Vietnam steel industry sees drivers for growth

Rising demand, recovering exports and decreasing raw material prices will be the driving forces for the Vietnamese steel industry to expand this year, according to broker Agribank Securities (Agriseco).

In a new report, the broker stated that the steel industry has shown signs of a recovery since the third quarter of 2023, reflected in the latest results released by listed enterprises.

The industry is expected to continue to prosper thanks to a more vibrant construction market and increasing demand from infrastructure projects as public investment continues to speed up.

In 2024, estimated development investment expenditure will account for 32.2% of total state budget spending, at about VND677,000 billion ($26.6 billion).

The real estate market is also expected to perk up thanks to the government's efforts to remove difficulties. In Q1/2024, the total number of successful transactions reached 133,512, an increase of 22% compared to Q4/2023.

Secondly, exports will be the growth driver in 2024 for steel enterprises. According to the World Steel Association, this year, global steel demand is expected to increase by 1.9% to 1,849 million tons. Steel demand in export markets such as ASEAN, Europe, and the U.S. is expected to increase 5.2%, 5.8% and 1.6%, respectively, compared to the previous year thanks to increasing demand for infrastructure construction.

Thirdly, raw material prices are forecast to decrease while steel prices are expected to recover, helping to improve profit margins.

The World Bank forecast that iron ore prices in 2024 will fall to $108 per ton due to rising supplies globally, a gloomy real estate market in China, and a slow recovery in steel demand in other countries. Coal prices are also predicted to drop in 2024.

Meanwhile, steel prices are expected to have bottomed out and may recover in the near future with expectations that the real estate industry will gradually warm up in 2024 and low inventories will help improve profit margins for steel enterprises.

However, Agriseco noted that the domestic steel industry still faces competitive risks from the Chinese market.

Sharing the same view, VNDirect Securities said that the steel industry's net profit in Q1/2024 increased by 531.7% year-on-year thanks to a low base as well as the strong recovery of exports.

In the second half of this year, steel business profits will be more positive as the domestic real estate market is expected to continue to warm up in the 2024-2025 period in the context of reduced lending interest rates, promoted infrastructure investment, improved legal frameworks, and recovering demand for homes and asset accumulation, it said.

VNDirect estimated that the profits of the two leading enterprises in the steel industry, Hoa Phat and Hoa Sen, will increase sharply in 2024.

Hoa Phat’s profit is projected to skyrocket 80% year-on-year. In the long term, the Dung Quat 2 steel complex in the central province of Quang Ngai, when put into operation, will help its profit in the 2025-2027 period reach a compound growth rate of 30% when 5.6 million tons of hot rolled coil (HRC) will be added to the group’s current capacity.

Meanwhile, Hoa Sen's profit is expected to soar 98% this year, it added.