VIETNAM,
December 14 - HÀ NỘI — Most steel companies recorded gloomy business results in
the third quarter of 2022, according to a recent report on the construction and
building materials industry by VNDirect Securities Corporation.
Revenues
of the three largest listed steel companies, including Hoà Phát Group (HoSE:
HPG), Hoa Sen Group (HSG), and Nam Kim Group (NKG), fell 25 per cent
year-on-year and 18 per cent compared to the previous quarter due to weak steel
demand resulting in reductions in both output and selling prices.
Moreover,
high input prices, rising interest rates and a weakening đồng have
caused many businesses in the industry to record net losses in the third
quarter of 2022. Viet Nam's largest steel producer with the advantage of
large-scale production, HPG, also posted a net loss of VNĐ1.8 trillion (US$74.9
million) in the last quarter, which is the company's first loss since the
fourth quarter of 2008.
VNDirect
also said that the domestic steel industry is being affected by difficulties
such as high input material prices, including coke and scrap steel prices, and
a decline in global steel demand, causing challenges for export activities of
Vietnamese steel enterprises. Although disbursement of public investment is
expected to accelerate in the coming quarters, VNDirect forecasts that
consumption of construction steel and galvanised steel will both decrease by 3
per cent 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 rate
environment.
However,
the net debt to equity ratio of steel companies is still significantly better
than in the 2010-2019 period.
VNDirect
noted that some signals may be a premise for the steel industry to improve. For
example, the price of coking coal is forecast to drop from $420/tonne in 2022
to $258 and $220/tonne in 2023 and 2024, respectively, as the coke mines return
to normal operation, while iron ore prices are also forecast to gradually
decrease in the long-term from an average of $110 a tonne in 2022 to $90 and
$70 tonne in 2023 and 2024, respectively, as the loosening of China’s COVID-19
restrictions will stimulate global steel demand and accelerating infrastructure
development in Việt Nam will partly offset the stagnant real estate market.
Therefore,
despite the fact that steel prices continue to decline in October and November,
VNDirect still expects that the gross profit margin of steel companies will
recover from the fourth quarter of 2022 when most of the high-priced
inventories have been recorded in cost of goods sold in the previous quarter.
"We
see that steel companies have reduced their inventory levels to only 2-3 months
in the fourth quarter of 2022 from 4-5 months at the end of the second. This
will reduce the risk from the provision for devaluation of inventories,” said
VNDirect.
“In
addition, the spot prices of input materials like iron ore, coke, and scrap
steel, are also gradually returning to an average level. Therefore, steel
companies’ profit will soon hit the bottom, but the recovery will be quite slow
due to weak steel demand.” VNS