Steel production and related industries1. Overview of VietNam steel industry:

The iron and steel industry is the basic for the development of almost industries in the global economy: the defense industry, transportation and heavy engineering, energy and construction (including aeronautical and shipping construction). Moreover, the iron and steel industry is closely related to chemical industry and light industry. It proves that the iron and steel industry has potential to contribute to the competitiveness of nation producers and to the growth of the nation economy.

The World Steel Association (world steel) today released its Short Range Outlook (SRO) for 2015 and 2016. World steel forecasts that global apparent steel use will increase by 0.5% to 1,544 Mt in 2015 following growth of 0.6% in 2014. In 2016, it is forecast that world steel demand will grow by 1.4% and will reach 1,565 Mt. The outlook for the steel industry suggests slow growth for global steel demand. Commenting on the outlook, Hans Jürgen Kerkhoff, Chairman of the world steel Economics Committee said, “We are releasing a restrained growth outlook for the global steel industry mainly due to the deceleration in China. The outlook also reflects the influence of major structural adjustments in most economies, particularly owing to limited investment growth post 2008. As these changes take effect, the steel industry will experience a slower pace of growth, it will focus on operational efficiencies and on the value that steel products generate for customers and society.”

“While we continue to face some downside risks coming from some parts of Europe – geopolitical instability, international capital flow volatility and the economic slowdown in China – the impact of these risks has come down. We have also started to see some encouraging developments. We hear increasingly positive news from developed economies, especially signs of firming recovery momentum in the Eurozone. In the developing and emerging world, we see increased optimism about India and growth in steel use in some MENA and ASEAN countries. While these developments will not be enough to counterbalance the deceleration of China, we expect to see gradually improving growth prospects beyond 2016,” Kerkoff

concluded. An interesting factor which has become increasingly apparent is that in some developing economies the steel markets are beginning to exhibit the characteristics of mature markets.

In addition, the steel industry is one of the core industries of Vietnam which support development of the country, especially infrastructure development. Vietnam’s steel industry saw a revival in 2014 with high demand and improved macroeconomic conditions. Rebound of the frozen real estate market, the main steel consumer in Vietnam, coupled with relaxed monetary and fiscal policies during the year caused the demand to rise. Vietnam’s apparent steel consumption surged by 22% y/y to 14.4mn tonnes in 2014, making it the second-largest steel consuming country in ASEAN. Vietnam Steel Association (VSA) estimates domestic steel

consumption to increase by 1.5-2mn tonnes in 2015, amid higher GDP growth and increases in both export turnover and total investment. Moreover, controlled inflation and interest rate cuts will lead to higher demand from the construction and real estate sectors, while other steel consuming industries such as shipbuilding, automobile manufacturing and mechanical engineering will also see healthy growth. Potential for long-term expansion of the Vietnamese steel industry is strong, but it still faces some difficulties in terms of the huge cheap steel importation from China and steep decline in selling prices.

Table 1 shows the supply-and-demand relationship in the steel industry in East Asian countries. The Vietnamese steel industry lags developed countries and other ASEAN countries in production and consumption of steel. However, the industry escaped severe damage during Asian monetary crisis and the growth in demand has continued

Table 1: The steel consumption and crude steel production in East Asia (Unit: million ton)

Apparent steel consumption Crude steel production

96 97 98 99 96 97 98 99

China 97.3 103.5 113.9 125.0 101.2 108.9 114.6 123.3

Japan 80.6 82.1 70.3 68.3 98.8 104.5 93.5 94.2

Korea 37.6 38.1 24.9 32.1 38.9 42.6 39.9 41.0

Taiwan 18.0 21.0 20.2 20.3 12.4 13.0 16.9 15.4

ASEAN Indonesia 6.3 6.8 2.8 3.5 4.1 3.8 2.7 2.8

Malaysia 7.9 8.1 3.6 n.a. 3.2 3.0 1.9 2.0

Thailand 8.8 7.6 4.1 n.a. 2.1 2.1 1.8 1.9

Philippines 2.8 4.2 3.0 3.0 0.9 1.0 0.9 0.9

Singapore 3.8 4.0 3.3 2.9 0.5 0.4 0.5 0.5

Viet Nam 1.6 1.7 1.9 2.3 0.3 0.3 0.3 0.3

31.2 31.8 19.5 n.a. 11.2 10.6 8.1 8.5

Total East Asia 264.7 276.5 248.8 n.a. 262.5 282.6 273.0 282.4

Total World 658.7 698.2 693.3 698.8 750.0 798.8 775.9 784.2

Source: Edited by Japan Iron and Steel Federation, from data of South East Asia Iron and Steel Institute

