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

Then, steel industry is an emerging industry that provide a potential chance for Vietnamese economic growth along with the development of steel corporation.. Given the importance of anal

INS2005 INTERNATIONAL ECONOMICS

A REPORT ON

COMPARATIVE ADVANTAGE OF THE

VIETNAMESE ECONOMIC GROWTH IN STEEL

INDUSTRY UNDER THE EFFECTS OF COVID-19

Prepared by Group 09:

2/ Nguyễn Thị Thanh H ằng ID: 19071357

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TABLE OF CONTENT

INTRODUCTION 3

• About our group 3

• About this report 4

CHAPTER 1: OVERVIEW THE VIETNAMESE ECONOMY AND STEEL INDUSTRY 5

1.1 Vietnamese Economy 5

1.2 Vietnamese Steel Industry 5

CHAPTER 2: THE VIETNAMESE STEEL INDUSTRY’S GROWTH 6

2.1 Value Chain Analysis 6

2.2 Economic Factors 9

2.3 Production Situation 11

2.3 Main Businesses 13

CHAPTER 3: COMPETITIVE ADVANTAGES OF STEEL INDUSTRY 14 3.1 Factor of Production 14

3.1.1 Steel Production 14

3.1.2 Labor Resources 15

3.2 Demand Conditions 15

3.2.1 Global Demand 15

3.2.2 Domestic Consumption 16

3.3 Supporting Industries 17

3.4 Strategies and Competition 17

3.4.1 Strategies 17

3.4.2 Competition 18

CHAPTER 4: CONCLUSION 19

4.1 Summary 19

4.2 Assessment 20

4.2.1 Advantages 20

4.2.2 Disadvantages 20

4.2.3 Recommendations 21

REFERENCES 23

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INTRODUCTION

• About our group

We are Group 9 with 6 members

- Contribute to other parts as adjuster

2 Nguyễn Thị Thanh Hằng 19071357 100% - Chapter 3

3 Đỗ Thị Hồng 17071075 100% - Value Chain Analysis (2.1)

6 Nguyễn Thị Minh Thư 19071514 100% - Chapter 3

Note All work-breakdowns are transparently assigned among every member

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• About this report

Nowadays, international trade is a tendency of commerce all over the world, so analytical skill is becoming increasingly important in the field of trade In general, knowing the situation of home country’s economic is the basic fundamental to develop any businesses and operations Face with the situation of Covid-19 pandemic, Vietnamese economy still has the advantages not to deeply influence Then, steel industry is an emerging industry that provide

a potential chance for Vietnamese economic growth along with the development of steel corporation

Given the importance of analytical skill, this paper will research in the Vietnamese economic growth in steel industry based on the real situation and its competitive advantages

In addition, this paper will give some assessment as long as recommendations to benefit from this industry

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

pandemic

HOPE YOU LIKE IT!

Despite of the fact that the economy was severely impacted by the Covid-19 epidemic

in 2020, the Vietnamese economy increased by approximately 3%, making it one of the few countries in the region and the world to have positive growth The macro-economy is largely stable, and markets run smoothly, allowing people and businesses to concentrate on production and business

During the time 2016-2020, the inflation rate was steadily reduced from three digits in the early years of the renovation era to the goal level of 4% With a slew of large-scale and high-tech projects, foreign direct investment capital soared, opening up a slew of prospects for domestic economic cooperation in production, business, and technology transfer

Recently, Vietnam has signed two high-potential accords, EVFTA and RCEP, and has gone from being a deficit country to balancing imports and exports, even having a trade surplus Vietnam's economy grew solidly at 5.6 percent in the first half of 2021, according to a new World Bank assessment, but it faced major threats both within and outside

1.2 Vietnamese Steel Industry

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

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using steel for construction industry, infrastructure, automobiles, motorbikes and competitive pressure from increasing domestic supply

However, in 2020, despite facing many difficulties due to complicated developments

of the Covid-19 epidemic, the steel industry still recorded good growth In addition, in the face

of opportunities from integration, especially the implementation of trade agreements, the removal of a series of tariffs will help Vietnamese steel enterprises expand the export market

Besides, the import of raw materials from countries in the bloc that have signed FTAs will also help Vietnam benefit in price Facing opportunities from international economic integration, especially the implementation of new agreements, the steel industry is expected to have more conditions to attract investment, promote production and export to new markets However, at present, the steel industry still has to compete fiercely with imported steel penetrating strongly into the Vietnamese market

