation of the various development patterns, theoretical models, and effectiveness of the flying
geese approach.

16

Figure 5. Change in demand-supply relations of billets in Viet Nam

Source: Compiled from SEAISI [various years].

In spite of its limitation to the long sector, the expansion of crude steel production inViet Nam was remarkable in comparison with other ASEAN economies. Figure 6 shows
this. Crude steel production in Viet Nam increased from less than 1 million tons in 2005 to
5.474 million tons in 2013, which was the top among ASEAN economies. The
self-sufficiency rate of crude steel production, which means the rate of crude steel
production to apparent consumption of steel mill products, changed from 15.7 % in 2005 to
46.5% in 2013 in Viet Nam. In this year, trade in crude steel (ingot and semi-product)
achieved a balance. Exports were 354 thousand tons, while imports were 363 thousand tons.
The Vietnamese steel industry attained import substitution at this important stage of
production in correspondence with the rise of demand for steel in construction.

17

Figure 6. Changes in crude steel production in ASEAN economies.

Source: Compiled from SEAISI [various years].

3.1.3 Growth of Flat and Pipe Sector with Limitations to Downstream Processes
In contrast with the long sector, the growth of production in the flat and pipe sector was
limited to pipe-fitting, cold-rolling, and surface-treating processes.
As Figure 7 shows, the production of surface-treated sheets increased with demand
growth. In 2010s, both exports and imports increased, because the division of labor
represented by specification levels deepened. It can be supposed that Viet Nam isimporting high-grade sheets for automobile and other manufacturing uses, while exporting
lower-grade sheets for construction. The production growth of surface-treated sheets
induced demand for cold-rolled sheets as a host material. In response to this demand, as
Figure 8 shows, the production of cold-rolled sheets rose in the latter half of 2000s. In thepipe sector, as Figure 9 show, self-sufficiency was achieved in the mid-2000s andproduction expansion continued after that. In essence, import substitution of these three
products has progressed remarkably.

18

Figure 7. Change in demand-supply relations of surface-treated steel sheets in Viet Nam

Source: Compiled froma SEAISI [various years].

Figure 8. Change in demand-supply relations of cold-rolled steel sheets in Viet Nam

Source: Compiled from SEAISI [various years].

19

Figure 9. Change in demand-supply relations of welded steel pipe in Viet Nam

Source: Compiled from SEAISI [various years].

However, hot-rolled sheets and plates are not produced in Viet Nam; 20 hence,
production of cold-rolled sheets and welded pipes directly induces the import of hot-rolledsheets.
Imports of hot-rolled sheets and plates increased from 1.367 million tons in 2005 to
6.039 million tons in 2013. This is the most important import-substitution challenge for theVietnamese steel industry.

3.2 Production and Capital Investment of Major Enterprises
The issue of this sub-section is the assessment of major enterprises and their production
capacity in the long and flat sectors. Though the pipe sector is not covered, theinvestigation of two large sectors is enough to assess the degree of industrial development.
For analysis, the enterprises are broken down into types by production structure, for which
the indicators are coverage of production processes and degree of vertical integration. The
various types of enterprise are located within industrial supply chains. This typology andlocation provides a description of the industrial organization. Through such analysis, theoverall degree of rationality and problems of partial, fragmented production processes inthe Vietnamese iron and steel industry will be revealed concretely. Moreover, it will be

20

Cuu Long-Vinashin Steel Company installed a plate mill and started operation s in 2007. However,these operations soon ceased.

20

possible to analyze the cooperation and competition between different types ofenterprise. 21
3.2.1 The Long Sector
Table 3 shows the production capacity and production record of major producers of longproducts in 2013. There were thirteen such enterprises, which occupied 77% of production.
In 2015, the number of major enterprises became fifteen, because the operation of new
entrants started. 22 By classification of production structure, there are three integrated ironand steel enterprises, of which one has only iron-making and steel-making processes, while
five have EAF-rolling mills, two are steel-making producers with induction furnaces (IFs),
and two are rolling companies.
Most of the products in the long sector are bar and wire rod. Additionally, Thai Nguyen
Iron and Steel Corporation (TISCO) and Pomina Steel produce structural shapes. While
POSCO SS Vn—a newly instituted company backed by South Korean capital—seems fromits company name to make specialty steel, several professionals say that it produces
ordinary bars and shapes.
From the perspective of ownership, the decline of SOEs under VNS is evident. Instead,joint ventures between foreign companies and VNS, 100% foreign capital companies, andprivate companies became the major producers. In particular, it is worthy of attention thatboth top and second producers, Pomina Steel and Hoa Phat Group (HPG), arenon-state-owned joint stock companies with production volumes above 700 thousand tons.
According to production structure, integrated producers HPG and TISCO are relatively
large in Viet Nam. They have a standard size of rolling machine with a capacity of 300
thousand tons per annum. However, their production scale of crude steel with BF andconverter is tiny in comparison with integrated mills in advanced economies. HPG’s crude
steel production is less than 1 million tons, while the minimum efficient scale of integrated
mills in advanced economies is 3 million tons. The technology source of HPG and TISCO
is China. 23 China is a special case in the industry, because it has many small-scale
integrated producers.
TISCO, one of the VNS-affiliated companies, is an old SOE, construction of whichbegan in the 1950s. It has experienced many problems in terms of technology and21

This methodology was developed in Mizota [1982], Okamoto [1984], Nagashima [1987], andKawabata [2005].
22
In this paper, two types are considered as major enterprises in the long sector. One is existing
enterprises for which the production record of long products or billets was above 150 thousand tons in2013. The other is new entrants that are able to produce 150 thousand tons or more per annum.
23Interview at TISCO (August 5, 2014) and Hoa Phat Steel (August 4, 2014).