Table 2 shows supply and demand in the Vietnamese steel industry. It indicates that production cannot keep pace with the growth in consumption of steel products and imports are increasing. Table 3 provides a breakdown of imported steel materials, with flat products being the main import. Apart from finished steel materials, the imports of billet, semi-finished product for long products, are increasing as shown in Table 4. As Tables 2 and 3 show, the production figure for 2000 is known but breakdown of demand is not.

Table 2. Steel production, consumption and import situation from 1992 to 2000 February 5, 2001

1. Steel products Unit: 1,000t

1992 1993 1994 1995 1996 1997 1998 1999 2000(est.)

2001

(expect.)

Steel consumption 560 863 854 1,180 1,638 1,822 2,128 2,379 2,850 3,170

Domestic production

(Long product)

220 280 360 490 865 977 1,150 1,300 1,588 1,770

VSC 190 230 270 370 464 443 464 464 524 540

JVs of VSC 0 0 0 68 351 484 586 678 814 837

Others 30 50 90 52 50 50 100 150 250 393

Import 343 686 600 866 947 807 917 1,146 1,429 1,400

Stock0 3 106 0 176 350 312 251 318 485

at beginning

at ending 3 106 0 176 350 312 251 318 485 485

Source: VSC (from Mr. Tanaka, JICA Expert).

Table 3. Imports of finished steel products (Unit: 1.000 tons)

Year 1998 1999

Total 846 1,144Flat Products 685 966Plate 234 292Sheets and strip 342 564Hot rolled sheets and strip 166 273Cold rolled sheets and strip 176 291

Surface treatment sheets 100 103Tin plate 25 26Galvanized sheets 27 16Colored galvanized sheets 48 62

Electrical sheets 9 7

Non flat products 162 178Stainless steel 22 42Steel products for constructi 11 13Sections and shapes 53 47Structural steel 22 26Spring steel 0 0Wire rod 11 14Other products 43 36

Source: General Customs Office, VSC.Quoted from CRM F/S Report, Ⅲ-2-2.

Table 4. Billet demand and production/import Unit: 1,000t

1992 1993 1994 1995 1996 1997 1998 1999 2000(est.)

2001(expect.)

A Steel 220 280 360 490 826 976 1,150 1,300 1,550 1,770

B Billet demand* 265 333 424 576 918 1,073 1,265 1,430 1,712 1,956

C Billet (domesticproduction)

(219) (270) (301) (271) (311) (314) 306 307 306 396

D Billet (outside)(B-C)

46 63 123 305 607 759 959 1,123 1,406 1,560

( ) : from IISI statistics* : estimated A/B (yield of rolling) = 83% ~ 90.5%Source: VSC (from Mr. Tanaka, JICA Expert).

2. Hoa Phat Steel Industry and Related Industries

Vietnam’s steel industry is dominated by producers of construction steel products such as rebar. The notable exception is Hoa Sen Group (HSG:VN), which produces galvanised steel sheets that are also used extensively in the construction industry. There are 27 major construction steel manufacturers, the top five of which have a collective market share of nearly 60%. The market leaders are HPG with a market share of 17.0%, POM with 15.3% and TISCO with 9.2% market share.

About 40-45% of Vietnam’s construction steel demand comes from the north.

Competitive pressure in this geographic region is intense because many large construction steel companies such as HPG, TISCO, and VIS are located there, as are tens of small-to medium-sized companies in the port city of Hai Phong. The southern market represents about 55-60% of Vietnam’s steel market demand but the competition in the south is less intense because there are not as many competitors and most of the competitors with obsolete factories are state-owned. Only POM and Vinakyoei have

modern factories with sufficient economies of scale. The selling price of construction steel in the south is usually slightly higher than in the north because most steel companies in Vietnam import raw materials such as scrap from China, Korea and Japan. The transportation cost from these countries in north Asia to the north of Vietnam is lower than to the south of Vietnam, but northern producers cannot use those cost advantages to compete against southern producers because transportation costs for finished steel products are prohibitive for distances over 1,000km, resulting in higher steel prices in the south. The southern market has also been disproportionately hit by the ongoing economic slowdown in Vietnam. Many of the government’s infrastructure construction projects are concentrated in the north and are still being implemented, albeit at a slower pace, while many privately-developed real estate and infrastructure projects in the south have been forced to halt due to financial difficulties.