CHAPTER 2: THE VIETNAMESE STEEL INDUSTRY’S GROWTH

2.1 Value Chain Analysis

The typical value chain in steel industry includes the production of hot rolled coil (HRC) from iron ore, as known from the raw materials Iron ore, coal and lime are smelted into pig iron From smelted cast iron to Steel slab, from rolled billet to hot rolled coil, then continue the cold rolling process to achieve the required thickness and hardness, the product is cold rolled steel (CRC) From cold rolled steel, people use it to galvanize, cold galvanize (GI/GL)

to use or continue to color it into color coated corrugated iron (PPGI)

Figure 2.1.1

Steel production process

Domestic companies have not yet made any noticeable move to invest in HRC production plants, the reason why investing in this industry requires large capital investment and high-tech workforce Investment capital in a hot rolled steel factory with a capacity of 1.2 million tons per year, produced from slab billets will cost about $ 400 million

In this value chain, Vietnam only owns 40%, may not meet the regulations on the proportion of domestically produced goods according to the rules of origin in the TPP: this ratio can fluctuate from 35-55 % depends on the specific industry Therefore, after applying TPP, Japan has the advantage of supplying HRC to Vietnam Because if using Japan's HRC, Vietnam's coated steel products will reach the origin of nearly 100% of domestic production in the TPP

Figure 2.1.2

Vietnam value chain in steel industry

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Note Adapted from: va.html

http://www.vssi.com.vn/2014/11/chuoi-gia-tri-nganh-thep-viet-nam-In the next few years, Formosa HT has the advantage of supplying HRC steel The year

2020 is a lucky year for Vietnam's steel sector, particularly the galvanized steel industry No one could have predicted such a significant comeback in galvanized steel demand, especially

in the third quarter of 2020, from both the local and foreign markets For three years in a row, the output of galvanized steel sheet manufacture has remained steady 4.4 million tons in 2018, 4.2 million tons in 2019, and 4.4 million tons in 2020

In addition, Vietnam's galvanized steel products have a prominent international presence, with annual exports of 1.4-1.75 million tons earning over one billion dollars and helping to the reduction of the iron trade deficit Every year, around 5 billion dollars are spent

on steel

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2.2 Economic Factors

Vietnam's economy has been overgrowing for several years The increasing development of steel demand has enticed numerous steel companies to invest in new production facilities in Vietnam

Figure 2.2.1:

Vietnam GDP growth rate in 2016-2020

Note Adapted from: nhom-tang-truong-cao-nhat-the-gioi-279705.html

https://baonghean.vn/gdp-cua-viet-nam-nam-2020-tang-291-thuoc-In 2020, Vietnam's GDP growth rate will be 2.91 percent, relatively high in Southeast Asia The relationship between the increase in steel consumption and GDP growth is apparent, which entails requirements for developing and constructing infrastructure, roads, traffic, housing, and real estate to meet development needs Therefore, the growth in high construction leads to an increase in steel demand

Moreover, Vietnam has low-interest rates in 2020 reported at 6,2729 Vietnam's steel consumption per capita is at 149.7kg/person in 2010 By 2019, the average steel consumption per capita has increased to 241kg, ranking 4th among the countries ASEAN countries

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Figure 2.2.2:

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

Note Adapted from: news/metals/101119-analysis-aseans-2019-2020-scrap-needs- -grow-amid-steel-glut-to

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

Balanced development Vietnam's steel industry in recent years has developed relatively quickly Vietnam has high potential for export growth Despite the COVID-19 pandemic, Vietnam exported 9.86 million tons of steel worth $5.26 billion in 2020, up 47.9% over the same period last year

In the 2016-2020 period, Vietnam's economy has always maintained macroeconomic stability, average inflation increased by 3.15%/year, lower than the 4% target set by the National Assembly Inflation pressure will cool down from August to December 2021 thanks

to a decrease in the CPI of the food group and keeping the forecast of the average CPI in 2021 increasing by 2.9% over the same period In particular, construction steel price carried an uptrend in the context of the price of input materials such as iron ore, steel billet, scrap, and transportation costs continued to increase

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2.3 Production Situation

Although the unexpected pandemic made the situation difficult for the steel industry, the case has been improving as the government's control of the health crisis and the prime minister's drastic directions sped up public investment Steel production of all kinds hit 2.45 million tons in November, rising 4.34 percent month over month and 15.6 percent year over year In addition, sales were 2.45 million tons, a significant rise of 36.9% over October In

2020, Vietnam's steel industry has risen to 14th place in the world This is a very good step forward on the world steel industry map, Vietnam's crude steel production has reached a very high level of 19.5 million tons/year

Figure 2.3.1

Steel production in 2020

Note Adapted from: https://vir.com.vn/support-recovery-for-the-steel-sector-81622.html

