Vietnam steel stocks poised for growth in 2025 despite headwinds

Vietnam's listed steel companies are forecast to see robust profit growth in 2025, with earnings surging by 44.1% year-on-year, according VPBank Securities (VPBankS).

The optimistic outlook is driven by expectations that steel prices have bottomed out and domestic consumption will provide steady support to sales volumes, it said.

According to the broker, the steel industry has shown a clear recovery in 2024, with major companies like Hoa Phat Group (HPG), Hoa Sen Group (HSG), and Nam Kim Steel (NKG) reporting positive business results.

However, despite the recovery, the stock prices of these firms have largely underperformed on the exchanges. As of December 26, HPG saw an 8.2% increase, while HSG and NKG fell by 14.45% and 20.28%, respectively.

Analysts have attributed the strong growth in earnings to a low base effect from 2023, as well as the impact of high raw material prices.

Despite reporting positive earnings, the gross profit margins of these companies declined in Q3/2024 due to the lingering effect of expensive raw material inventories. Specifically, HPG’s gross margin fell to 12% in Q3, down from 12.7% in Q2. NKG's margin dropped to 8.71% from 9% in Q2 and 10.7% in Q1, while HSG recorded its lowest gross margin since Q1/2023 at 8.39%.

Revenue growth also slowed for both HPG and HSG in Q3. HPG’s revenue grew by 16.6%, slightly better than Q1/2024’s growth rate of 16.5%, but much lower than the 37.1% growth in Q4/2023 and 36% in Q2/2024. HSG’s revenue increase of 21.7% in Q3 was similarly lower than its 25.4% growth in Q2 and 32.5% in Q1.

In contrast, NKG reported the highest growth in the last 10 quarters, with Q3 revenue expanding by 21.7%.

Numerous challenges ahead

The steel sector also faces headwinds from the influx of Chinese steel into Vietnam and potential trade barriers. According to Shinhan Securities Vietnam, weak demand in the Chinese real estate market has led to an oversupply of steel, forcing Chinese manufacturers to ramp up exports, which poses a threat to steelmakers in Vietnam.

Steel imports from China into Vietnam surged dramatically in recent years. In the first 10 months of 2024, Chinese steel imports into Vietnam reached 10.16 million tons, a significant increase from 3.76 million tons in the first eight months of 2022. Notably, this figure has already surpassed total imports for the entire year of 2023.

The European Commission (EC) and the Directorate General of Trade Remedies (DGTR) in India have launched anti-dumping investigations into hot-rolled steel products originating from or exported by Vietnam, adding another layer of uncertainty to the outlook for the sector.

Looking ahead, VPBankS remains optimistic about the domestic market’s ability to support the steel industry in 2025. The report points to a significant rise in newly licensed housing projects in Vietnam since late 2023, continued growth in FDI, and strong demand from social housing projects as key factors driving steel consumption. Furthermore, the outlook for the Vietnamese construction industry remains positive, providing additional support to steel demand.

VPBankS predicts that steel will be the industry with the strongest profit growth in 2025, driven by improved domestic consumption and low steel prices. The report also notes that the price of raw materials such as coke and iron ore has declined significantly, with iron ore prices falling by 28% and coke prices dropping by 37.6% by the end of October 2024.

Long-term growth supported by regulatory changes

In the medium to long term, experts from another broker KB Securities (KBSV) expect positive growth in the steel sector from 2025 to 2027. This will be driven by a recovery in domestic demand, new plants coming online, and the beginning of a new price cycle for steel as China’s real estate market gradually recovers.

Additionally, the revised Real Estate Law, effective from August 1, 2024, is expected to indirectly stimulate steel consumption in Vietnam. As a result, KBSV forecasts that total steel consumption will rise by 15% in 2024 and 8% in 2025 compared to the same periods in previous years.