Transcript スライド 1

Improving the Promotion
Policy for the Vietnamese
Iron and Steel Industry
VDF Seminar, June 16, 2006
Nozomu Kawabata
Tohoku University, Japan
1
Structure of this presentation
►1
Steel industry in the process of
industrialization
► 2 Overview of iron and steel industry in
Vietnam
► 3 Long Sector
► 4 Flat Sector
 4-1 Rolling and galvanizing sector
 4-2 Future expansion programs in flat sector
►5
Conclusion
2
1 Steel industry in the process of
industrialization
3
Nature of steel industry in process of
industrialization
► Basic
features
 Capital intensive
 Low degree of fragmentation
► Features
in promoting process
 High risk, small number, large scale investment
 Introduction of various technologies all together
► Realistic
position
 One import substitution industry under the exportoriented industrialization of national economy
 Backward linkage effect is critical
4
Major contradictions of steel industry
in developing countries
Small domestic market
High level of minimum
efficient scale of
production capacity
Necessity of coordination
among small numbers of
big project
Necessity of competition
for efficiency
Nationalistic feeling to
basic material industries
Necessity of technology
and capital from foreign
sources
5
Steel strategies have been changed in
advanced ASEAN countries
► Until
the midst of
1980s
 State-led promotion
 Center state of SOE
and local firm
 Creation of integrated
steel works
 High level protection
 Center industry for
import substituting
industrialization
► From
the late 1980s
 FDI and private sectorled promotion
 Major role of FDI and
local business group
 Incremental building
from downstream to
upstream processes
 Reasonable level of
protection
 Backseat player for
export-oriented
industrialization
6
Policy Change produced good results
► Until
the midst of
1980s
 Construction failure or
financial/technological
troubles
► NASCO
(Philippines)
► Krakatau Steel
(Indonesia)
► Perwaja Steel
(Malaysia)
► From
the late 1980s
 Import substitution of
high grade steel
sheets
► SUS,
TCRSS (Thailand)
 Import substitution of
low -medium grade
steel sheets
► SSI,
G-Steel (Thailand)
► Mega Steel (Malaysia)
7
Capacity for policy change
► Under
economic integration, developing countries
should accelerated its industrialization process
► Accelerated development necessitates the speedy
policy change
 State-led investment →Promotion of FDI and private
investment
 Direct control →Indirect support to reinforce the market
function
► Promoting
policy of the Vietnamese steel industry
is one of such a case
8
2 Overview of iron and steel
industry in Vietnam
9
Production Structure of the Vietnamese iron and steel
industry (2004)
Blast Furnace
Pro. 187
Domestic
Supply of
Scrap 718
EAF-Billet CC,
Ingot casting
factories
Pro.658
(full operation)
Import of Scrap
163
Market of long
products
Pro. 2366
About 2600
(Cap. 4600
overcapacity)
Import of billet
2174
Import of hot rolled coil,
sheet, plate and tube
products 1773
Long rolling
mills
Import of long
products 257
Pipe fitter
Pro. 236
Market of flat
and tube
products
About 2900
Import of cold rolled and
surface treated coil and
sheet products 1112
Galvanizing and color
coating factories
Pro. 176
10
Unit: 1000 ton Source: Author edited from data of SEAISI and VSA.
Major problems
►
►
Large scale production and distribution systems are not
established
Long sector
 Over capacity of rolling mills
 Shortage of steelmaking capacity →Change to scrap shortage?