21

Table 3. Major enterprises in the long steel sector in Viet Nam (2013)
Verticalintegration

Iron making (Blast furnace)Enterprise

Ownership

Hoa Phat

PrivateTISCO
VNS65%
Others (about 10 )Capacity Note
350m㎥，450㎥ →
3829

100㎥，120㎥→(Start in 2014)*Viet – Trung
Mining andMetallurgy

Verticalintegration

Steel making
Enterprise

Ownership

Hoa Phat

PrivateTISCO
PominaVNS（Phu My)
Vietnam Italy
An Hung TuongEnterprise

Ownership

Hoa Phat

Private727

VNS65%
PrivateVNS
PrivateCapacity Note
BOF, EAF,
→
IF
EAF
→
EAF
→
EAF
→
11430
EAF
→

TISCO
PominaVNS(Phu My)
Vietnam Italy

VNS65%
PrivateVNS
Private

482
737
386
242

PrivateIF

Vina Kyoei

VNS JV(Japan)

427

Hai Phong Steel Private
Others (about 20)

IF

Kyoei Vietnam
Viet Duc

FDI (Japan)
PrivateVNS
JV(Australia)

215
189

(Start in 2014)
VNS
JV(China)

550 550㎥→

Hot rolling*Viet – Trung
Mining andMetallurgy(Start in 2015)*POSCO SS
Vietnam*Vina Kyoei

Vinausteel
VNS
JV(China)

FDI(South
Korea)VNS
JV(Japan)

550 EAF

1000 EAF→

500 EAF→

Capacity Production

11480

182

SSE

FDI(Australia)

173

VPS

VNS JV(South
Korea)

167

Others (about 15
members of VSA)
Others (nonmembers of VSA)
Sub Total(Start in 2015)*POSCO SS
Vietnam*Vina Kyoei new
line

862
約500
5123
FDI(South
Korea)

1000-

VNS JV(Japan)

500-

Unit: 1000 ton.
Source: Production of each enterprise is from VSA [2014a]. Subtotal of production including non-member enterprise is from SEAISI [2014].
Capacity is mainly from SEAIAI [2014] supplemented by OECD [2014], websites of each enterprise, and interview record and newspapers.

operations (Kawabata [2001]). The internal volumes of TISCO’s two BFs are 100 and 120
cubic meters; such furnaces are below international standards and are the target of
shutdowns even in China. 24
As the two micro BFs at TISCO cannot supply enough pig iron for the steel-making
process, TISCO has to buy scrap to provide 40-50% of its raw material in steel making. 25
Though TISCO started a capital investment project to rehabilitate its obsolete production
system in September 2007, it did not progress on schedule due to financial problems. This
project included the development of an iron mine and the installation of a BF with aninternal volume of 550 cubic meters, along with a converter and billet caster. This would
add an annual crude steel production capacity of 500 thousand tons. In the original plan,
the investment volume was 178.7 million dollars. However, problems in the negotiations
with the engineering company and delays in construction drove the cost up to 377 million
dollars. The construction was halted and TISCO asked the Government Office for help.
The Prime Minister decided that the State Capital Investment Corporation should acquire
additional stocks of TISCO to the value of 4.76 million dollars. By virtue of this additional
capital, construction resumed. 26 It is clear that TISCO cannot survive without
governmental subsidies.
In contrast to TISCO, the performance of HPG has been very good. HPG was listed on
the Ho Chi Minh City Stock Exchange in 2007. It recorded a net profit for the six
consecutive fiscal years from 2009 to 2014. In these five periods, HPG recorded revenue
growth four times, gross profit growth in four times, net profit growth three times, and14.8-24.3% of return on revenue (VPBS [2014] p.34). This rate is higher than those for
Pomina Steel and Vietnam Italy Steel (VIS), which are also private enterprises in the longsector (VPBS [2014] p.25). HPG has an integrated iron and steel complex with a capacityof 1 million tons in north Hai Duong Province and is carrying out an expansion plan toreach 1.75 million tons. On completion of the plan, the total capacity of the group will be 2
million tons. As the Hai Duong steel complex was constructed on a greenfield site on ariver front, the layout of equipment is rational and provides a modest advantage for24

With regard to the upscaling of blast furnaces in China, see Kawabata and Zhao [2014].
Interview at TISCO, August 5, 2014. For the steel-making processes of TISCO, EAF technology isadopted, despite the fact that it is usual to adopt converters in an integrated steel complex. The reason forthis is the tiny capacity of the blast furnaces. TISCO thus has to use much scrap in addition to melted
iron in the steel-making process. The cold scrap rate is limited in converter, the heat source of which ismelted iron. In contrast, EAF technology can be operated with scrap only.
26
Interviews at VNS (August 4, 2014) and TISCO (August 5, 2014); also “TISCO to get $63.2 million
to expand production,” Viet Nam News biz hub, January 28, 2015(http://bizhub.vn/news/9696/tisco-to-get-632-million-to-expand-production.html) and other news
articles.
25

23

shipping. 27 Two BFs in operation have internal volumes of 350 and 450 cubic meters; afurther planned BF is expected to have a volume of about 1000 cubic meters. As an
integrated steel complex, Hai Duong complex is comparatively small. Such a complex isunusual in advanced economies, but is observed in many cases in China (Kawabata andZhao [2014]). The investment volume of HPG was 3.2 trillion VND for phase 2, which
included the second BF; and is 3.8 trillion VND for phase 3, which includes the third BF.
The total cost of phases 2 and 3 is 7 trillion VND, which is equal to about 324 million USD
at the exchange rate in April 2015 (HPG [2013] p.28, [2014] p.36). HPG is investing inlarger production capacities, using smaller amounts of capital without governmental
subsidies, when compared with TISCO.
Pomina Steel and twelve other EAF-based producers insisted that HPG is protected by agovernmental policy that banned the export of iron ore. 28 However, the effect of thispolicy is limited. HPG procures half of its iron ore from captive mines that are notimpacted by the export ban policy. Moreover, HPG’s executive says that in the future, ironore will be imported for use in generating expanded capacity. 29
Including new entrants like POSCO SS and the new line of Vina Kyoei Steel (VKS), a
joint venture between VNS and Kyoei Steel from Japan, all the major EAF-rollingenterprises have EAFs with an annual capacity of 500 thousand tons or more and peripheral
facilities like ladle furnaces (LFs). These meet international technical standards. This
represents a rapid development over the last decade, considering there was no such modern
EAF until the first half of the 2000s (Kawabata [2003]). Among re-rolling producers,
Kyoei Steel Viet Nam (KSVC) has a rolling mill that meets international standards.
Though the rolling mills of other re-rollers are smaller than that of KSVC, no irregularfeatures are observed.
Besides integrated mills and EAF rolling mills, some companies are operating induction
furnace-based production of billets. In advanced economies, induction furnaces (IFs) areused for smelting pig iron for casting. However, in some developing economies, including27

