The prospect of the steel industry is “brighter” in 2023

The prospect of the steel industry is “brighter” in 2023

The development of the steel industry in 2023

Some developments in the first 9 months of 2022: 

  • Slow consumption
  • Steel prices turn down while inventories are high
  • Production costs increased sharply 

=> The current situation of Vietnam’s steel industry makes steel enterprises face “catastrophic” business performances in the third quarter of 2022.

 

Steel prices fluctuate unpredictably

After a hot period at the beginning of 2022, domestic construction steel prices dropped 15 times in a row from April to August 2022, with a decrease of about 6 million VND/ton.

 

By the end of September, steel prices had increased again after many reductions, rising about 2 million VND/ton (from 13-14.5 million VND/ton to 15-16.5 million VND/ton). However, on October 12, steel prices decreased three times in a row, bringing them down to about 14.5-15.5 million VND/ton.

 

The instability of steel prices is affecting production, business activities, and the distribution of this product, posing risks to the steel industry in 2022.

 

According to the Vietnam Steel Association (VSA), the continuous decline in steel prices in recent years is due to a sharp drop in input material prices, as well as large inventories, forcing businesses to lower prices to stimulate customer demand.

 

Steel production up, consumption down

During the first nine months of 2022, domestic steel production continued to increase while the amount of steel sold decreased.

 

Currently, domestic steel demand is low, while exports have sharply decreased due to higher prices compared to regional prices. Specifically, in September 2022, construction steel output increased to 2.4 million tons, up 23.4% from August and up 1.7% from the same period in 2021.

 

steel-production
                                    Image 1. Steel production is rising, but sales are declining sharply

 

However, the sales volume only reached nearly 2 million tons, down 7.2% from the previous month and nearly 10% from the same period last year. Sales of construction steel stood at 920,248 tons, down nearly 22% from the previous month but up 7.8% from the same period in 2021.

 

Steel industry trade declined

Regarding exports, updated data for August 2022 from the Vietnam Steel Association (VSA) showed that Vietnam’s exports of finished steel products reached 513.74 thousand tons, down 16.26% from the previous month and down 65.82% from the same period in 2021. The export value was 457.61 million USD, down 29.02% from July 2022 and down 68.25% from the same period in 2021.

 

Overall, in the first eight months of 2022, Vietnam exported about 5.92 million tons of steel, down 30.27% from the same period in 2021. The export value reached $6.08 billion, down 13.35% from the same period in 2021.

 

Vietnam’s main export markets for steel are the ASEAN region (35.33%), the EU region (19.68%), the United States (10.84%), South Korea (6.36%), and Hong Kong (China) (4.37%).

 

export-import-steel
                                    Image 2. Export and import of steel industry decreased

 

By contrast, in August 2022, finished steel imports into Vietnam reached 785 thousand tons with a turnover of 848.9 million USD, down 13.65% in volume and 17.76% in value compared to the previous month. Moreover, compared to the same period last year, it was down 8.94% in volume and 11.29% in value.

 

In the first eight months of 2022, imports of all kinds of finished steel products into Vietnam totaled about 8.18 million tons with a value of over $8.8 billion, down 7.97% in volume but up 14.11% in value compared to the same period in 2021.

 

Vietnam’s main steel-supplying countries include China (46.01%), Japan (15.67%), Korea (11.12%), Taiwan (9.09%), and India (7.22%).

 

Raw material prices waver strongly in 2022

During this period, the price of raw materials for steel production also fluctuates strongly, causing steel enterprises to be greatly influenced, production and business activities difficult, and low efficiency.

 

According to VSA’s report, the iron-ore price on October 6, 2022, traded at 95.45 – 95.95 USD/ton CFR Tianjin port (China), down about 2.3 USD/ton compared to the beginning of September 2022. This price is about 114 – 116 USD/ton lower than the highest price recorded in early May 2021 (~ 210 – 212 USD/ton). 

 

Raw materials for steel production have volatile prices
                                                        Image 3. Raw materials for steel production have volatile prices

 

In August 2022, domestic steel scrap prices increased significantly from 400 VND/kg to 700 VND/kg and remained at 8,900 to 10,100 VND/kg. By contrast, the price of imported steel scrap at Dong A port was at US$405/ton CFR East Asia on October 6, 2022, down US$35/ton from the beginning of September 2022.