►
Flat sector
 Shortage of rolling capacity
 Over capacity of galvanizing and pipe fitting factories
 Lack of production capacity of high grade steel
►
Foreign trade system
 General direction to liberalization and impromptu protection
 Underdeveloped arrangements
11
3 Long Sector
Phu My Steelworks, SSC
Taken by the author, May
2005
12
The market structure is changing
►
1990s
►
 VSC: Major player for
modernization
► Subsidiaries
(TISCO, SSC,
Danang Steel Cevimetal)
► Foreign affiliated JVs (Vina
Kyoei, VSC-POSCO,
Vinausteel, etc)
 Small companies and
households
► Opportunistic
entry and
Now
 VSC Group
► Subsidiaries
► Foreign
affiliated JVs
 Private and 100% FDI
companies (Hoa Phat,
Pomina, SSE, etc)
► Standard
technology
► Expansion from rolling to
steelmaking
exit
► Outdated technology
13
Significance of SSC’s Phu My
Steelworks
► Phu
My Steelworks is the most
modernized EAF-rolling mill in Vietnam
 EAF-billet CC: 500,000 tons
 Long rolling: 300,000 tons
► SSC/VSC
should establish a competitive,
flagship, and model factory.
 It is the test case for VSC’s future
14
Change to “Equal Footing”
► VSC’s
investment and public support for them
were necessary at initial stage of the industry
 Other companies were not viable
► Now
long sector entered the next stage
 Emergence of viable private companies and 100% FDI
companies
► Investment
► Government
footing
from rolling to steelmaking
should give all companies equal
15
Old style policies lead troubles
► VSC’s
investment without equal footing
has a problem
 Exacerbating overcapacity
 Crowding out the investment of private
companies
 Distortion of market selection
16
Basic direction of new policy
► Reinforcing
economy
the function of market
 Construction of infrastructure
 Arrangement of rules and procedures in
markets
 Amendment of market failures
17
Example: Scrap import problem(1)
 Situation in
2004
Pig Iron 187
Scrap 718
EAF-Billet CC,
Ingot casting
factories
Long
rolling
mills
658
2366
Import of Scrap
163
Import of
billet 2174
 Possible
situation in
near future
Pig Iron 200
Scrap 720
Import of
Scrap
About 2000
EAF-Billet CC,
Ingot casting
factories
Long
rolling
mills
About 2500
Import of billet
18
Example: Scrap import problem(2)
 In keeping with construction of EAF, fatal point
will change
►Billet
import → scrap import
 Urgent challenge for government
►Support
to construction of port facility
►Establishment of import procedures
►Adjustment with environmental regulation
19
Example: Scrap import problem(3)
► Regulation
Protection
based on Law on Environmental
 Limiting scrap importers only to steel producers
equipped with scrap yard and scrap processing facilities
 Exclusion of trading companies
► Adjustment
of regulation method
 Steel scrap is neither harmful substance nor control
subject of Basel Convention
 The problem is interfusion of harmful materials
 Normal method of regulation : Checking whether the
imported scrap contains harmful waste materials
 China case should be referenced
20
Proper regulation to reinforce
market function
► Proper
regulations of quality, safety and
environment will reinforce market function
 Reinforcing the Construction Law
 Reinforcing the industrial standard
→Exclusion of under qualified products (rerolled scrap, narrow strip, fake brand etc)
 Standard of safety and environment
→Exclusion of inferior machines (Pollutive
furnaces, induction furnace etc)
21
Two types of trade policy
► Protection
of infant industry and temporal barrier
to the influx of dumped products should be
divided
► Heavy duty protection of long products and billet
are not normal in many countries
► Countermeasure to unfair-trade should be
arranged in law on international trade
 Anti dumping
 Safe guard
 Countervailing duty
22
4 Flat sector
23
4-1 Rolling and galvanizing sector
PFS
Taken by the
author, May 2005
24
Significance of Phu My Flat Steel
(PFS)
► PFS
is the first cold rolling mill in Vietnam
► PFS/VSC must make the new factory
competitive
 It is the test case for VSC’s future with the case
of SSC Phu My Steelworks
 If VSC fails to operate these new factories,
foreign inventors will suspect the VSC’s
capability as a business partner.