HPG [2014], p.24, plant visit, and interviews with executives and managers at HPG, August 4, 2014.
“Cross-border iron ore smuggling,” Viet Nam Net Bridge, December 3, 2014(http://english.vietnamnet.vn/fms/special-reports/117753/cross-border-iron-ore-smuggling--the-real-con
cern.html).
29
Interview at HPG, August 4, 2014. It is not clear whether the target of this export ban policy is natural
resource protection or the protection of domestic iron-making enterprises. We think the effect might beother than the protection of HPG. It is possible this policy delays the development of Thach Khe iron ore
mine, which has the most reserves in Viet Nam (544 million tons). There are some technical challenges
in the development of Thach Khe mine that include an ore bed under the sea and the high zinc content of
the ore (Japan Economic Foundation [2009] pp.26-28). Foreign high technology and huge capital
investments are necessary for promoting this development; however, it would be blocked by the export
ban policy.
28

24Viet Nam and India, they are applied to steel making. 30 They are adopted because theinvestment cost is low and the production adjustment is easy. Although there are no
statistics for IFs, anecdotal evidence indicates that about 1.5 million tons of steel can besmelted by IF. 31 Unlike EAF, the IF is originally a technology for smelting, not refining;
so the quality of billets from IFs is not good. However, some changes have occurred among
IF producers in the last decade. One is the expansion of production scale. Two big private
IF producers, An Hung Tuong and Hai Phong Steel, installed 500 thousand tons of
smelting and casting capacity. 32 Another change lies in the reinforcement of quality
control. These producers are selecting good scrap in a careful manner. Moreover, they are
adjusting the content of steel by LF after smelting. In fact, major companies are using
billets from big IF producers after inspection. 33 These billets are usable for creatingconcrete bars for housing construction in the domestic market. In Viet Nam, billet
production with IFs is considered as an adaptive behavior responding to factor endowment
and market conditions.
Outside the major enterprises, however, opportunistic behavior with short-term profit
seeking is observed. An example is the failure of small BFs installment. In the mid-2000s,
some non-state-owned companies, including Van Loi Steel and Dinh Vu Steel, tried to
install BFs. After the world financial crisis in 2008, these projects were revealed to beinefficient, because investment volumes were high, but operations were inflexible. 34
Vietnam Industrial Investments (VII), owner of Dinh Vu Steel from Australia, recorded aloss and sold its equity in 2011. At that time, VII reported that Dinh Vu’s EAF was
efficient, but the BF under construction was a burden for investors (VII [2011]).
In 2013, domestic demand for long products was 5.832 million tons (Table 2).
Production capacity reached 11.43 million tons in steel making and 11.48 million tons inlong rolling. Production of long products was 5.123 million tons, with the operating ratio
being under 50%. In 2014-15, 2.05 million tons of steel-making and 1.5 million tons ofrolling capacity were added. This is a situation of severe excess capacity.
However, the market selection process is working, because opportunistic producers were
excluded and the remaining healthy private and foreign companies kept on growing.
Through such market competition, import substitution of crude steel has been achieved.

30

Regarding the example in India, see Ishigami [2011].
Interview at Kyoei Steel, August 4, 2014.
32
Plant visit and interview at An Hung Tuong, August 20, 2015. IFs were imported from China. With
regard to Hai Phong Steel, see OECD [2013] p.377.
33
Plant visit and interview at An Hung Tuong, August 20, 2015.
34“Steel firms in a hole,” Vietnam Investment Review, July 26, 2011(http://www.vir.com.vn/steel-firms-in-a-hole.html).
31

25

The exception to this is TISCO, which cannot continue its investment without
governmental subsidy. The equal footing between SOEs and other companies is still
incomplete.

3.2.2 The Flat Sector
Table 4 shows the production capacity and production records of major enterprises in theflat sector in 2013. 35 In 2013, there were eleven major enterprises that provided 100% of
cold-rolled sheets and 88% of surface-treated sheets. In 2014, one re-rolling andsurface-treating producer with large-scale facilities was added. Including the new entrant,
by classification of production structure, five companies have both cold-rolling andsurface-treating process; four companies have only cold rolling, of which three areordinary steel and one is a stainless steel producer; and three companies have only
surface-treating processes. As is the case with the long sector, SOEs under VNS are
declining. In addition to private companies, 100% foreign capital companies are rising.
The top producer of cold-rolled sheets is POSCO Vietnam with South Korean capital andthe second is Hoa Sen Group (HSG) with domestic private capital. HSG is also the clear
top producer of surface-treated sheets. 36
In the flat sector, the suitability of each producer’s technology and product lines to theneeds of market segments should be noted. In surface treating, China Steel Sumikin
Vietnam (CSVC), which is a joint venture between CSC from Taiwan and Nippon Steel &Sumitomo Metal (NSSMC) from Japan, and Perstima Vietnam, which is a Malaysian- andJapanese-affiliated company, can produce high-grade sheets for manufacturing. 37 CSVC isthe first producer in Viet Nam to produce galvannealed sheet (GA) for the body panel s ofautomobiles and for electrical appliance, with annual capacity of 300 thousand tons.

35

In this paper, the following four types are considered as major enterprises in flat sector; 1) a company
that has cold rolling mill, 2) a company with the production of surface treated sheets with 150 thousand
tons or more in 2013, 3) a company that produces the high grade surface treated sheets for manufacturing,4) a new entrant company that is possible to meet the requirements described above from the standpointof production equipment.
36
Nippon Steel & Sumitomo Metal (NSSMC) was a 15% of shareholder of POSCO Vietnam from thetime of institution. However, NSSMC sold its equity to POSCO in March 2015. The author confirmed
this in a telephone interview with NSSMC, June 16, 2015.
37
For the production of high-grade galvanized sheet for manufacturing industries, advanced equipment
and/or operations with special knowledge and technical know-how are needed. Though the standard typeof galvanizing line is applicable in high-grade production to a moderate extent, various types ofinspection equipment should be added to the line and materials must be strictly selected. In the case of
GA sheets, a special machine to spread the zinc and iron content within the sheet after the galvanizing
must be added. For making tin-plated and tin-free steel, a special type of surface-treating line that isdifferent from galvanizing is needed. Moreover, the traceability of products is very important, because
these outputs are used for food and beverage cans.