Finally, note that HPG and (unlisted) TISCO, the only two steel producers in Vietnam with blast furnaces, both own iron ore mines in the north. Iron ore reserves in the south of Vietnam are limited, which is one reason why southern producers use EAF technology to recycle steel scrap.

Production of steel plate and related sectors continue to be the leading industry groups to promote growth for Hoa Phat group. In the past year, this industry group has contributed 82.3% 79.4% revenue and profit after tax on group-wide common results.

_ In VIETNAM, output, market share: increase, topping (21.3%)

_ Export: export, arrays for Hoa Phat steel continues to export to markets in Laos, Cambodia, ... the same time looking to add other markets in Southeast Asia. Hoa Phat Steel exports approximately 3,000 tonnes per month and all five reached almost 35,000 tons (BCTN)

Taxable CBPG PH steel (anti-dumping duty) while exports to other countries: the United States, Turkey, Malaysia,

a. Vertical integrated, modern synchronized full circle production lines from iron ore to finished steel

Officially operating in early 2010 with the large-scale up to 132ha, Hoa Phat Integrated Steel Complex consists of a full circles cluster including Iron ore processing factory, coal coking and thermal electricity plant, Iron cast processing factory, Billet casting factory and Steel rolling mill. In 2015, the first iron and steel complex in Hai Duong reached 1.1 million tons output on embryos, of which 1 million tons have already been rolled out steel building products serve the needs of the domestic and foreign markets. (HPG) = > Cost complementarity, economies of scope, less depend on other supply.

b. InputCoke and iron ore (blast furnace technology) (Other firm using "electric arc" tech = > input: power & scrap steel)Coke is a solid carbon fuel and carbon source used to melt and reduce iron ore. Coke production begins with pulverized, bituminous coal. The coal is fed into a coke oven which is sealed and heated to very high temperatures for 14 to 36 hours. Coke is produced in batch processes, with multiple coke ovens operating simultaneously. Heat is frequently transfered from one oven to another to reduce energy requirements. After the coke is finished, it is moved to a quenching tower where it is cooled with water spray. Once cooled, the coke is moved directly to an iron melting furnace or into storage for future use.During ironmaking, iron ore, coke, heated air and limestone or other fluxes are fed into a blast furnace. The heated air causes the coke combustion, which provides the heat and carbon sources for iron production. Limestone or other fluxes may be added to react with and remove the acidic impurities, called slag, from the molten iron. The limestone-impurities mixtures float to the top of the molten iron and are skimmed off, see Figure 1, after melting is complete.Sintering products may also be added to the furnace. Sintering is a process in which solid wastes are combined into a porous mass that can then be added to the blast furnace. These wastes include iron ore fines, pollution control dust, coke breeze, water treatment plant sludge, and flux. Sintering plants help reduce solid waste by combusting waste products and capturing trace iron present in the mixture. Sintering plants are not used at all steel production facilities.

c. ProductivityAfter renovating furnace and continuous billet casting machine, the productivity of Hoa Phat steel billet factory in Pho Noi A Industrial park – Hung Yen has increased 20% in comparison to last year. Steel billet output reached 110,100 tons in the 5 first months, specifically for April with 24,700 tons, the highest output ever.The average monthly output reached 22,000 tons, an increase of 2,000 tonnes per month compared to the average of 2011. Electricity consumption decreased from 40 kWh to 50 kWh per ton of product. Electrode consumption decreased 0.5 kg per ton of billet. These figures show the effect of investment research, continuous improvement on the equipment system that Hoa Phat Steel Company Limited has implemented last time.Meanwhile, the equipment maintenance activities are always taken seriously, regular and strict compliance to management process of equipment, product quality standard ISO 9001: 2008. During maintenance, the operating departments are not only responsible for operating the device system but also control the status of equipment system and timely feedback to the technical department for planning maintenance program close to reality.After nearly 10 years in operation, the first steel billet mill is increasingly contributing to the development of steel business field of Hoa Phat Group. Through many revisions, the current capacity of this plant has reached 250,000 tons per year.

