The steel industry is witnessing difficulties due to a sharp drop in demand, slow consumption of enterprises and increase in inventories. Along with that, input costs remained high, plus fluctuations in loan interest rates and exchange rate differences. However, steel enterprises are expecting "support" from accelerating disbursement of public investment at the end of this year.
Viet Duc Steel Joint Stock Company manufactures construction steel products. Illustration: Nguyen Trong Lich/VNA
Difficult due to reduced demand
According to information from the Vietnam Steel Association (VSA), in just 3 months (May to August 2022), steel prices have undergone 15 adjustments, falling from nearly 20 million VND/ton to more than 14 million VND/ton. Selling prices fell sharply but consumption was not satisfactory, causing many businesses to face difficulties.
For example, Hoa Phat Group, its after-tax profit in the third quarter of 2022 was negative 1,786 billion dong. This is also the third consecutive quarter, Hoa Phat's revenue decreased, with 12% over the same period last year and nearly 8% compared to the previous quarter.
Followed by Hoa Sen Group Joint Stock Company with a loss of about VND 887 billion in the third quarter, revenue also dropped sharply. This is the first loss since the difficult period at the end of the 2017-2018 financial year.
According to the Vietnam Steel Association, in October 2022, steel consumption of all kinds reached nearly 2 million tons, down 7.19% over the previous month and down 9.9% over the same period. Weak demand caused many steel enterprises to report heavy losses in the last quarter of 2022, with large debts weighing heavily on production and business activities.
According to Mr. Nguyen Van Sua, an expert in the steel industry, the current difficulty comes from the weakening of aggregate demand for steel materials in construction, while the price of input materials for production increases, such as the price of smelting coal. 100 - 200 USD/ton; Credit tightened, exchange rate and interest rate increased sharply. These factors occur simultaneously, making it difficult for businesses to cope and continuously face losses.
Besides, other factors such as the Russia-Ukraine conflict, China's policy of implementing "Zero COVID-19" caused steel demand in this market to decrease while this is one of the main export markets. of many enterprises; Global inflation is also affecting the domestic steel and construction industry.
A representative of Hoa Phat Group said that coal and ore are the two most important raw materials for steel production by blast furnace technology that Hoa Phat is using. While iron ore has declined since the end of 2021 and remained at a comfortable level, coal prices have experienced strong fluctuations in the first nine months of 2022. Conflict between Ukraine and Russia, one of the world's major coal suppliers. raised concerns about a supply shortage leading to a shock in coal prices to the rest of the market.
In addition, the sanctions have disrupted the old supply flow and the lack of transport cycles for new routes increases transportation costs, making the price of imported materials even higher. Coal prices have tripled their normal levels during two peaks in March 2022 and May 2022. Although currently coal prices have cooled down, with a normal inventory turnover of about 3 months, steel production costs in the third quarter of 2022 are still largely composed of imported coal purchased at the highest price in the second quarter. 2022. This is the main reason why Hoa Phat's COGS in this quarter increased sharply by VND 6,290 billion, equivalent to 23% compared to the third quarter of 2021.
Along with that, inflation and economic recession weaken the world steel demand. Demand and domestic steel prices are not out of this influence. The quiet domestic real estate market due to the tightening of credit in this industry also contributed to a sharp decline in Vietnam's steel consumption.
“Steel prices fell, so even though Hoa Phat's sales volume increased, it could not offset the negative impact of selling prices, leading to a decrease in revenue. Thus, in addition to the pressure on raw material costs, Hoa Phat's COGS at the same time has to bear an additional burden from the inventory provision, contributing to further thinning of the profit margin in the third quarter of 2022. said the corporation.
With developments in the past few months, many experts estimate that this is a difficult period for steel enterprises when the price of raw materials increases, but the domestic price is continuously decreasing and the world price is also falling. decline.
What to expect in 2023?
Construction steel products of Viet Duc Steel Joint Stock Company have just been shipped. Photo: Nguyen Trong Lich/VNA
As usual every year, the end of the year will be the time to "launch" of many steel enterprises when the public investment and construction of works take place strongly across the country. Strong increase in consumption helps businesses to earn profits.
Representative of the Vietnam Steel Association, Mr. Nghiem Xuan Da, said that many businesses are looking for ways to discharge their inventories before the current weakening demand, such as Hoa Sen Group, VNSteel, Pomina, SMC. This is the time for businesses to reduce inventory pressure, partly profit when disbursing public investment capital increases, focusing on the fields of construction, infrastructure... Traffic and construction projects Large construction will create a stimulus for the prosperous steel market.
VSA also said that in order to help the steel market recover, in addition to the Government speeding up disbursement of public investment as well as implementing measures to stabilize the prices of materials and goods at the end of the year, it is necessary to have supportive policies. to support domestic steel enterprises to maintain market share and have motivation to develop.
According to Hoa Phat Group, currently, this group is focusing on tight inventory management to reduce the burden on working capital needs and short-term debt by combining efforts to consume goods to reduce the quantity of goods sold. finished products, while shortening the shelf life and reducing the percentage of raw materials. For exports, when demand in the US, Europe and China is weak, Hoa Phat focuses on exploiting other markets less affected by inflation and economic recession such as Southeast Asia and some other markets. other countries in Asia.
According to experts from Vietnam Foreign Trade Bank Securities Company Limited (VCBS), steel prices may recover better in 2023, mainly from the demand of the Chinese market. when it is expected that policies to stimulate the real estate market begin to be effective; in which the People's Bank of China intends to offer a 200 billion yuan low-interest loan support package to help restructure real estate projects. At the same time, China lifted the blockade to help stabilize iron and steel consumption demand and boost public investment, especially spending on infrastructure construction to boost the economy.
As for, Agriseco (Agribank Securities Joint Stock Company) said that the energy shortage in Europe may cause some energy-intensive industries to cut output, including steel production. This can create opportunities to boost exports for businesses to this region in the coming year.
According to Duc Dung (VNA)