 

Given the difficult business activities and macro impacts on the steel industry, the profits of steel enterprises are forecasted to sharply decline compared to the peak of the same period.

 

Steel companies reported huge losses in Q3/2022

Many steel enterprises have announced their financial statements for the third quarter of 2022 with unsatisfactory results or even losses, indicating that the current situation of the steel industry is not very positive.

 

Recently, Thu Duc Steel Joint Stock Company – Vnsteel (Stock code: TDS) announced its financial statements for the third quarter, reporting net revenue of VND 406 billion, a slight increase of 1% compared to the same period and a 13% increase compared to the previous quarter. However, due to the higher cost of goods sold, the company’s gross profit was negative 20 billion VND.

 

Thanks to a sudden increase in other income to more than 6 billion VND, Thu Duc Steel – Vnsteel reported a pre-tax loss of more than 23 billion VND and a loss after tax of nearly 22 billion VND, while in the same period last year, it only lost 644 million VND. This represents a loss 34 times larger than in the same period in 2021.

Thu Duc Steel reported a loss of about 22 billion in Q3/2022
                                                  Image 4. Thu Duc Steel reported a loss of about 22 billion in Q3/2022

 

Similarly, the financial statement for the third quarter of 2022 of Vicasa Steel Joint Stock Company – VNSteel (Code: VCA) showed that the company’s net revenue decreased by nearly 18% to 477 billion VND. Due to business below cost, VCA’s gross loss was nearly 10 billion dong, while in the same period last year, there was a profit of nearly 12 billion dong. After subtracting expenses, Vicasa Steel lost nearly 22 billion VND in the third quarter, compared to a loss of nearly 2 billion VND in the same period in 2021. This represents the company’s heaviest quarterly loss since listing (2010).

VICASA Steel reported a record loss of nearly VND 22 billion due to industry challenges
                        Image 5. VICASA Steel reported a record loss of nearly VND 22 billion due to industry challenges

 

Outlook for the 2023 steel industry

The Vietnam Steel Association (VSA) believes that the steel market in Q4/2022 can prosper because this is the period when steel demand increases and construction works rush to accelerate progress.

 

However, whether the demand increases or not still depends on many factors, especially when the inventories of enterprises are still high, which takes time to process. Moreover, the current disbursement rate of public investment is relatively slow. Furthermore, since the world’s demand is low, even if Europe and China are reducing production, Vietnam cannot boost exports to these markets.

 

Experts believe that the steel industry will recover better in 2023

Especially, experts predict that the steel industry will recover better in 2023

 

The driving force mainly comes from the demand of the Chinese market, as policies to re-stimulate the real estate market begins to show positive signs. The People’s Bank of China intends to offer a 200 billion yuan low-interest loan support package to help restructure real estate projects.

 

China is also promoting public investment to boost the economy, which is causing an increase in steel demand. Additionally, with China’s policy of cutting emissions and steel capacity, the steel supply is predicted to gradually decrease in the coming years.

 

VCBS also believes that domestic consumption will help boost the steel industry’s growth in 2023. In the first seven months of 2022, the disbursement rate of public investment capital only reached 34.47% of the plan, a slight decrease compared to the same period in 2021 (36.71%). The high price of raw materials has made it difficult for contractors to complete construction projects on time, resulting in slower disbursement of public investment.

 

Notably, new infrastructure projects are still in the process of preparing for procedures and will not begin to be disbursed until the end of 2022. In the first half of the year, mainly old projects will be disbursed. The rest of the planned capital to be disbursed in 2022 and 2023 is expected to drive the construction of infrastructure projects and increase demand for construction steel.

 

According to Mr. Tran Minh Hoang, the Chairman of the Board of Directors of Vietnam Real Estate Investment Joint Stock Company (VNI), the real estate supply is expected to grow well in 2023.

 

Moreover, the government is urgently reviewing legal issues and completing the legal framework related to the real estate sector to remove difficulties and help this market develop more stably. The recovery of real estate supply and the policy of promoting public investment will be a big motivation to improve steel consumption.

 

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