Loan to go towards $2.3 billion steel complex in central Quang Ngai province.
The Hoa Phat Group, the leader in Vietnam’s steel industry, has signed a contract to borrow VND10 trillion ($438.5 million) from Vietinbank to help finance a steel complex project, the company said on March 5.
The loan has a term of seven years with favorable interest rates. The project, which began last month in central Quang Ngai province, requires total investment of VND52 trillion ($2.3 billion).
Hoa Phat expects to complete the project by late 2019, tripling its annual steel production to 6 million tons from the current 2 million. Hoa Phat took over the project from Taiwan’s Guang Lian Steel Vietnam, which had delayed the project for ten years after struggling with finance.
Divided into two phases, the complex will feature modern and environmentally-friendly technologies. Annual capacity in the first phase will include 1 million tons of steel for construction and 1 million tons of high-quality rolled steel. The second phase is designed to produce 2 million tons of hot-rolled steel flat bar for machinery manufacturing.
Hoa Phat expects to earn $2 billion in revenue per year and contribute VND4 trillion ($175.4 million) to the State budget after the project comes to life. An estimated 8,000 jobs will be created. The project will be conducted over 50 years and is part of a plan to develop a steel production and distribution network from now to 2020 and vision to 2025, approved by the Ministry of Industry and Trade.
The group is also working on a $170 million steel plate mill in northern Hung Yen province. With a capacity of 400,000 tons, the facility is slated to begin production in 2018 and will supply materials for construction projects in the Hanoi area, one of the country’s biggest markets for architectural steel besides Ho Chi Minh City.
Vietnam’s demand for steel is rising as the economy grew 6.2 per cent last year, one of the fastest rates in Southeast Asia. Imports satisfy nearly 60 per cent of existing demand and jumped 18.4 per cent last year to 18.4 million tons, 60 per cent of which came from China.
Inflows of cheap steel, driven by Chinese overcapacity, have risen so fast they have triggered Vietnamese “safeguard” tariffs in some cases. Given the tension with Beijing over competing territorial claims in the East Sea, the Vietnamese Government appears eager to reduce the country’s dependence on Chinese steel.
Another factor in Vietnamese steelmakers’ planned investments is the trouble surrounding the Formosa Plastics Group’s blast furnace project in north-central Ha Tinh province. The Taiwanese company was hit with a $500 million fine in June last year after polluting the local environment, which could discourage foreign investment in Vietnam’s steel sector.
Vietnam holds considerable promise as a steel market. Per capita steel consumption stands at just below 300 kg, the point at which demand tends to take off, industry insiders have said. Foreign steelmakers will be watching for encouraging signs from the government, however, before investing.