The leading steel producer contributed the majority of the steel industry’s profits in the final quarter of 2023.
|A worker checking products at a warehouse of Hoà Phát Group. — Photo hoaphat.com.vn
HÀ NỘI — Following a period of difficulty, the steel industry is currently seeing encouraging signals as listed steel companies have experienced growth in total profits for the second quarter in a row compared to the previous quarter.
It is estimated that in the fourth quarter of 2023, the industry’s total profits will reach about VNĐ2.5 trillion (US$102.5 million), up 22 per cent from the previous quarter and a significantly more positive outlook than the loss of over VNĐ5 trillion recorded in the same period of 2022.
This also marks the highest level observed in the past six quarters.
Most steel producers have shown strong signs of profit recovery from the same period in 2022, especially Hòa Phát Group (HPG) with a nearly VNĐ5 trillion increase in net profit.
Many other companies, including Hoa Sen Group (HSG), Nam Kim Group (NKG),
teel (TVN) and Tôn Đông Á (GDA), have also experienced significant profit rebounding in the hundreds of billions of đồng compared to the final quarter of 2022.
However, the majority of steel companies have reported a slowdown in their recovery trajectory compared to the third quarter of 2023.
In the fourth quarter of 2023, Hoa Sen’s profits plummeted by 76 per cent from the previous quarter, while both Pomina (POM) and SMC Trading Investment JSC (SMC) reported heavy losses of more than VNĐ300 billion each.
teel managed to reduce its losses significantly, it has yet to achieve positive profitability.
In that scenario, Hòa Phát emerges as a rare bright spot, with the leading steel company achieving net profit of nearly VNĐ3 trillion in the fourth quarter of 2023, a 48 per cent increase from the previous quarter and the highest result in the last six quarters.
It contributed the majority of the steel industry’s profits in the final quarter of 2023.
Low inventory levels
Amidst the slower pace of recovery, many steel companies remain cautious by maintaining relatively low inventories, despite the slightly more positive price trend compared to the previous quarter.
According to statistics, the total value of steel industry inventory by the end of 2023 was approximately VNĐ66 trillion, a slight decrease from the preceding quarter. The amount already included provisions for price reduction.
Steel companies have sustained inventory values around VNĐ65-70 trillion for five consecutive quarters, significantly lower than in the previous period. Particularly, the figure dropped by around VNĐ50 trillion from the peak set in the middle of 2022.
The trio of Hòa Phát, Hoa Sen and Nam Kim continue to incrementally increase their inventory reserves, although the growth is not substantial. Among them, the leading player, Hòa Phát, witnessed the highest surge in inventory during the final quarter of 2023, yet the value has not reached the trillion mark.
Conversely, most of the other top companies experienced significant decline in inventory compared to the previous quarter.
teel, Tôn Đông Á, Pomina, SMC, Thép Tiến Lên (TLH) and Tisco (TIS) all saw their inventory values decrease by hundreds of billions.
SMC, in particular, had the biggest reduction, amounting to over VNĐ400 billion, or 22 per cent, from the previous quarter. This marks the first time in several years that the company recorded an inventory value below a trillion đồng.
|Hoa Sen’s products uploaded on a ship for export. — Photo hoasengroup.vn
Strong recovery in demand, prices
Steel companies have maintained low inventory levels, while steel prices have shown signs of a reversal and upward trend towards the end of last year.
In the Chinese market, rebar prices gained about 10 per cent to nearly CNY4,000 a tonne at the end of last year.
Although prices have recently stabilised, overall steel prices have remained relatively higher compared to the middle of last year.
In the domestic market, construction steel prices have also shown signs of recovery after hitting the bottom in September.
In a recent report, MBS Securities said that the global steel supply is expected to recover in 2024, with a slight 1 per cent decrease compared to the same period last year, considering China’s production cuts and the slow recovery of other major producers like South Korea.
Meanwhile, the latest forecast by the World Steel Association (WSA) suggests that global steel demand will increase by 1.9 per cent, primarily driven by construction demand in the European Union (EU) and India, which is also expected to have a positive impact on global steel prices in 2024.
Domestically, the supply-demand balance is expected to improve starting in 2024, positively impacting domestic steel consumption for construction purposes.
Moreover, the Government has also implemented measures to support the real estate market.
MBS anticipates positive factors from global steel prices and the recovery of the real estate market by mid-2024, which will boost domestic steel prices. As a result, construction steel prices are expected to recover to around VNĐ15 million a tonne, an 8 per cent increase in 2024.
The securities firm also believes that the recovery in demand from the EU will be a significant positive factor, making the steel export market a bright spot.
Steel export production is projected to reach 10.5 million tonnes (a 25 per cent increase) in 2023 and 11.2 million tonnes (a 7 per cent increase) in 2024. Meanwhile, the export price of hot-rolled coil is expected to reach $800 a tonne (an 8 per cent increase) in 2024.
According to MBS’s forecast, the gross profit margin of steel companies is expected to improve from an average of 8 per cent in 2023 to 13 per cent in 2024.
Steel prices are expected to recover by about 8 per cent, while raw material prices are estimated to decrease slightly by 6 per cent.
These factors provide a basis for the gross profit margins of industry companies to recover to double-digit figures this year.
MBS also projects that the overall profit of steel industry enterprises will grow by 40 per cent over last year.