26

Table 4. Major enterprises in the flat steel sector in Viet Nam (2013)
Vertical
Surface treatment
integration

Cold rolling
Company

Ownership

Hoa SenSUNSCO
Nam Kim Steel
Dai Thien Loc

PrivateFDI (Japan)
PrivatePrivateFDI (South
Korea)POSCO Viet Nam

Capacity Production Note

Company

Ownership

743 Reverse*5 (980thos.tons) →134 Reverse*1 (250thous.tons) →N.A. Reverse*1 (200thous.tons) →75→
Tandem*1 (1200 thous.
885
tons)

Hoa SenSUNSCO
Nam Kim Steel
Dai Thien Loc

PrivateFDI (Japan)
PrivatePrivateTon Dong A

Private112 Reverse*2(405thous. tons)

SSSC

VNS JV(Japanand Malaysia)

Perstima Viet Nam

FDI (Malaysia
and Japan)

Phu My Flat SteelVNSThong Nhat Flat Steel

VNS

22

Reverse*1(200 thous.
tons)

POSCO VST

FDI (South
Korea)

97

Sendzimir*1(235thous.tons)

3430

Total
Start in 2014
*CSVC

2067
FDI
(Taiwan andJapan)

1200-

Tandem*1,electrical sheet→
is also produced

Capacity
Production Note
(GI/GL)875 GI,GL,PP
218 GI,GL,PP
159 GI,GL,PP
126 GI,GL,PP
159 GI,GL,PP
3419

Tinplate,
64 tin-free
plate

Other GI and PPGI
producers (10 VSA
member companies)
Total
Start in 2014
*CSVC

157 GI,PP

237 GI,GL,PP
1996
FDI (Taiwan andJapan)

300

GI, GA

Unit: 1000 tons.
Note: GI: Galvanized Sheet, GL: 55%Al-Zn alloyed treated sheet, GA: Galvannealed Sheet, PPGI: Prepainted galvanized sheet, PPGL: Pre -painted 55%Al-Zn alloyedtreated sheet.
Source: Production is from VSA [2014]. The number is different from Figure 3 because the latter is from SEAISI. Production capacity is mainly from SEAISI [2014],
supplemented by OECD [2014], websites of each enterprise, and interview record and newspapers.

Perstima Vietnam has 130 thousand tons of capacity for tin plate and tin -free steel sheet forcans. 38 However, it is hard for these two companies to maintain high operating ratios,
because the demand of steel sheets for manufacturing is small in Viet Nam. In particular,finding customers is an important challenge for CSVC, because it has a large-scalecapacity oriented toward automotive steel. Export expansion is one option.
All the other surface-treated sheet producers, that is, HSG and other major private
enterprises—including Maruichi Sun Steel (SUNSCO) with Japanese capital, Southern
Steel Sheet Corporation (SSSC), which is a joint venture among VNS, Japanese andMalaysian companies—, as well as non-major producers have the standard types ofgalvanizing and painting lines. Those enterprises are producing galvanized sheet (GI), 55%
aluminum-zinc coated sheet (GL), pre-painted coated sheet with zinc (PPGI), or 55%
aluminum-zinc alloy (PPGL). 39 Most of these products are used in construction. Computedfrom Table 4, these companies are responsible for 96.8% of surface-treated sheet
production in Viet Nam. This means that most of the surface-treated steel sheets produced
in Viet Nam are for construction. 40 Cold-rolled sheets are produced as a host material in
the surface-treating process. The enterprises in this sector experienced growth throughexploiting the construction market.
In the cold-rolling process, two large-scale producers, POSCO Vietnam and CSVC, havea tandem cold rolling mill and a continuous annealing line (CAL) with an annual capacityof 1.2 million tons. 41 Both mills are the state of the art facilities that can produce
high-grade cold-rolled sheets for manufacturing industry. In particular, CSVC can produce
non-grain-oriented electrical steel sheet for motor cores with a special annealing andcoating line (ACL) after cold rolling. When the operating ratio is high, POSCO Vietnam
and CSVC can achieve economies of scale and low-cost production. In fact, however, bothcompanies are confronted with insufficient demand for high-grade sheets in Viet Nam.

38

Interview at CSVC, August 6, 2014 and website of Perstima Vietnam(http://www.perstima.com.vn/general-information.asp).
39
GI sheet and GL sheet can be produced on the same production line. Another line is needed to paintthe GI or GL sheet.
40
The author reached this deduction from certain facts. The standard type of coating line is designed for
production of construction sheets. In all plant visits and interviews from 2000 to 2015, the author foundthat all companies in this group produced surface-treated sheets for construction as a major product. In
general, however, it is possible to produce surface-treated sheets for steel furniture, refrigerators, andelectrical switchboards. More detailed investigation is needed.
41
A tandem rolling mill is a rolling machine that has some rolling stands arranged linearly. Hot rolledcoil as host material is released at the entry side of the mill. It is rolled through all the rolling stands
without stopping until reaching the exit side coiler. The exit coiler then reels the product, which has been
converted to cold-rolled sheet.
Reversing mill is a rolling machine that has only one rolling stand. Hot coil is releases from one side
coiler, rolled through the stand, and reeled at the other side coiler. Such operation is repeated sev eral
times. Finally, cold rolled sheet are gotten.

