A consortium of three Taiwanese and Australian steel manufacturers has applied for permission to build a steel plant in central Vietnam.

Taiwanese Sun Steel and Koncett and Australian Minmetan plan to put up a steel mill in Ha Tinh province at a cost of US$1.9 billion.

It will be designed to manufacture 2.4 million tons of steel, 1.7 million tons of pig iron and 4 million tons of ingots per year.

The three hope to cooperate with local enterprises to exploit the Thach Khe mine that is estimated to have reserves of 265.6 million tons.
Import licenses scrapped

In related news, Vietnamese companies were holding off on renewing scrap metal import contracts with foreign partners following a government decision to restrict the practice from July, the Vietnam Steel Association (VSA) said.

The move is aimed at minimizing the environmental impact of scrap metal stockpiles by limiting imports.

The ban could adversely affect companies that smelted scrap metal to produce ingots and sell to steel companies, VSA Chairman Pham Chi Cuong said.

Steel makers were financially incapable of importing the scrap themselves and would thus be unable to guarantee a reliable supply of steel.

This restriction would also make them reliant on import of ingots, the price of which had fluctuated dramatically in recent years, Cuong said.

Vietnam, which generates just 800,000 tons of scrap metal per year, is expected to import one million tons in 2006 and double that amount in 2007.

The scrap would be used to produce 1.5 and 3 million tons of ingots, respectively, in 2006 and 2007.

Steel output is expected to be 3.5 million tons and imports as much as 3.7 million tons this year.

Analysts are generally more optimistic about the prospects of the domestic steel industry, with the expected increase in demand for steel products due to the Ninth Malaysia Plan (9MP) and a recovery in steel prices.

The Malaysian Iron & Steel Industry Federation has projected Malaysia's steel demand to grow at a compounded annual growth rate (CAGR) of 13% per year from 2006 to 2010, mainly driven by the 15.5% per annum CAGR in flat products' demand.

Steel demand in the country is centred on the construction/infrastructure and manufacturing sectors.

The construction/infrastructure industries are the major end-users of long products (bars and rods) while the manufacturers are the main consumers of finished flat products (pipes/roll-formed sheets).

An analyst from a bank-backed research house expects steel players like Hiap Teck Venture Bhd, Choo Bee Metal Industries Bhd and Ornasteel Holdings Bhd to be beneficiaries of the 9MP.

Under the 9MP, highly anticipated large-scale projects have been specifically mentioned and earmarked for implementation, thus stimulating demand for steel products.

"We like Ornasteel for its dominant market position in the local cold-rolled coil (CRC) industry, underpinned by its commanding market share.

"We also like Hiap Teck and Choo Bee for their dominant market positions in the local bare steel pipe/structural hollow section industry.

"There is also a potential strong rebound in earnings over the next 12 to 18 months with the surge in demand for pipes for water projects as well as structural hollow sections for infrastructure projects under the 9MP," the analyst said.

He also expects the recovery of steel prices to continue for the rest of 2006.

The global steel industry went into a protracted downcycle over the first three quarters of 2005 on the back of a collapse in steel prices.

The trigger was largely China's excessive capacity expansion, which led to higher global inventories and players undercutting steel prices.

However, since late last year, international steel prices have risen by an average of 15% led by production cuts in the Chinese steel market and strong steel product consumption mainly in China, Europe and the US.

"We expect China's supply growth to slow down this year but demand for steel to rise due to China's 11th five-year plan, which is equivalent to the Ninth Malaysia Plan.

"The key risk would be an unexpected jump in Chinese steel production," the analyst said.

In tandem with rising steel prices in the international market, domestic steel prices have also risen.

The price of hot-rolled coil (HRC), the feedstock for making flat-based products like steel pipes and CRC had risen in April and May, with further increases expected this month.

The analyst said the rise in local HRC price would ultimately lead to a rise in prices of flat-based steel products like steel pipes, CRC, structural hollow sections and galvanised pipes.

"Players like Hiap Teck Venture, Choo Bee and Ornasteel are expected to benefit from rising steel prices.

"Apart from rising steel prices, margins for players like Hiap Teck and Choo Bee should improve as they generally replenish HRC ahead of the price hikes, which should boost margins in subsequent quarters," he added.

Africa's largest steel producer Mittal Steel South Africa would increase certain steel prices both in June and in July, Mittal Steel South Africa spokesperson Tami Didiza said.