d. PriceLow price enable market share gains. Hoa Phat steel’s price is still lower than competitors (in fact, the quality and amount of product is as good as the competiors product). HPG’s market share grew from 9% in 2009 to 17% in 1Q14, surpassing its main competitor Pomina (POM:VN) whose market share dropped to 15.3% even though its capacity is double HPG’s capacity. The steel industry in Vietnam is fairly fragmented and the top five producers, including HPG, only hold an aggregate 57% share of the market (versus 80% in the case of the steel industries of other countries in the region). That proportion has remained constant since 2010 but HPG’s market share increased from 12% to 17% over the

same period, which means that it is helping to consolidate the market gradually at the expense of its other main competitors.

Hoa Phat’s Product Price

Product Name Unit Volume/pile Price đ/kg

Roll steel Ø 6 Kg 9,500

Roll steel Ø 8 Kg 9,500

Steel Ø 10 1pile(11.7m) 7.21 9,600

Steel Ø 12 1pile(11.7m) 10.39 9,500

Steel Ø 14 1pile(11.7m) 14.15 9,500

Steel Ø 16 1 pile (11.7m) 18.47 9,500

Steel Ø 18 1 pile (11.7m) 23.38 9,500

Steel Ø 20 1 pile (11.7m) 28.85 9,500

Steel Ø 22 1 pile (11.7m) 34.91 9,500

Steel Ø 25 1 pile (11.7m) 45.09 9,500

Steel Ø 28 1 pile (11.7m) 56.56 9,500

Steel Ø 32 1 pile (11.7m) 73.83 9,500

e. New product

Recently, Hoa Phat group JSC (HPG) announced joining the market with color coated decided to invest the project Factory Hoa Phat PPGI in Pho Noi A Industrial Zone, Hung Yen, a capacity of 400,000 tonnes / year. The factory started work from January 5/2016, completed after 18 months and put into operation in early 2018. The market galvanizing / plating cold and painted in Vietnam with annual consumption 2.5 ~ 2.8 million tons. Currently, the production capacity of all the plants are operating is about

3.2 ~ 3.5 million tons / year. Most of the factories are located in the southern region, such as respect Ton Hoa Sen in Binh Duong and Phu My, Vietnam Factory Kim and religious principles are based in the East Asia Pacific, in addition to other factories as TVP, TVC, Ton Phuoc Khanh, ... are located in the south. Reviews about this, that Hoa Phat HSC CTCK will directly compete with Ton Hoa Sen market in the North when the "big boss" this coated industry are growing ambitions.

According to Hoa Phat Group Joint Stock Company (code: HPG), Hoa Phat Steel Corporation is also expected to provide production welding steel on quarter 3/2016 to contribute to help businesses in the welding materials are natural water initiative production and avoid dependence on imports. Currently, Vietnam needs annually about 100,000 tons of carbon steel welding rod to do. According to Mr. Ho Duc Tho - Deputy Director of Hoa Phat steel Joint Stock company, which is kind special steel, high technical requirements, particularly the carbon content must be less than 0.09%, less than 0.65% Manganese is very ductile, impurity elements such as P, S will require content must be very small. Steel welding rod used as cores have SWRY steel grade 11, JIS Standards G 3503 (2006); steel grade H08A, China GBT 3429 standards; automatic welding wire core steel grade EM 12K, American standard ASME SFA / AWS A5.17, ... The steel grade categories and standards can vary but are in rolls 6.0 mm Plain or 5.5 mm Φ and weight requirements of 400 kg roll / coil, tangle, twist. In Vietnam and the world's only manufacturer of steel mills with blast furnace technology and train new furnace was blown products. Previously, Hoa Phat has also produced for the draw wire coil for export to Australia with carbon component is approximately 0.12%. Steel welding rod more demanding, therefore, Hoa Phat Steel Joint Stock Company takes time to adjust to technology and procurement of equipment at the stage of the steel and casting stages accordingly. Currently the company has ordered dedicated devices such as control systems in voice frequency furnace slag blowing, casting secret protection system antioxidant casting lines, magnetic agitation system to remove impurities casting lines and increase the quality of casting billet. It is expected that the Company will manufacture test welding rod steel products made in late October 7/2016.

