Products loaded on a truck at a warehouse of Hoa Phat Group. (Photo: hoaphat.com.vn) Revenues of the three largest listed steel companies, including Hoa Phat Group(HoSE: HPG), Hoa Sen Group (HSG), and Nam Kim Group (NKG), fell 25%year-on-year and 18% compared to the previous quarter due to weak steel demandresulting in reductions in both output and selling prices.
Moreover, high input prices, rising interest rates and a weakening dong have caused many businesses in theindustry to record net losses in the third quarter of 2022. Vietnam's largeststeel producer with the advantage of large-scale production, HPG, also posted anet loss of 1.8 trillion VND (74.9 million USD) in the last quarter, which isthe company's first loss since the fourth quarter of 2008.
VNDirect also said that the domestic steel industry is being affected bydifficulties such as high input material prices, including coke and scrap steelprices, and a decline in global steel demand, causing challenges for exportactivities of Vietnamese steel enterprises. Although disbursement of publicinvestment is expected to accelerate in the coming quarters, VNDirect forecaststhat consumption of construction steel and galvanised steel will both decreaseby 3% year-on-year in 2023.
At the end of this year’s third quarter, all steel companies are in net debt.As a result, interest expenses will increase amid a higher interest rateenvironment.
However, the net debt to equity ratio of steel companies is still significantlybetter than in the 2010-2019 period.
VNDirect noted that some signals may be a premise for the steel industry toimprove. For example, the price of coking coal is forecast to drop from 420 USDper tonne in 2022 to 258 USD and 220 USD per tonne in 2023 and 2024,respectively, as the coke mines return to normal operation, while iron oreprices are also forecast to gradually decrease in the long-term from an averageof 110 USD a tonne in 2022 to 90 USD and 70 USD tonne in 2023 and 2024,respectively, as the loosening of China’s COVID-19 restrictions will stimulateglobal steel demand and accelerating infrastructure development in Vietnam willpartly offset the stagnant real estate market.
Therefore, despite the fact that steel prices continue to decline in Octoberand November, VNDirect still expects that the gross profit margin of steelcompanies will recover from the fourth quarter of 2022 when most of the high-pricedinventories have been recorded in cost of goods sold in the previous quarter.
"We see that steel companies have reduced their inventory levels to only2-3 months in the fourth quarter of 2022 from 4-5 months at the end of thesecond. This will reduce the risk from the provision for devaluation ofinventories,” said VNDirect.
“In addition, the spot prices of input materials like iron ore, coke, and scrapsteel, are also gradually returning to an average level. Therefore, steelcompanies’ profit will soon hit the bottom, but the recovery will be quite slowdue to weak steel demand.”/.
VNA