28

POSCO Vietnam and CSVC have to produce the full-hard cold-rolled sheet as a hostmaterial for surface-treating processes. Such product adjustment lifts the operating ratio of
the cold-rolling mill, while fixing the low operating ratio of CALs and ACLs. 42 These
producers have no choice but to search the foreign market to utilize their facilities forhigh-grade sheets.
A subsidiary of VNS and all private companies have reversing mills with an annual
capacity of about 200 thousand tons. A reversing mill is a small standardized machine; its
productivity is lower than that of a tandem mill when both mills run at full capacity.
However, its operation is flexible and efficient for some partially integrated producers like
HSG, which have to produce sufficient cold-rolled sheets for the galvanizing process. It is
possible for such companies to increase their rolling capacity little by little with areversing mill, while avoiding excess capacity. Moreover, such producers do not have to
install CAL, because all cold-rolled sheets are full-hard host materials for surface treating.
Sole cold-rolling companies like Phu My Flat Steel (PFS) have a batch-type annealing
furnace for small-scale production. POSCO VST has a sendzimir cold -rolling mill to
produce stainless cold-rolled sheet. Its annual capacity is 235 thousand tons, which isnormal by international standards.43
In 2013, domestic demand for surface-treated sheets was 2.095 million tons, while
demand for cold-rolled sheets was 2.229 million tons, including the host material forsurface treating (Table 2). Production capacity was 3.419 million tons per annum in surface
treating and 3.43 million tons per annum in cold rolling. An excess capacity situation isobserved in the flat sector, although not to the extent of the long sector. While increasing
exports alleviated the difficulty to some extent (Figures 7, 8), the operating ratios in 2013
were 58.4% in galvanizing and 60.3% in cold rolling. 44
The performance differences among companies is widening under the fierce competition
for survival. HSG is a winner as the top producer of surface-treated sheets. It has been
listed on Ho Chi Minh City Stock Exchange since 2008. It recorded a continuous profit
from 2009 to 2014. In that period, sales and gross profit increased in five continuous fiscal
years, while net profit increased in three of the five years. Gross profit on sales was
42

Cold-rolled sheet as a final product is annealed after cold rolling in the same factory. However,cold-rolled sheet as a host material for galvanizing is not annealed there, because an annealing zone isembedded in a continuous galvanizing line. Such non-annealed cold-rolled sheet is called full-hard sheet.
When the cold-rolling company produces full-hard sheet, CAL does not operate. Moreover, ACL in acold-rolling factory operates only when electrical steel sheet is produced.
43
POSVO VST website (http://poscovst.com.vn/Eng/History.aspx). A sendzimir mill is one kind ofreversing mill. Many multistage rolls are girdled around a small-sized work roll. It is suitable for the
rolling of highly work-hardened steel, like stainless steel.
44
The author calculated these values from the record of production volumes in VSA [2014a]. Based on
the data in SEAISI [2014], the operating ratios were 58.1% in cold rolling and 64.4% in galvanizing.

29

12.9-19.6% (HSG [various years]). HSG is grasping the domestic market forsurface-treated sheets for construction through a captive sales network represented by 136
branches. 45
The performance of sole cold-rolling companies is not good. POSCO Vietnam, as a top
producer, kept a steady operating ratio of 73.7%. However, it recorded continuous losses
over 2011-2013 (POSCO [2013], pp.F-22, F-26, F-31). The situation of two subsidiaries of
VNS is worse. Operating ratios were 27.6% at PFS and 10.9% at Ton Nhat Flat Steel(TNFS). These two companies do not engage in any surface-treating processes. In sales tocustomers, they are losing the battle against POSCO Viet Nam. The entry of CSVC in 2014
intensified the competition even more. It is difficult for these two subsidiaries of VNS tosurvive independently.
In essence, grasping the domestic market segment of surface-treatment sheet for
construction and the procurement of cold-rolled sheet as host material are the keys tosuccess in the flat sector. HSG is succeeding in carrying them out. Foreign enterprises that
focused on high-grade sheet cannot fully utilize the strength of their technology. SOEs
cannot capture the growing market.

3.3 The Importance of Formosa Ha Tinh SteelIt is getting close to the blowing-in of Formosa Ha Tinh Steel Corporation (FHS), thefirst large-scale integrated iron and steel company in Viet Nam.
FHS is a foreign capital company, of which majority is hold by the Formosa Plastic
Group from Taiwan. In February 2015, CSC, a top steel producer in Taiwan, increased its
equity from 5% to 25%. Moreover, JFE Steel, the second-largest steel enterprise in Japan,
decided to make a 5% investment. 46 FHS was instituted in 2008 to install the large-scale
integrated steel complex at the coastal area in central Ha Tinh Province. The project site
was a space that JICA and former Arcelor (now Arcelor Mittal) had suggested as the best
location for a steel complex for VNS in the 1990s and 2000s. Although the first stage of
construction should have completed in 2015, an anti-Chia insurgency on the territorial
dispute in 2014 delayed the completion to 2016. 47
The first stage of the FHS project contains an integrated iron and steel complex with
7.07 million tons of annual capacity, a harbor with eleven boating docks with a transaction
45

Interview at HSG, August 6, 2014.
“JFE Steel to Acquire 5% Stake in Vietnam’s First Integrated Steelworks Project ,” JFE Steel News
Release, July 30, 2015 (http://www.jfe-steel.co.jp/en/release/2015/150730.html), retrieved March 1,
2016.
47
Workers from mainland China were working at the construction site of FHS. Some of them died in theinsurgency; some Vietnamese workers were also injured.
46

30

volume of 28.61 million tons per annum, and a power station with 6.5 MW ofelectricity-generating capacity. 48 The scale and location of FHS meets international
standards in this industry. When the construction is complete, crude steel production
capacity in Viet Nam will reach about 20 million tons per annum, of which one-third or
more will be occupied by FHS.
In the early stages, there was some skeptical argument about the feasibility of the FHS
project, because Formosa Plastic Group had no experience in the iron and steel industry.
However, it seemed increasingly likely to be completed as the details of progress wererevealed. Table 5 shows that FHS is in charge of procuring equipment from internationallyknown suppliers. CISDI Engineering, a BF supplier, has installed 14 large-scale BFs with
4000 cubic meters of internal volume in China 49 , although FHS is its first export project oflarge BFs. 50
Moreover, Steel Plantech and Primetals Technologies, which provide converters, hot
strip mills, and some downstream facilities, are world-class suppliers. State of the art
production facilities have been secured for FHS. Knowledge and skills which are needed
for low-cost and high-quality production will be provided by CSC and JFE Steel.
Though delay in schedule and troubles at the early stage of production are within therealm of possibility, the integrated complex of FHS will start its operation. 51
Based on the composition of production facilities, the product mix of FHS will include
5.3 million tons of hot rolled sheets and strip, 1.2 million tons of bar and wire rod, and100-500 thousand tons of bloom and billet. The supply of these products will create
different impacts on the long sector and the flat/pipe sector.
In the long sector, the start of FHS could exacerbate the excess capacity situation.
Originally, FHS was planned when billets were in short supply in Viet Nam. However,import substitution progressed with unexpected speed. Currently, production of billets,
reinforced bar and wire rod for construction does not necessarily make profit s for FHS.