On Thursday, galvanised steel prices increased by 9% and colour coasted steel by 6%.

On July 1, galvanised steel prices would increase by 15% and colour coasted steel by 8%, Didiza said.

Also on July 1, hot rolled coil prices would increase by 5%, cold rolled would increase by 4% and plate by 12%, he added.

On a weighted average basis, steel prices will increase by 5% in July with about 85% of flat product steel prices to be hiked.

One of the key reasons for the increase was the increase in zinc prices, which had tripled over the past few months, Didiza said.

"We should have effected the increase a long time ago," he added.

Certain long product steel prices that used nickel and molybdenum prices would increase by 5%, Didiza stated.

Mittal Steel South Africa's Chief Executive Officer Davinder Chugh on Thursday was reluctant to comment on the next move in local steel prices, despite the 20% increase in global steel prices since the beginning of the year.

The company has not increased domestic steel prices since October 2004 and reduced the local steel price twice in 2005.

Internationally, the major steel mills in Europe and the US have increased their third quarter steel prices and most other steel markets are reflecting an upward trend, Chugh said.

Iron ore hopeful Fortescue Metals Group has moved forward in its quest for a $2.5 billion project in the West Australian Pilbara, by forming an alliance with Roche Mining, which will do most of the mining.

The five-year deal with renewable options, termed the Pilbara Mining Alliance (PMA), will see Roche, a division of Downer EDI, become responsible for mine planning, engineering and site establishment while Fortescue will provide the equipment for mine production.

Fortescue claims the deal is a natural fit, given Roche's intimate knowledge of Fortescue's geology, mineralogy and proposed mining systems. Fortescue hopes for exports of around 45 million tonnes of iron ore a year from its projects, with contracts for about 34 million tonnes secured so far.

Fortescue operations director Graeme Rowley said the alliance was a milestone for the company.

"Roche is a natural partner for Fortescue's project development to date, including the recent mining study, the reserve and resource delineation programs and metallurgical test work," Mr Rowley said.

"PMA will be able to commence its activities immediately with a fully informed core management team."

The PMA will also manage $1.9 billion of Fortescue's planned annual operating costs.

It is unclear how much the deal is worth to Roche, or how much the deal was signed for.

Roche Mining chief executive Robert Logan said it was a "significant contract" for his company.

"It demonstrates our ability to provide a comprehensive mining solution from the front-end consulting with Snowden through to full production," Mr Logan said.

The Roche alliance comes about two weeks after Fortescue signed an engineering, procurement and construction management deal with WorleyParsons.

Contracts to build the port, rail and mine processing infrastructure are still outstanding, as is the bulk of funding for the project.

It signed a $200 million credit facility in March but is still working on permanent project financing with Citigroup.

Fortescue, the brainchild of West Australian mining entrepreneur Andrew Forrest, wants to become a new force in iron ore production in Australia, and break the Rio Tinto and BHP Billiton stronghold in the region.

It is looking at a start-up date of late 2007 or early 2008.

Fortescue has negotiated significant hurdles – including Australian Securities & Investments Commission charges levelled at Mr Forrest, and a competition ruling by federal Treasurer Peter Costello that denied it access to BHP Billiton's rail network – to become a $1.83 billion company, despite not shipping any product.

Nippon Steel Corp. has begun negotiations with large automakers for hiking prices of its sheet products, pleading an inability to make up for higher prices of iron ore, zinc and other materials through its own cost-cutting efforts, Kyodo News reported, citing industry sources.

Other major steelmakers are likely to follow the leading steelmaker's move, resulting in the fourth consecutive annual rise in steel prices, though they will likely run into resistance from automakers, they said.

Nippon Steel also aims to mark up the prices of sheet and other products sold as construction supplies or electrical appliance parts, likely causing consumer prices to climb as well, the sources added.

In mid-May, major Japanese steelmakers agreed with overseas iron ore suppliers to a 19% increase in wholesale prices for procurement in fiscal 2006. The prices of zinc, which is used to keep steel sheets free of rust, also stand at a record-high level. A resultant rise in materials procurement costs is estimated at Y300 billion for the whole steel industry in fiscal 2006, Kyodo reported.

Meanwhile, steelmakers turned in strong earnings performances in the year ended this March with Nippon Steel and JFE Holdings Inc. registering record group profits.

Corporate steel users therefore are expected to protest the planned price rises, arguing that steelmakers' high earnings prevent justification of passing on higher materials costs to customers, the sources said.