Steel enterprises expect to prosper again in the second half of 2023

Steel industry enterprises face many difficulties in 2022. Source: Internet.

Record losses

According to data from the Vietnam Steel Association (VSA), in 2022, Vietnam will consume about 18.7 million tons of crude steel, down 19% over the same period last year.

Exports dropped sharply by 32% to 745,000 tons. According to the World Steel Association, global demand is estimated to decrease by 2.3% in 2022 after recovering 2.8% in 2021. This has greatly affected the production and business results of the steel enterprises.

According to data from FiinPro, 15 of 28 surveyed steel enterprises have profit after tax in 2022. According to experts, the decline in domestic and world demand, plunging selling prices and rising raw material prices have affected steel enterprises.

Moreover, tight credit, rising exchange rates and interest rates also contribute to the "catastrophic" business picture of this industry in 2022, according to the "forecast" of the leader of Hoa Phat Group Joint Stock Company (Hoa Phat Group Joint Stock Company-HPG) in mid-2022.

Accordingly, at Hoa Phat, the third and fourth quarters of 2022 recorded a net loss of more than VND 1,770 billion and VND 2,000 billion, respectively. But thanks to positive business results at the beginning of the year, accumulated in 2022, profit after tax is still more than VND 8,400 billion, only 24% compared to 2021.

Entering the first month of 2023, according to information from Hoa Phat, production and sales volume both decreased significantly compared to the same period last year. Sales volume of construction steel, billet and hot rolled coil (HRC) reached 402,000 tons, down more than 36% year-on-year and down 28% month-on-month. Hoa Phat said, because the New Year and the Lunar New Year are in January, the market demand for construction materials in general and iron and steel, in particular, is low.

Similarly, Hoa Sen Group Joint Stock Company (HSG) is also going through the most difficult period in its history when it posted a net loss for 2 consecutive quarters.

According to the financial statements for the first quarter of the fiscal year 2022-2023 (from October 1 to December 31, 2022), although business results have improved a lot compared to the fourth quarter of the fiscal year 2021-2022 (from October 1 to December 31, 2022), HSG still recorded a negative profit after tax of VND 680 billion, a loss of VND 207 billion compared to the previous quarter.

HSG explained that the reason for the loss was the decrease in gross profit due to the impact of the decrease in gross profit margin. Specifically, HSG's gross profit in the first quarter of fiscal year 2022-2023 reached nearly VND 160 billion, although better than a gross loss of VND 231 billion in the fourth quarter of fiscal year 2021-2022, it decreased sharply by 92% compared to the same period of fiscal year 2021-2022.

In addition, many large enterprises also recorded losses. Leading in losses in steel businesses is Pomina Steel Joint Stock Company with a figure of nearly VND1,170 billion, while in 2021 it is still more than VND182 billion in profit. In second place is Vietnam Steel Corporation (VnSteel) with a loss of more than VND 822 billion, while in 2021 a profit of nearly VND 860 billion.

Market demand is expected to recover

Hoa Phat's report said that the steel industry has gone through the most difficult period and is on the way to recovery. However, the Vietnam Steel Association (VSA) said that the domestic steel industry faces many difficulties and challenges that are likely to last until the second quarter of 2023. But strong solutions in disbursing public investment capital for construction projects, and transportation help the steel market see "bright spots" in 2023.

According to the latest steel industry update report of SSI Securities, more stable steel and raw material prices could help stabilize steel companies' profits in 2023. However, weak demand could lead to a low utilization rate, only 60-75%, which will put pressure on the company's revenue, cash flow and profit margin next year. In addition, the narrowing price gap between Vietnam and other markets will make export profit margins less attractive than in the 2020-2021 period.

Experts at VNDirect Securities Company forecast that in 2023, the steel industry's expectation this year is that public investment disbursement is expected to increase by 20-25% compared to 2022. In terms of exports, the industry's support is the price of steel may be less volatile because demand from the Chinese market is stable after opening with many policies to support and recover the real estate market. But in general, VNDirect said that the steel industry is still struggling in the first half of the year in the context of reduced construction demand and increased input material prices and may only really prosper in the second half of 2023.

However, businesses still try to invest and find new orders to recover business results. For example, at the beginning of 2023, Hoa Phat recorded many export orders to markets in the Americas, Asia and Australia. Steel export output (high quality bar steel, construction coil, and coil steel) in January 2023 reached 46,000 tons.

According to the World Steel Association, steel demand is expected to recover 1% year-on-year to 1.8 billion tons in 2023. In which, the ASEAN region will lead growth in steel consumption thanks to a strong investment orientation for infrastructure. In addition, the European market's steel supply in 2023 is forecast to continue to lack due to high energy prices.