3. Problems and SolutionThe first problem is outdated technology and equipment that is small-scale and obsolete.

Other industries1. REFRIGERATION INDUSTRY

Hoa Phat Refrigeration Engineering Co., Ltd was established in July 2001. Our aims is “Producing replace importing goods”, our company has invested in home appliance production line for refrigeration, electric household products for example: refrigerator, air conditioner, washing machine, enameled electric water heater under Funiki brand. Those mentioned above products are produced by modern technology line with cooperation of the leading groups in the world to produce high quality and stable product. The products of Hoa Phat Refrigeration Engineering Company have achieved remarkable position on local market share compare with other famous brands.

************* PICTURE**************

* Main products:

– Air conditioner with capacity range 9000BTU, 12000BTU, 18000BTU, 24000BTU

– Floor type air conditioner with capacity range 24000BTU, 27000BTU, 45000BTU, 48000, 60000BTU

– Ceiling cassette air conditioner, capacity 24.000BTU, 27.000BTU, 45.000BTU, 48.000BTU

– Intelligent system VRV, VRF,…

– Direct and indirect cooling refrigerator capacity range from 50 L to 220 L

– Freezer with 1 chamber and 2 chamber capacity from 207 to 425L

– Enameled water heater with antibacterial Silver Nano technology and Titanium enameled tank, capacities 15L, 20L, 25L, 30L, 50L.

Refrigerator Factory – Hoa Phat Refrigeration Company has completed the installation and operated the new freezer production chain at the beginning of the Lunar year 2010, raising capacity of factory up to 700 products/ day.

This chain is fully automatic, using modern control equipment and good quality of the brands in the world such as Siemen, Mitsubishi, Omron … Therefore, the freezer Funiki is always guaranteed with high accuracy, avoid errors of product surface, ensuring supply timely and enough for the market. The chain was designed and installed by leading experts in the field of automation. Capacity of the new line reaches 200 products/shift/8hours; raising capacity of the factory to 700 products per day.

The installation of new chain contributes to improving product quality and more stable operation of the Factory, while increasing production output to meet the growing need of customers nationwide. The chain officially runs on February 19th, 2010 (January 6th of Lunar Year). This will be a good start, opening for the new successes of Hoa Phat Refrigeration company in 2010.

2. FURNITURE INDUSTRY

Hoa Phat Furniture Joint Stock Company manufactures and markets furniture in Vietnam. The company was founded in 1995 and is based in Ha Noi City, Vietnam. Hoa Phat Furniture Joint Stock Company operates as a subsidiary of Hoa Phat Group Joint stock Company. The modern technology and equipment, variety kinds of product, the spreading network of distributors are Hoa Phat’s advantages to affirm the leading brand of Vietnamese furniture industry.

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*Main products:

– Wooden office table and cabinet

– Steel office table and cabinet

– Computer table

– Office chair

– Fire resistant safe box

– Safe and Security box

– Solid wood or Steel chair and table

– Solid wood or Steel household

– School furniture from kindergarten to university, library room, lab, boarding school…

– Furniture for public place: lounge chairs at air, train, bus station, post office, theater chairs, meeting chairs, stadium chair, hospital furniture,…

3. REAL ESTATE INDUSTRY

Hoa Phat officially joined the real estate market in 2001, specializing in the field of industrial and civil construction.

Pho Noi A Industrial Zone

Located in Hung Yen, Pho Noi A Industrial Park with the scale of 600 ha is one of the largest industrial zones in Vietnam. Having a favorable position and modern infrastructure, it is the ideal destination of both domestic and foreign investors.

Additionally, Hoa Phat is also the investor of Hoa Mac Industrial Park with the scale of 200 ha in Ha Nam province.

In the civil real estate business, focusing on houses and new urban area, Hoa Phat has now implemented variety of projects, for examples:

Mandarin Garden complex

High-class office, apartment and commercial centre combination project at 257 Giai Phong road, Dong Da district, Hanoi

Mandarin Garden apartment combination project in South East Tran Duy Hung road, Cau Giay district, Hanoi. It is a complete highlight with a position that can not be more beautiful in the west of Hanoi.

The office, apartment and commercial combination project at 493 Truong Dinh road, Hoang Mai district, Hanoi.

Hoa Phat’s strategy is ensuring the progress committed to the customers. This expresses the Group’s economic potential and simultaneously builds trust and create efficiency for every project invested by Hoa Phat.

4. TRADITIONAL INDUSTRIES