In terms of crude steel, steel companies in Vietnam produced 3,192,000 tons during this time, up 28% from the same period in 2020 Consumption increased by 35% year on year

to 3,126,000 tons When it comes to construction steel, both manufacturing output and consumption have declined since January 2021 and the same period in 2020 but this increased somewhat in the first two months of 2021 compared to the same period last year

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The Covid-19 pandemic has had a minor influence on Vietnam's steel output Still, it has had a considerable impact on other nations, providing the opportunity for Vietnamese manufacturers to extend their market share, especially in the EU, China and Thailand

Figure 2.3.2

Vietnam’s steel export volume, by country (tons)

Note Adapted from: https://hanoitimes-vn.translate.goog/vietnam-steel-export- -2021-set- -in togrow-further-316030.html?_x_tr_sch=http&_x_tr_sl=en&_x_tr_tl=vi&_x_tr_hl=vi&_x_tr

Then, in the export field, according to the General Department of Vietnam Customs, Vietnam exported 9.86 million tons of steel and received $5.26 billion in 2020, representing a growth of 47.9% and 25% year over year Furthermore, according to World Steel, 1.65 billion tons of crude steel will be produced this year, with production rising by 3.8% to 1.71 billion tons in 2021

Figure 2.3.3

Steel export growth, by segment

2.3 Main Businesses

In the first half of 2020, due to the impact of the Covid-19 pandemic Having many members of the Vietnam Steel Association (VSA) experienced a decrease in revenue However, the market started to have positive changes in the second half of 2020 that prominent businesses gain profit back

First of all to mention is Formosa Ha Tinh Steel Corporation The company's total sales

in the first quarter of 2021 were 1,094 million dollars, up 56 percent over the same period in

2020 Sheet billet, large plate billet, and small plate billet output totaled 1,627 thousand tons,

an increase of 17% over the same year

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Secondly, Hoa Phat Group is one of Vietnam's leading industrial manufacturing conglomerates Hoa Phat Group is Vietnam's most significant construction steel and steel pipe maker, with market shares of 32.5 percent and 31.7 percent, respectively, with a capacity of over 8 million tons of steel of all kinds

Last but not least, Hoa Sen Group Joint Stock Company was the first private company

in Vietnam to develop a cold-rolled steel plant Hoa Sen Group expects to sell 1.8 million tons

of steel of all kinds in 2021, up 11% from the previous year

CHAPTER 3: COMPETITIVE ADVANTAGES OF STEEL INDUSTRY

3.1 Factor of Production

3.1.1 Steel Production

The general technology level of Vietnam's steel industry is not high but most steel factories in our coutry perform the final stage of rolling steel as pushing the advantage Some enterprises with geographical advantages such as Thai Nguyen exploit ore and produce steel

by blast furnace technology Some enterprises established in recent years scrap steel and use electric arc furnace to produce billet and steel Although the highest furnace in Vietnam is only

500 m3 like Thai Nguyen steel, this still produce the suitable amount of production to meet the demands

In Vietnam, most of the scrap steel is used to produce billets and completely square billets to make construction steel Domestic production of square billet can meet about 50% of steel rolling demand, the remaining 50% is from imported sources So, domestic steel prices

do not fluctuate too much with the world billet prices

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3.1.2 Labor Resources

Steel industry is increasingly scale up and tend to attract more labor force that the labors can promote their careers and get high standard of living The human resource of the Steel erindustry currently accounts for 2.8% of the total labor force of the industry

High skilled workers of Vietnam in steel industry can be seen as relatively high proportions A survey at the Vietnam Steel Corporation shows that 3,100 workers with a university degree or higher (2,300 men, 800 women), accounting for over 18% of the total workforce and highly skilled workers is 3,300 people, accounting for nearly 20% of the total number of employees of the Corporation Among workers with professional qualifications from university or higher, the proportion of workers with university degrees is 98.77% - accounting for the vast majority The quality of human resources in the steel industry for many years always focused right from the selection of input human resources for production

3.2 Demand Conditions

3.2.1 Global Demand

Strong steel demand from the EU and North America will be the main driver of export volume growth in 2021 The main reason comes from the fact that the steel mills of the main exporting countries to these markets have not returned to full operation, giving Vietnam the opportunity to participate in the market

The EU-Vietnam Free Trade Agreement (EVFTA has helped Vietnamese steel ) products to be present in EU market In particular, the EU imposed steel import quotas on Turkey and China, creating a great demand for Vietnam coated steel sheet since Q2.2020 Besides, the domestic steel price is maintained at a lower level than the world, which is a big advantage, leading to increased demand