48

Formosa Ha Tinh Steel, website (http://www.fhs.com.tw/Intro/cover03.html), retrieved March 1,
2016.
49
CISDI website (http://www.cisdigroup.com/3-ironmaking-instruction.html).
50
China Metallurgical Group (CMG) (parent company of CISDI), “Ground work of BFs that CMG
accepted the order started at Formosa Ha Tinh Steel,” on the website of State-owned Assets Supervision
and Administration Commission of the State Council, China(http://www.sasac.gov.cn/n1180/n1226/n2410/n314289/15172482.html ) (Chinese language).
51
The FHS project was delayed because of the anti-China insurgency and other accidents. In March
2015, scaffolds broke at the construction site of the seaport. “Scaffold collapse kills at least 14 at
Taiwan’s Formosa steel complex in central Vietnam,” Thanh Nien News, March 26, 2015(http://www.thanhniennews.com/society/scaffold-collapse-kills-at-least-14-at-taiwans-formosa-steel-complex-in-central-vietnam-40301.html).

31

Table 5.

Capital Investment Plan of Formosa Ha Tinh Steel (1st stage)

Equipment

Main Supplier

Blast furnace

CISDI Engineering

Converter

Steel Plantech

Continuous slab
casterContinuous billet
casterSiemens

Continuous bloom
casterBilleting millSiemens

Hot strip millPrimetals Technologies(Former
Mitsubishi-Hitachi
Metals Machinery)N.A.

Bar and wire rod
mill
Wire rod millSiemens

SMS Meer

Specification

4350m32

Capacity per
annum(Thousand
tons)
6394

300t
Pre-treatment facility for
melted iron, Secondary
treatment facility
2strands T210-270、
W900-1880
8strands
130×130-180×180
L12m
6strands
260×300-360×450
160×160, 180×180

3

7070

2

5400

1

1200

1

1500

1

1000

Rough rolling mill
(2stands), Sizing press,
Finishing mill (7stands)

1

5300

1

600

1

600

N.A.

NumberNote: Siemens VAI Metals Technologies and Mitsubishi-Hitachi Metals Machinery merged to form
Primetals Technology in 2015. It is confirmed that the contract for the hot strip mill was transferred to
the new company. However, the status of the contracts for continuous casters is not clear fromdisclosed materials.
Source: Websites and press releases of Formosa Ha Tinh Steel, Steel Plantech, Siemens, CISDI
Engineering, Primetals Technologies Japan, SMS Meer, and State -owned Assets Supervision and
Administration Commission of the State Council, China. 52

52

Formosa Ha Tinh Steel website,(http://www.fhs.com.tw/Intro/cover04.html), Steel Plantech website,
page of “Products” (http://steelplantech.com/en/product/) (Retrieved March 1, 2016), “Received an orderof BOF Steel Making Plant for Formosa Ha Tinh Steel Corporation, Vietnam,” Steel Plantech Press
Release, August 9, 2012 (http://steelplantech.com/news/2643/) (Retrieved on March 1, 2016), “Formosa
Heavy Industries orders four continuous casting lines from Siemens for major steelmaking project inVietnam,” Siemens, Press Release, Dec. 24, 2012(http://www.siemens.com.tw/release/pdf/20121224_111348e.pdf), “Receive Order for a large-scale Hot
Rolling Equipment for Vietnam” Mitsubishi Hitachi Metals Machinery Press Release, November 6, 2012.
This company was reorganized into Primetals Technologies as a result of combination with Siemens VAI
Metals (http://www.primetals.co.jp/japan/press/121106.html), “Formosa Ha Tinh Steel orders
semi-continuous billet mill,” SMS Meer Press Release, March 15, 2014(http://www.sms-meer.com/en/news-media/news/single/article/formosa-ha-tinh-steel-bestellt-halbkontin
uierliche-knueppelstrasse.html), EPC Contract for Blast Furnaces of Formosa Ha Tinh Steel Inked ,CISDI, Company News, December 10, 2012 (http://www.cisdigroup.com/news3-1213.html), China
Metallurgical Group, “The construction of bar and wire rod mill that CMG accepted the order started at
Formosa Ha Tinh Steel,” on the website of State-owned Assets Supervision and Administration
Commission of the State Council, China(http://www.sasac.gov.cn/n1180/n1226/n2410/n314274/15464817.html ).

