Softening Steel Demand Could Force JFE to Cancel $5 Billion Steel Complex in Vietnam

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Researched by Industrial Info Resources (Sugar Land, Texas)--JFE Steel Corporation, a subsidiary of JFE Holdings Incorporated (TYO:5411) (Chiyoda, Tokyo) and the world's third largest steel manufacturer, announced plans this month to establish a 6 million- to 10 million-ton steel complex in the Dung Quat Economic Zone in Vietnam's Quang Ngai province. JFE submitted a business plan on completion of the feasibility study and is awaiting approvals from the Vietnamese government.

However, according to recent reports, JFE announced that it could cancel the proposed integrated steel plant in Vietnam amid the global fall in steel demand. If the market situation doesn't improve, the steel giant has said the project may not be feasible, forcing it to suspend plans.

The integrated steel mill is likely to get an investment of about $5 billion in the first phase. The project will come up in phases. JFE has not yet announced plans for the second phase. The global steel maker will target sectors such as the shipbuilding, automobile and mechanical industries, which offer market potential for steel products. The steel produced at the mill will primarily be exported.

The first stage of the complex is scheduled for completion by 2010 with a capital expenditure of $1.8 billion. About 10,000 workers and 300 niche engineers from abroad are expected to be employed for Phase I. Spread over 1,000 hectare acres, the complex is likely to generate between 2,000 and 3,000 jobs, including positions for engineers and skilled technicians, when it is commissioned.

Gas, a byproduct in the steel manufacturing process, will be used to produce electricity for the complex. The excess generated power will be sold to Electricity of Vietnam. The environment-friendly project will be designed to use advanced technologies to conserve energy.

The Dung Quat Economic Zone has received an investment of more than $10.8 billion this year. With the government's focus primarily on heavy industries, the region has a high concentration of shipbuilding, steel and thermal power facilities, as well as oil refineries. If JFE's steel unit is approved, it will make the complex one of the biggest steel projects in the region. Yieh United Steel Corporation (TPO:9957) (Gangshan, Taiwan), one of the world's largest stainless steel makers, and Tycoons Group Enterprise Company Limited (TPE:2022) (Gangshan) have collaborated to build a $1.8 billion steel mill with a capacity of 2 million metric tons of crude steel. The facility is expected to come up in the Dung Quat Economic Zone over the next three years.

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