25
Two-tiered market structure of
cold rolled and surface treated
sheet products
Import of high grade
cold rolled sheets
(Deep drawing sheet,
electrical sheet, IF
steel, loam plate,etc)
Import of hot
coils
Customer I
Import of high
grade surface
treated sheets
(Galvannealed,
color-coated,
tinplated)
(FDI
manufacturers
like car,
motorbike,
export-oriented
appliance
producers)
No competition
Import of normal
grade cold rolled
sheets
Competition
Cold Rolling
Mill (PFS)
Pro. 180-240
(Cap. 400)
Galvanizing and
color coating
factories
(BlueScope,
SSSC etc)
Customer II
(Mainly
construction
industry, partly
domestic
manufactures)
Competition
Import of normal
grade galvanized
and color-coated
sheets
26
Irrationality of current import duty
on sheet products
► Current
import duty
 Cold rolled sheet product: 7%. VSA hopes to rise it to
10%
 Surface treated sheet : 0-10%
► Taxation
on high grade sheets does not improve
the status of PFS and galvanizing companies
 No competition between sheets for Customer I and
sheets for Customer II
► Import
duty on high grade cold rolled sheets and
surface treated sheets have a damaging effect
on Vietnamese economy
 Damage on competitiveness of FDI manufacturers
27
Level and style of protection should
be refined
► Decent
and temporal taxation on
conventional sheets is understandable
 Improving the dynamic economies of scale at
new domestic factories
► Countermeasures
to dumped products
based on trade law will be justified
28
Differentiation between high grade
steel and conventional steel
► It
is very important to distinguish high
grade steel for specific manufacturers from
the others.
 A problem: HS code system is not always
relevant to the classification of steel products by
quality
Same HS code
Galvannealed sheet
for automotive
Galvanized sheet for
construction
29
New option: “User Specific Duty Free
Scheme (USDFS)”(1)
► When
specific industries import the specific
parts and materials classified by HS code,
such imports are duty free.
(example)
For motorbike
For construction
High grade one
for motorbike
Conventional one
72・・・・
7209.15
7209.16
7209.17
7209.・・
Duty
Free
Subject to “USDFS”
Taxatio
n 30
USDFS as a proven scheme in
several countries
► USDFS
will strike a balance between the
promotion of competitiveness of FDI
manufacturers and the protection of steel
sheet producers
► USDFS and similar policies are/will be
installed by Mexican, Malaysian, Indonesian
and Thai governments
31
USDFS and current scheme of
preferential treatment
► Apart
from steel industry, USDFS can be an
alternative to current preferential scheme.
 WTO accession may lead to abolition or
contraction of current preferential scheme to
EPE and FDI
 USDFS may be alternative to strike a balance
between promotion of industrialization and
economic integration
 USDFS does not violate WTO rule
► Detailed
study is necessary
32
4-2 Future expansion programs in
flat sector
Blast furnace and basic oxygen furnace of Nippon Steel Kimitsu
Steelworks. From Company Pamphlet
33
Possible projects in future
► Large
scale galvanizing factory for high
grade sheets
► Large scale cold rolling mill for high grade
sheets
► Compact hot strip mill next to PFS
► Large scale hot strip mill as a first stage of
integrated steelworks (ISW) in central area
► ISW in central area
34
Necessity of FDI in flat sector
► Based
on the experience of PFS and SSC,
VSC cannot work on a big project in flat
sector by itself
 Finance and technology problem
► Unlike
the advanced ASEAN countries,
there is no private big business group in
Vietnam
► FDI attraction is necessary
35
Conditions for FDI attraction(1)
► Vietnam
is one candidate of investment
for foreign steel enterprises
► Domestic market is still small. But it will
be expanded by industrialization
 Timing of construction is an important issue
 JICA team proposed the start up of ISW in
2017 in MPI-JICA Project
36
Conditions for FDI attraction(2)
► Consistency
among market size, product mix,
technology, feature of FDI companies
Market size of specific segment
Ex. 1 million tons of sheets for
automobile
Product mix of new factories
Possible FDI companies
Ex. CR, GI, GA
Ex. Japan, South Korea
Technology
Ex. State of the art ISW
37
Conditions for FDI attraction(3)
► Ex.