32

Based on the specification of a bloom caster that can make semi-products of carbon andalloy steel for spring, forging, wire, tire cord and bearing, FHS is trying to concentrate on
high-grade long products. 53 Another option is to concentrate on exports. However, it is an
undeniable possibility that it will provide not only high-grade steel but construction steel
to domestic market to maintain its operating ratio. Competition for survival will be
intensified. This could be a threat not only to existing producers, but to FHS itself.
In the flat/pipe sector, the situation is different. FHS could be a driving force for theimport substitution of hot-rolled sheets and strip for which Viet Nam was totally dependenton imports. For producers of cold-rolled sheets and welded pipe, FHS could be a source of
host materials. FHS will not worsen the excess capacity in these sectors; on the contrary,
FHS has a chance of rapid production expansion and making profits, while promoting
sectoral development. Concentration on hot-rolled sheet and strip will bring the FHS
project to a successful conclusion.
There are several projects involving integrated iron and steel complexes other than FHS.
They are making little progress, however. E-United Group from Taiwan planned theinstallation of an integrated complex at Dung Quat Economic Zone in Quang Ngai
Province, but construction stopped at the stage of piling. Originally, this project waslicensed in 2006 to a small re-roller, Tycoon Group, without financial and technologicalfeasibility. E-United took it over after Tycoon hoisted the white flag. 54 Although E-United
is a steel enterprise, it did not have experience in the operation of an integrated complex.
Unless experienced companies from advanced economies help E-United, this project is not
feasible. In fact, E-United asked JFE Steel in Japan for its participation in the project in2012. JFE Steel, however, turned down this proposal after an investigation that lasted two
years. 55 VNS tried to undertake a joint venture with Tata Steel in India to construct anintegrated complex. However, VNS could not get support from central government for theplan. To make matters worse, it lost the capacity to undertake large-scale projects, becauseof the financial difficulties of its subsidiaries. 56

53“Formosa Heavy Industries orders four continuous casting lines from Siemens for major steelmaking
project in Vietnam,” Siemens Press Release, Nov. 26, 2012(http://www.siemens.com/press/en/pressrelease/?press=/en/pressrelease/2012/industry/metals -technologi
es/imt201211301.htm).
54
With regard to the problems of the Tycoon project, see Kawabata [2007].
55“JFE Steel Discontinues Steelworks Feasibility Study in Vietnam,” JFE Steel News Release,
September 16, 2014( http://www.jfe-steel.co.jp/en/release/2014/140916.html) (Retrieved on March 3,2016).
56
Interview at VNS, August 5, 2014.

33

4. The Steel Trade in Viet Nam

4.1 Steel Exports as a Result of Industrial Development
It is not easy to assess the detailed status of the steel trade in Viet Nam. Even in SEAISI
statistics, total volume of imports by product is different from imports by origin. In
particular, the latter is contaminated by some abnormal values. The analysis should bedone under these limitations.
Export of semi-products and steel mill products from Viet Nam exceeded one million
tons for the first time in 2008. After that, exports of steel mill products reached 2.145
million tons in 2013, while semi-products reached 0.354 million tons. The export ratio ofsteel mill products was 20.8% of production. By product, exports of surface-treated sheets
were the largest (Figure 3), recording an export surplus of 164 thousand tons. In addition,
bar and pipe recorded export surpluses in physical terms. The major destination of exports
is listed as “others” in SEAISI statistics; the likelihood is that these are ASEAN
economies.
Increasing steel exports from Viet Nam should be considered as a natural result ofindustrial development. Changes in the demand-supply relationship of surface-treatedsheets are shown in Figure 7. Production increased after the rise in domestic demand andfinally exceeded it. The export volume is not large. On the one hand, this means that theinternational competitiveness is not so high. On the other hand, these exports do notconstitute anti-competitive behavior. Excess capacity that is observed in Viet Nam is not
being used to drive exports; rather, it is leading to lower operating ratios.

4.2 Competition with Imported SteelThe Vietnamese steel industry is affected by imported steel products, especially from
China.
Until the early 2000s, Viet Nam had adopted a protection policy with tariffs. For
example, the tariff rate was 40% on bar and wire rod and 30% on surface-treated sheets. In
2015, however, due to the WTO database, the MFN tariff rate is 7% on billet, 7.5% on
deformed bar, 10% on shape, 6.7% on wire rod, 4.7-7% on cold-rolled wide strip, 12% on
GI sheet, 12% on GL sheet, 5% on wide tin plate and tin -free sheet, 10% on stainlesscold-rolled wide strip, etc. The rates on plate and hot-rolled wide strip, which is notproduced in Viet Nam, are 0%. 57 There might be various opinions as to whether the57

WTO Tariff Database (http://tariffdata.wto.org/) (Retrieved on April 5, 2015). All figures given are
the highest rates for similar products.

34

current rate is reasonable, but it is not highly protective and is not creating distortive
effects on market selection. These rates have been reduced for the decade. More reduction
is in progress between Viet Nam and major trade partners due to regional free trade
agreements like ASEAN Economic Community (ACE), ASEAN-China Free Trade Area
(ACFTA), ASEAN-Japan Comprehensive Economic Partnership (AJCEP), and the Japan
Viet Nam Economic Partnership Agreement (JVEPA), with the Trans-Pacific Strategic
Economic Partnership Agreement (TPP) to be added. This tendency toward free tradecannot be reversed. Classical-style protection policies for the Vietnamese steel industry are
now unimaginable.
In 2013, steel imports were 8.791 million tons of steel mill products and 366 thousand
tons of semi-products. This was an all-time high for final products and the second highest,
after 2009, in total volume. Import volume by product is shown in Figure 3. Imports of
hot-rolled sheets and plates were 6.039 million tons and occupied 68.7% of the total. This
volume continuously increased over the decade, because the demand increased without theoperation of hot-rolling mill in the flat sector. Moreover, imports of wire rod increased inrecent years. The import level was 735 thousand tons and occupied only 8.4% of total
volume. However, the penetration ratio of imported wire rod to domestic demand reached42.3%.58
Looking at import statistics by origin, the most noticeable feature is the increase ofimports from China. These reached 3.513 million tons in 2013 and occupied 37.3% of allimports. This represented a rapid expansion from 16.1% in 2009. According to figuresfrom SEAISI, 60% of imports in hot-rolled sheets and strip and 80% of imports in wire rod
were from China (SEAISI [2014] p.8).
In the Chinese iron and steel industry, massive excess capacity is observed, as the
Chinese government recognizes. Total production capacity of crude steel in China was
1.162 billion tons in 2013, but crude steel production was 822 million tons (Editorial Boardof the Yearbook of Iron and Steel Industry of China [2014] pp.269, 293). The difference
should be considered as excess capacity. This was a driving force for low-price exports toforeign economies, including Viet Nam.
Previously, competition between domestic products and imported products was limited,
because hot-rolled sheets and plates were not produced in Viet Nam. In the near future,
however, FHS will start the production of hot-rolled sheets. If the excess capacity in the
58

Bar and wire rod is considered as similar products, because both of them are produced in the samerolling mill as construction steel. However, bar shows an export surplus. The import penetration ratio isunder 10%. The major reason is that orders for bar tends to be small lots in many varieties and thenecessity for inventory cuts is strong. Imported products tend to be in large batches with little variety.

