Japan's second largest steelmaker JFE Steel Corporation announced on Tuesday that it has pulled out of a mammoth Taiwanese project in central Vietnam after two years of studying the feasibility of the US$3 billion steel sheet production plant.

The Tokyo-based company has “discontinued its feasibility study of a project to build and operate an integrated steelworks in Vietnam,” according to an announcement on its website.

An authorized official from the management board of Dung Quat Economic Zone in the central province of Quang Ngai, where the Guang Lian project is planned to be built, confirmed JFE’s exit to Tuoi Tre (Youth) newspaper the same day.

The Japanese company notified Quang Ngai authorities that it was looking to exit the project in late August, according to Dau Tu (Investment) newspaper.

The Guang Lian project, developed by a Taiwanese investor, includes the construction of a steel sheet production plant with a capacity of 3.5 million tons a year, and is expected to become operational in 2016.

JFE withdrew from the project as the Asian steel market is “suffering oversupply, while many major steel projects are either planned or under construction in Vietnam, as well as southern China,” Dau Tu quoted an official from the Ministry of Planning and Investment as saying.

The $9.9 billion Formosa steel complex is currently under construction in the central province of Ha Tinh, while projects by Posco and China Steel are slated for construction soon in the southern region.

The Guang Lian steel project was licensed in September 2006 with a registered capital of $1.05 billion. Its investment certificate was amended four times, with the registered capital eventually increased to $3 billion.

In 2012, JFE signed a memorandum of understanding with Taiwan’s E-United Group, which currently holds a 90 percent stake in the project, to study its feasibility.

The decision to pull out came two years after this agreement was signed.

"We've decided to end the feasibility for the project, as we came to a conclusion that the project would not make economic sense as the Asian steel market continues to face oversupply, and steel demand in Vietnam is not growing fast enough," Reuters quoted a JFE Steel spokesman as saying.

JFE said on its website that it had cancelled the memorandum of understanding with E-United.

But the company will continue to study other opportunities, as it still wants to “build an overseas steel plant somewhere in Asia," its spokesman said. 

The Japanese corporation, which is second only to Nippon Steel & Sumitomo Metal Corp, reported 174 billion yen ($1.6 billion) in recurring pretax profit in 2013.

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