Steel firms see declining profits in Q2

Many Vietnamese steel makers saw profits drop by up to 90% in the second quarter of the year amid plunging selling prices.

In Q2, VNSTEEL-Thu Duc Steel JSC (TDS) recorded a net revenue of VND358 billion ($15.3 million). It suffered a net loss of nearly VND2 billion ($85,570), while the same period last year saw VND34 billion in profit.

According to TDS, the selling price decreased continuously from the beginning of Q2 until now, along with reduction in steel consumption.

This caused the firm to stop production, and the high price of steel inventory from previous months made the situation worse. This was in contrast to Q2/2021 when there were supply chain disruptions and strong demand created conditions for high steel prices.

The company is expected to continue facing difficulties in the future as steel prices are still declining.

At the end of Q2/2022, TDS recorded VND498 billion ($21.3 million) of inventory, of which the provision for devaluation was about VND7.5 billion.

Another private firm, SMC Trading Investment JSC (SMC), recorded a net revenue of VND6.62 trillion ($283 million) in Q2, up 11% year-on-year. However, net profit dropped sharply by 90% to VND47 billion ($2 million).

As a company specialising in steel trading, the falling steel price has dealt a huge blow to SMC's business. In Q2, its profit margin was only 3.1%, while the figure in the same period last year was 11.6%.

Financial expenses in the period increased nearly nine times, to VND110 billion ($4.7 million), half of which was interest expense. Selling expenses also increased sharply to VND56 billion.

In the first six months of this year, SMC recorded a revenue of VND13.25 trillion ($566.9 million), up 20% over the same period last year. Meanwhile, net profit decreased by 82% to VND127 billion ($5.43 million).

At the end of Q2, SMC still had VND3.37 trillion ($144.2 million) worth of inventory, a sharp increase from VND2.54 trillion at the beginning of the year. SMC's provision for devaluation of inventories was more than VND170 billion.

Me Linh Steel JSC (MEL), Cao Bang Cast Iron And Steel JSC (CBI), and Thai Nguyen Iron and Steel JSC (TIS) saw their net profits down by 90% over the same period last year.

According to Saigon Securities, a leading securities broker, steel consumption has slowed down in recent months, with domestic sales of finished steel in April-May 2022 dropping about 32% year-on-year.

Steel prices also plummeted rapidly, in which construction steel prices have experienced nine consecutive declines in the past month to VND16 million ($695) per tonne. The price of the hot rolled coil (HRC) in the country also plummeted to $650 per tonne.

The inventories of the above steel enterprises were still quite high at the end of Q2/2022.

TIS is holding more than VND2 trillion of inventory, a sharp increase of 43% over the same period last year, while the figures for MEL and CBI decreased slightly to VND463 billion and VND396 billion, respectively.