35world and China persists, the iron and steel industry in Viet Nam will face a fierce
competition for survival.

5. Conclusion

5.1 Abstract of the Analysis
The results of the analysis in the previous sections can be summarized as follows.
1) Market issues. The domestic steel market in Viet Nam has expanded rapidly over the
decade. Its size is as large as that of advanced ASEAN economies like Thailand andIndonesia. However, demand mainly emerges from the construction industry andconcentrates in concrete bar, wire rod, and surface treated sheets. There is little demand forhigh-grade steel from manufacturing industries. This is, on the one hand, reflective of theVietnamese economic structure, in which economic growth is likely to induce demand forsteel. On the other, it suggests that the level of Vietnamese industrializ ation is not high.
2) Production issues. The iron and steel industry in Viet Nam has progressed in terms ofimport substitution from downstream to upstream processes. In the long sector, the importsubstitution of billets was completed. Crude steel production in Viet Nam became the top
in ASEAN. In the flat sector, import substitution of surface-treated sheets and cold-rolledsheets and strip progressed. However, production concentrated on steel for construction
more deeply than demand existed. Moreover, hot-rolled sheets as a host material ofcold-rolled sheets and welded pipe are not produced. Production expansion in the flat/ pipe
sector has led to massive imports of hot-rolled sheets. Internally, the industry is easily
influenced by the boom and recession cycle of the construction industry. Externally, it isaffected by the supply condition of the international hot rolled sheet market. These are thevulnerabilities of the production system of the Vietnamese iron and steel industry.
3) Investment issues. From the perspective of investment quality, installment ofinternationally standardized equipment like EAF and rolling mills is increasing. In someareas of the industry, older or small-sized technologies like small BFs, IFs, and reversing
mills are adopted. This does not necessarily lead to inferior production systems, however.
These technological choices could be adaptations to the specific conditions of theVietnamese steel market; these adaptations work in some cases.
From the perspective of investment scale, an excess capacity situation induced byoverinvestment is observed in both long and flat sectors. TISCO’s postponed project in thelong sector is due to governmental subsidies. However, this is only a partial problem. The
major cause of excess capacity is overinvestment competition among private and foreign36enterprises. The construction of an integrated iron and steel complex by FHS will probably
exacerbate the existing excess capacity situation in the long sector. However, FHS ’s
production of hot-rolled sheets will be a rational import substitution step in the flat andpipe sectors.
4) Competition issues. Private and foreign enterprises became major agents ofproduction and investment. In all sectors, competition dynamics based on survival of thefittest are observed. In general, market selection is working well in iron and steel industry
in Viet Nam, while individual companies are fraught with difficulties of excess capacity.
Anti-competitive behavior is not a decisive factor in industrial organization. While
TISCO is subsidized by government, the effect of this is limited. Although some support
like tax breaks is given by local government to FHS, its iron and steel complex is a
profit-based project with 100% foreign capital.
5) Trade issues. Steel exports from Viet Nam are a natural result of industrial
development. Their volume is not large and is not an outlet for overproduced steel. Rather,
Viet Nam is affected by overproduction in China in the form of import penetration. Until
now, conflict between domestic producers and imported products has been limited, because
hot-rolled sheets and plates had not been produced in Viet Nam. In the near future,
however, competition will increase with the start of FHS’s operation.

5.2 Conclusion
The iron and steel industry in Viet Nam is being given a chance for development,
because steel demand from construction is increasing with the help of high steel intensity,
while the low level of industrialization acts as a constraint. In total, the industry is facing
an expanding domestic market with increased production. Private and foreign capitalenterprises have become major agents of production and investment. Market selection bycompetition is working. For these reasons, it is obvious that the transition to a market
economy is achieving the effects in the Vietnamese iron and steel industry. That is a major
conclusion of this paper.
There are still many challenges for this industry. Its production system is vulnerable tofluctuations of demand in construction and the world market for hot-rolled sheets.
Producers are suffering from excess capacity. Competition with imported products will be
induced in the near future.
These challenges stem from investment competition promoted by exp ectations formarket expansion, adaptive behaviors of enterprises to market conditions in Viet Nam, andthe excess capacity situation in international markets. To put it another way, most37

problems are arising from the emergence of inter-firm competition in the transition to amarket economy, rather than from distortions caused by governmental intervention.
However, state-owned enterprise is still one of the issues. VNS, especially TISCO as its
major subsidiary, does not constitute a self-sustaining business. TISCO needs
governmental help for its investment project, despite the fact that private companies can
carry out similarly sized projects without governmental expenditure. Such subsidies
promote market distortion; and reform of VNS should be accelerated.
In this paper, the author made the analysis from the perspective of industrial
development. Therefore, the analysis of the corporate behavior of private, state-owned, andforeign enterprises was not sufficient. The nature of joint ventures between state-owned
enterprise and foreign capital was not revealed. In order to understand the growth ofprivate enterprises and the stagnation of SOEs, the details of how each company decided
its investment and technology selection, under what conditions, and with what logic,
should be investigated. To understand the investment behavior of foreign enterprises, theimportance of Viet Nam in the strategy of each multinational enterprise should be revealed.
Joint ventures should be considered as an intersection of interests between foreign capitaland state-owned enterprise. Those issues remains to be studied in future research.

*This research is funded by ISIJ Research Promotion Grant in 2015-2016.
*This paper is a translated version with minor revisions of a paper in the Japanese language.
Original bibliographical information:
Nozomu Kawabata, “Shijo keizai iko ka no Betonamu tekko gyo,” Akamon Management
Review, Vol.14, No.9, September 2015, pp.451-494.

38

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Codicil (May 11, 2016)
This is a translated version of the paper published in Japanese in September 2015. Thus it does
not cover the issue of mass fish deaths in central Viet Nam and the suspicion on FHS, whichbroke out in April 2016.

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