Production of automotive steel sheet
 Vietnam has to wait some years until market
expansion
 State of the art technology for integrated
production is necessary
 Candidate list of FDI producers is short one
►OK:
Integrated producers in advanced countries
(including South Korea)
►Questionable: Integrated producers in Taiwan and
BRICs
►Impossible: Producers with no experience in
automotive steel
38
International rivalry in FDI attraction
► China
and Thailand are strong rivals
► But they are not necessarily attractive to
foreign investors in case of steel
 Giving priority to other types of industry
(Thailand)
 Ban of majority ownership of foreign capital
(China)
39
Role of government in attracting FDI
(1)
► Giving
a welcome to majority ownership of
FDI produces
 For FDI producer it is necessary to be able to
make important decisions without troubles
 Project integrity is important
► Reliability
is critical for joint ventures
 VSC should prove its managerial capacity as a
reliable partner in Vietnam
40
Role of government in attracting
FDI(2)
► In
case of ISW, strong commitment to provision of
infrastructure is necessary
 FDI producers cannot build up large scale infrastructure
by themselves
 Land clearance and compensation issue. 375-425ha is
necessary
 Power supply. ISW has to buy 200MW
 Water supply. 170,000 m3/day
 Port facility
 Other transportation facility
41
Unbundling the development of
Thach Khe mine from building of ISW
►
►
If Vietnamese government bans majority ownership of
FDI on Thach Khe mine, ISW and Thach Khe mine
should not be bundled
ISW company should have a right to select the source of
materials
 Thach Khe ore has a problem with quality
►
►
Thach Khe mine company should make efforts to enrich
its ore and offer it to ISW on business base.
Banning the export of iron ore is meaningless.
Thach Khe mine
ISW
FDI majority JV or
100%
Free trade
Vietnamese
company or FDI
minority JV
Foreign iron ore
mine
42
5 Conclusion
Hot strip mill and continuous
descaling and cold rolling mill of
Nippon Steel Kimitsu Steelworks
From Company Pamphlet
43
The time of policy change in
Vietnamese steel industry
►
1st stage
 Market underdevelopment,
absence of modern players
 Central role of
governmental plan and
SOEs (VSC affiliated
companies)
 Construction of model
factories
► Beginning:
Drafting of
Master Plan
► End: Building completion
of PFS and Phu My
Steelworks
►
2nd stage
 Effective market
competition
 Global pressure to
liberalization
 Growing importance of
private sector and FDI
sector
 Changing role of
government
► Direct
production to
promotion of FDI and
private investment
► Amendment of market
failure at some point
► Commitment to FDI
attraction
► Commitment to provision44
of infrastructure
Reference
Kawabata, Nozomu(2005), Structure and Dynamism of the Iron
and Steel Industry in East Asia, Kyoto Minerva Publishing
(Japanese).
► Kawabata, Nozomu(2003), Ngành sắt thép Thái Lan sau khủng
khoảng tiền tệ Châu Á - Xây dựng lại nhà máy • Phân ngành
trong doanh nghiệp• Các vấn đề thương mại -, Tài liệu đồng
nghiên cứu, thảo luận Dự án NEU-JICA.
►
►
http://www.econ.tohoku.ac.jp/~kawabata/paper/bandichsatthepf
tl.pdf
Ohno, Kenich and Nguyen Van Thuong eds.(2005), Improving
Industrial Policy Formulation, The Publishing House of Political
Theory, Hanoi. http://www.vdf.org.vn/bookad.htm
► Vietnam Development Forum(2006), Supporting Industries in
Vietnam from the Perspective of Japanese Manufacturing Firms,
April 24.
http://www.vdf.org.vn/WS/WS%202006/Ohno12April06/VDFrepo
rt.pdf
45
Thank you for your kind
attention!
46