The report said the sharp tax cuts would create both opportunities and challenges for Vietnamese firms. — Photo vietstock

HA NOI (Biz Hub) — The domestic steel sector would face difficulties due to fierce competition from imported steel, and the sharply reduced taxes levied on such imports, the Ministry of Industry and Trade said.

A report from the ministry's Industry and Trade Information Centre showed that when bilateral and multilateral trade pacts come into effect, the industry would be under greater pressure from countries, which will be at a greater advantage, such as South Korea, Russia and Belarus.

In addition, several new production lines, including Vinakyoei, Posco SS and Formosa, would also ramp up competition in the sector.

The Finance Ministry had promulgated a circular 161/2011/TT-BTC that took effect at the beginning of this year, and relates to the preferential import taxes that will be levied following the implementation of the ASEAN Agreement on Trade in Goods for 2015 to 2018 period.

As per the circular, the import taxes levied on steel, iron ore and alloy imports will be zero per cent.

The report said the sharp tax cuts would create both opportunities and challenges for Vietnamese firms.

The Viet Nam Steel Association (VSA) had said last year that imported steel was up 11 million tonnes, reflecting a 105 per cent year-on-year jump.

Of this, 4.78 million tonnes was imported rolled steel, containing 0.0008 per cent boron (Bo) element, and was labelled as metal in order to enjoy the preferential tax of zero per cent.

The steel was sold in the market at a price, which was VND1 to 2 million per tonne lower than the price of domestic steel.

It was because of this reason that several local steel plants had to cut capacity by up to 60 per cent or face dissolution.

The ministry said domestic steel consumption during the first two months of the year touched 300,000 tonnes, slipping 30 per cent over the same period last year.

Construction steel consumption, including exports during the two month period was 645,204 tonnes, representing a 7 per cent year-on-year increase.

It also forecast that the market would improve in the second quarter, but would see prices unchanged due to oversupply and increased imports.

VSA said the country's steel consumption this year would jump 8 per cent or 6 million tonnes. However, steel output in the country has been pegged at 11 million tonnes, which is double the demand, thus further pressuring domestic producers.

The Trade Information Centre said the Government should allow private steel companies to take part in an auction for State-invested construction in order to facilitate the development of the industry. — VNS