Top Vietnam steelmakers record sharp sales drop

Sales of Vietnam's leading steel producers has plunged sharply due to falling demand and domestic supply surplus.

Hoa Phat Group (HPG), the largest Vietnamese steelmaker, produced 384,000 tons of crude steel in November, down 43% year-on-year.

Its sales of steel products reached 443,000 tons, down 30% against November last year. Of this, construction steel accounted for 252,000 tons, up 20% compared to October and down 7% year-on-year. Hot-rolled coil (HRC) hit 180,000 tons, down 12% year-on-year.

In line with the market trend, Hoa Sen Group's (HSG) sales in the third quarter decreased by 44% over the same period last year to 313,000 tons. Of this, exports plunged 76% to 94,000 tons, while domestic sales increased by 32% from its lowest point in the same period in 2021.

At Nam Kim Steel JSC (NKG), sales of galvanized steel products in Q3 dropped by 36.7% year-on-year to 175,000 tons. Specifically, exports reached only 83,000 tons, down 63%, while domestic sales climbed up 78.4% compared to the low base level in Q3/2021.

In a recent report on the construction and building materials industry, leading broker VNDirect said most steel companies had recorded dismal business results in Q3. Revenue of the three largest listed steel companies (HPG, HSG, NKG) fell 25% year-on-year and 18% quarter-on-quarter as weak demand caused output and price drop-offs.

In addition, high input prices, rising interest rates and a weakening VND have caused losses to many businesses in the industry. Notably, HPG posted a net loss of VND1,776 billion ($75.49 million) in Q3, the company's first loss since Q4/2008.

However, VNDirect noted a number of signals that may be the premise for the steel industry to bounce back, including a likely drop in coke prices from $420 per ton in 2022 to $258-220 in 2023-2024 when coke mines return to normal operation.

Iron ore prices are also forecast to decline gradually in the long term from an average of $110 per ton in 2022 to $90-70 in 2023-2024.

China's lifting of social distancing should also stimulate global steel demand and the acceleration of state-funded infrastructure development in Vietnam will partially offset the sluggish real estate market.

Therefore, despite the fact that steel prices continued to decrease in October-November, VNDirect expects the gross profit margin of steel companies to recover from Q4/2022 when most of their high-priced inventories were recorded in the cost of goods sold in the previous quarter.

Another top broker SSI Securities predicts that sales at Hoa Sen Group in 2023 may decrease by 20.6% to 1.42 million tons. Exports will decrease by 42% to 508,000 tons, while domestic sales is expected to remain unchanged at 913,000 tons.

SSI estimates that Nam Kim's sales in 2022 will decrease by 18.4% year-on-year to 884,000 tons, then continue to decrease by 13.7% to 763,000 tons in 2023.

According to the Vietnam Steel Association (VSA), in the first 10 months of the year, finished steel output reached 25.31 million tons, down 8.7% year-on-year, and sales of finished steel hit 23.16 million tons, down 6%.

The VSA forecasts that the domestic steel market in Q4/2022 will continue to face difficulties due to poor export performance, fierce competition among manufacturers, rising interest rates, and escalating exchange rates.

According to the association, production and business activities in all sectors, especially the steel industry, may face many difficulties until Q2/2023.