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Flexibility encouraged as enterprises (SMC) steel for strain
A series of listed steel companies reported losses in 2022, and the outlook for 2023 is expected to also remain negative.
The top listed steel companies including SMC, Pomina Steel, VNSteel, Nam Kim Steel, and Tienlen Steel Corporation recorded a net loss in the fourth quarter of 2022, according to the latest reports.
Among them, Hoa Phat Group, the largest steel producer in Vietnam as well as in Southeast Asia, achieved revenue of VND26 trillion ($1.13 billion) in Q4, a decrease of 42 per cent compared to the same period last year.
The group achieved a negative profit after tax of nearly VND2 trillion ($84.6 million), continuing to decrease in comparison to the third quarter of this year. Accumulating of 2022, Hoa Phat recorded revenue of VND142 trillion ($6.17 million), a decline of 5 per cent against 2021. During the entire year, profit after tax reached more than VND8.4 trillion ($365.2 million) in 2022, equal to 24 per cent over the previous year.
Vietnam and the world’s weak steel demand caused Hoa Phat to have excess capacity and had to temporarily close five blast furnaces in the last month of 2022. Total sales volume in the past year reached 7.2 million tonnes of steel, down 7 per cent compared to 2021.
In January, Hoa Phat produced 392,000 tonnes of crude steel, equivalent to 56 per cent on compared to the first month of the previous year. Hoa Phat’s financial report noted that the year 2022 witnessed adverse macroeconomic fluctuations of the Vietnamese economy as well as in the world, causing obvious negative impacts.
Meanwhile, Nam Kim Steel recorded a loss of $15.48 million in the fourth quarter and, in the whole of 2022, a loss of nearly $2.9 million. Since 2012, this is the first year the company has reported a loss.
Pomina Steel announced revenues falling for the fourth consecutive quarter since the peak of $192.6 million - reaching $78.4 million, down 60 per cent on-ye0ar. In the whole of 2022, Pomina recorded revenues of $562.5 million, down 7.6 per cent over the same period.
Le Van Thanh, a representative of state-run VNSteel, said the prospect of recovering global steel demand continues to face difficulties when implementing tight monetary policies in many countries. The pressure on exchange rate and interest rate continues to increase, causing the costs of enterprises to increase, directly affecting the production and business efficiency of steel manufacturing enterprises.
Moreover, the prospect of steel demand recovery in the domestic market is forecasted to be slow due to the delay of the government’s economic and real estate support and promotion policies; the level of competition among steel manufacturers is increasingly fierce.
Specifically, VNSteel’s production in 2022 was deemed dismal when the output of finished steel production in 2022 met 87 per cent of the plan.
Nam Kim Steel announced the business results of the fourth quarter and the whole year of 2022 with numbers that upset shareholders. Specifically, its revenue decreased by 51 per cent over the same period. Nam Kim suffered a net loss of more than $15.5 million in the fourth quarter of 2022 and a loss of VND67 billion ($2.83 million) for the whole of 2022 while a profit of VND2.22 trillion ($93.9 million) in the same period.
The Vietnam Steel Association (VSA) said that the domestic steel industry faces several challenges that are likely to last until the second quarter of 2023.
“Raw material price fluctuations like recent times have challenged the inventory policy and material price hedging policy of nearly all steel producers. As manufacturers have to be flexible in purchasing and stockpiling raw materials, it will become more difficult for investors interested in steel stocks to grasp the cost price and forecast profit,” said Nguyen Xuan Da, chairman of the VSA.
Therefore, this year’s demand may increase sharply or not depending on many factors, especially when steel inventories of enterprises are still high, and manufacturers need time to process.
The VSA forecasts that the iron and steel market in 2023 will continue to be difficult, with the real estate market almost frozen. The future prospects of the industry depend on the progress of the disbursement of public investment because this will be the main growth driver of steel manufacturers.
But according to the latest Steel Industry Update Report of SSI Securities, more stable steel and raw material prices could help stabilise steel groups’ profits in 2023.
However, the country’s weak demand can lead to low steel consumption of only 60-75 per cent, which will put pressure on the companies’ 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.
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