LOW IRON ORE PRICES AND THEIR BENEFITS FOR VIETNAM
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The low global iron ore prices are having positive effects on Vietnam's economy. The price of iron ore has recently shown a small increase after two weeks of decline. According to the Vietnam Commodity Exchange (MXV), on July 12, the price of iron ore rose by 3% to reach $108.93 per ton. Although the price is still lower by nearly 16% compared to the recent peak in March.
The price of iron ore is under pressure due to slower global economic growth, which leads to a weakened demand for steel. Additionally, production costs, particularly transportation costs for iron and steel, have decreased significantly compared to the previous period. The Baltic Dry Index (BDI Index), which measures the daily cost of chartering vessels for commodities such as iron ore, coal, and cement, has decreased by over 50% to 1032 points.
The decrease in steel prices provides favorable conditions for Vietnam. Despite facing numerous challenges, the country's economy has its own bright spots. In order to support businesses and individuals in accessing capital for production and business purposes, the State Bank of Vietnam has continuously reduced interest rates for the fourth consecutive time.
The reduction in credit costs will support domestic steel production and business enterprises, contributing to improved pre-tax profits. The government has also been actively implementing measures to address difficulties faced by businesses. Recently, the Prime Minister urged the State Bank of Vietnam and commercial banks to continue researching and adjusting lending conditions to be more favorable and reduce costs for borrowing.
However, there are limitations to the potential for further interest rate reductions by the State Bank of Vietnam and commercial banks. Therefore, alongside monetary policies, fiscal policies are expected to be a pillar of economic growth in the country this year, particularly in the field of public investment.
According to the Ministry of Finance, disbursement of public investment capital in the first six months of 2023 is estimated at VND 215,578.9 billion, equivalent to 30.49% of the Prime Minister's plan. In June 2023 alone, the disbursement rate for public investment increased by over 8%, nearly double the average disbursement rate in previous months of 2023.
According to Mr. Pham Quang Anh, Director of the MXV News Center, steel is an important raw material for construction and highway projects. Therefore, maintaining steel prices at reasonable levels like they are now will help reduce cost pressures for businesses. In addition, the growth of infrastructure and public investment activities will also help address output challenges and create favorable conditions for the domestic iron and steel industry to grow.
The decrease in steel prices will also contribute to easing inflationary pressures on housing and construction materials. According to the General Statistics Office, in June, the housing and construction materials group index increased by only 0.07% compared to May. The impacts from increased electricity prices have been offset by the decrease in iron ore prices.
The iron and steel industry's "greening" challenge
In addition to financial goals, ensuring sustainable development and protecting the environment are also crucial issues for Vietnam's economy in general, and the steel industry in particular, especially since Vietnam has committed to achieving net-zero emissions by 2050.
Deputy Prime Minister Tran Hong Ha emphasized that environmental protection must come first as the foundation for economic development in harmony with nature. Planning must have a vision and mindset that helps economic sectors develop while preventing and preemptively countering negative impacts on the environment.
According to the International Energy Agency (IEA), over the past decade, total CO2 emissions from the steel industry have increased, mostly due to the growing demand for steel. Direct CO2 intensity from crude steel production has slightly decreased in recent years, but efforts need to be accelerated to meet the emissions reduction pathway of net-zero emissions by 2050.
Many major steel-producing countries such as China and India have also focused on improving technologies and enhancing steel recycling to minimize environmental impacts.
According to the IEA, the steel industry can achieve short-term CO2 emissions reductions mainly through improving energy efficiency and increasing scrap collection to allow for more scrap-based production. However, the technical potential to improve energy efficiency is limited, and the supply of scrap steel is finite. Therefore, reducing emissions intensity will require the application of new technologies, such as electricity-based production, hydrogen gas, and carbon capture, utilization, and storage (CCUS) processes.
The process of greening the steel industry presents many challenges but is essential for Vietnam to achieve sustainable development, as evaluated by Mr. Pham Quang Anh.
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