Sunday, January 20, 2008

The Pearl of Asia: Vietnam needs scrap material to fuel its surge toward industrial development

Vietnam’s economy is no longer just about agriculture. The country is benefiting from macroeconomic momentum in industrialization and investment in the East Asia/Southeast Asia (SEA) region and globally, which has put it on the road to being a developed nation by 2020.

However, when it comes to exporting scrap materials to the nation of Vietnam, scrap companies are both new and late-comers to the county’s emerging need for scrap material.

Vietnam is a future industrial platform, being rich in metals history and in actual mineral deposits. However, most of these metals are being reprocessed for use outside of the country.

NAVIGATING VIETNAM

Vietnam’s government operates on a one-party system that is centrally planned. The 12th largest country (by population) in the world, Vietnam has adopted opportunity capitalism as its industrialization and development tool. The country, which is second only to China in GNP growth in East Asia, is characterized by three main industrial regions: Hanoi/Hai Phong (north), Danang (central) and Ho Chi Minh City (south). Vietnam must export its resources to survive and needs value-added inputs to advance.

To advance industrialization and exports, Vietnam recently announced the merger of its Trade and Industry ministries. According to news reports, the Vietnamese government hopes that by combining these ministries, it will be able to streamline the management of many industrial sectors. Korea, Japan and Taiwan have all invested in Vietnam’s industrialization, and so can North American scrap dealers.

However, scrap dealers should be aware that Vietnam’s Ministry of Natural Resources and Environment (MONRE) has much to say about 20 established categories of scrap, and this serves as the country’s scrap standards for now and directly affect shipbreaking initiatives undertaken in the country.

Vietnam’s emerging scrap demand is related to its surge toward industrial development. Vietnam plans to increase industrialization in the country by 20 percent, which will contribute 60 percent to its GDP. This means a drive to produce $4 billion per month in industrial goods. Steel production in Vietnam increased this year, but still cannot meet the country’s construction, infrastructure and other metals needs. However, imports of steel from China have emerged as a problem in Vietnam, as it is effectively holding back steel production development in the country, while local steel prices are rising as well.

RICH IN RESOURCES

As already stated, Vietnam is rich in mineral resources, possessing some 60 kinds, making it the seventh ranking country in the top 15 of basic resource countries. Among the minerals Vietnam has are copper, bauxite, zinc, titanium and iron. The Ha Tinh/Thach Khe mine in the north of Vietnam has 1.2 billion tons of iron, of which 300 million tons–the largest amount in SEA–is useful. A $230 million joint-venture operation between Canada and Vietnam was recently announced in the Tai Nguyen province of Vietnam.

Further, the industrial parks of Vietnam are the backbone of its industrialization and its move beyond agriculture. The country has more than 71 operational industrial parks, with 53 currently in development. These industrial parks, backed by allied seaport development, will form two corridors in Vietnam–the existing Vietnam Route 1 and the emerging Ho Chi Minh Highway (HCMH).

However, one should be aware that industrialization in Vietnam currently is dependent on a local partner, wherein a U.S. scrap exporter will need a trusted contact on the ground to develop the country’s scrap import potential in the near term. Vietnam has a history of stand-in trading companies of all sizes and skills which present the real buyers.

FUELED BY CAPITAL

Capital markets are fueling the momentum of Vietnam’s industrialization and investment, but it is still a country with many small and medium enterprises (SMEs). Nearly 70 foreign investment funds are looking to begin operations in Vietnam in the near term; but, it is major foreign and state enterprises that will influence the potential demand for American scrap.

It wasn’t Vietnam joining the World Trade Organization in January of 2007 that pushed Vietnam as an emerging investment hub as much as it was the Normal Permanent Trade Relations (NPTR) action by the United States in December of 2006. The NPTR coupled with the earlier U.S.-Vietnam Bilateral Trade Agreement (BTA) in December of 2001 has propelled Vietnam as a U.S. exporter and producer and has attracted industrial, minerals and mining investments. In the period 2001-2006, Vietnam’s exports to the U.S. increased by eight times, while U.S. exports to Vietnam increased by two times. Also, mutual visits by President Bush to Vietnam in late 2006 and the recent visit of Vietnam’s President Triet to the United States in June of 2007 have firmed the potential of the strategic partnership, which drives foreign development interests in Vietnam along with the country’s growth.

Major foreign minerals, metals and paper interests that use scrap commodities are already present in Vietnam. State-owned enterprises (SOEs) now populate and dominate the ferrous side of the scrap sales equation. But, privatization, similar to that taking place in Eastern Europe, is on the near horizon. American scrap exporters should address this change in Vietnam and build relationships for the future through representative sales now.

Thus, Vietnam is an emerging scrap market with major foreign and U.S. investment firms focusing on investment and development project deals there. This means that Vietnam has access to the funds needed to industrialize as well as the push to do so in the near term, which in turn could mean a full range of scrap commodity sales soon; but, locally controlled procurement is the Holy Grail.

The European scrap export community already knows about the potential of scrap sales in Vietnam, with firms such as ArcelorMittal, based in India, having direct representation on the ground; Alcoa will be present in future bauxite mining. Additionally, the American scrap recycling industry has a major role to play, particularly in ferrous scrap sales for the Vietnam steel industry, which is growing exponentially as foreign investors are eyeing huge steel projects throughout Vietnam.

The country is hot on metals and minerals, with paper in pursuit. It has established trade associations for commodities like steel, plastic and paper. However, it does not yet have an organized scrap industry association.

Recyclers should approach the current unorganized Vietnamese scrap industry with the knowledge that everyone there is in the business of trading. Also, knowing that Vietnam has a cultural history of conflict, one should keep in mind that building relationships take time.

VIETNAM’S INDUSTRIALIZATION HIGHLIGHTS

STEEL

Vietnam’s capacity to refine steel ingot for the production of steel was estimated to reach 875,000 tons in 2006. Yet the country as a whole imported some 2.5 million tons of steel ingot throughout the year. Vietnam’s policy is to increase steelmaking capacity. The country has three major plant locations: Hanoi (Thai Nguyen and Hung Yen provinces), Hai Phong City and the HCMC areas. One half of the steel plants are in the HCMC area, with major new developments in nearby Vung Tau, at the South China Sea. For example, in Vung Tau, POSCO/Korea built a $361 million plant last fall, and Vietnam Steel Corp. and India’s TATA (Phu MY) and SMC are also looking to build in Vietnam, as is Taiwan’s E-United Group.

ALUMINUM

Vietnam Minerals Corp. (VIMICO) started work a year ago on a bauxite complex for export in Lam Dong in central Vietnam that will be capable of producing 600,000 tons per year when it becomes operational in 2009. This venture is based on a reserve of 225 million cubic meters, focused probably for export to Japan. Alcoa is in Dak Nong Province (central Vietnam), and Japanese companies are in Vung Tau (south Vietnam). Asia Packaging operates a can factory in Binh Duong Province (in the south). Additionally, United Company Rusal has announced a representative office in Vietnam.