Steel prices down thanks to supply and demand balance

The profit in 2021 of many steel enterprises may have peaked. Photo: Nguyen Thanh

As estimated by MBKE experts and the World Steel Association, China's demand will remain unchanged when it only drops 1% year-on-year, while the growth of developed countries and the rest of the world fell by more than half to 4.3% year-on-year and 5.0% year-on-year, respectively.

Meanwhile, Chinese steelmakers may ramp up production again after the 2022 Winter Olympics. Therefore, MBKE expects supply and demand to become more balanced in the future and steel prices to fall 10-15% by 2022.

For the domestic market, in 2022, MBKE expects that the 2022 - 2023 economic stimulus package will quickly help the domestic market recover. Besides, the infrastructure construction investment package of nearly VND114,000 billion, in addition to the existing VND530,000 billion, will enable public spending to increase by 38% in 2022.

In addition, Vietnamese steel enterprises had a successful year beyond expectations in the export market.

Moreover, the adjustments to the Law on Construction, Investment and Real Estate will not only remove bottlenecks that are hindering the development of the residential real estate industry in recent years but also will help the domestic steel market to grow by 15-20% in 2022.

Currently, steel enterprises have boosted sales volume thanks to economic recovery efforts.

According to the latest report of Hoa Phat Group Joint Stock Company in December, the Company achieved sales of steel products at 799,000 tons, up 14% over the same period last year. For the whole of 2021, Hoa Phat supplied the market with a total of 8.8 million tons of steel, up 35% over the same period.

As a result, SSI Securities Analysis Center (SSI Research) forecasts that Hoa Phat's profit after tax in 2021 is estimated to increase by 173% to VND36,900 billion.

According to a report by the Vietnam Steel Association (VSA), in the first 11 months of 2021, Vietnam exported 12.2 million tons of steel, up 37% over the previous year. Steel export surplus reached 868,000 tons, the highest level ever. This result is thanks to the increase in domestic production capacity in recent years, especially thanks to the capacity of 5.5 million tons/year of Hoa Phat's Dung Quat Steel Plant, which has helped Vietnam become less dependent on imports of finished steel products (like HRC) from China.

As revealed by Rong Viet Securities Company (VDSC), in 2022, Vietnam's steel manufacturers have the opportunity to expand their market share in Europe as key competitors face challenges related to production costs and trade policy.

In addition, from 2022, Hoa Phat will deploy the Hoa Phat Dung Quat 2 Iron and Steel Complex project, with a capacity of 5.6 million tons/year. It is expected that, when completed in 2025, Hoa Phat's steel output will reach about 14 million tons/year.

Although business results and operations are positive, according to SSI Research's assessment, the profits of steel industry enterprises may have peaked in 2021, so profits will be negative in 2022 when steel prices drop.

MBKE's experts also forecast that net profit margin will shrink in parallel with selling price and profit decreases. However, MBKE expects that domestic steel demand will increase so that the price reduction will not have much impact on the revenue and profit of steel manufacturers.