Rising COVID-19 cases and extended restrictions are expected to challenge Vietnamese steel producers in the second half of 2021. Steel mills could also be pressured due to elevated raw and finished goods prices which may lower the impact of the fiscal stimulus.
The Vietnamese government decided to extend strict restrictions for another two weeks from August 2. The restriction on the movement of goods and public is imposed on 19 cities and provinces in the southern region including the business hub Ho Chi Minh City. Ports traffic and local transport in South Vietnam are severely impacted by the curbs.
The profit margin of steel producers in Vietnam will drop in the second half of 2021 from the highs seen in the first six months of the year, noted Việt Capital Securities JSC (VCSC) in its recent report. This is mainly due to elevated raw material prices and selling prices of finished products across the supply chain which could lower the impact of fiscal stimulus given by the government. The supply chains are expected to readjust in 2022.
After witnessing record profits in H1 2021 amid high steel prices, mills are worrying about weak domestic demand due to the resurgence of the COVID cases in July. Most mills fear that in H2, the pace of recovery is likely to slow and the outlook is not as strong as was in the first half.
Impact of high steel prices
Construction steel prices rose nearly 9.3pc for the year to VND16,500/kg in July 2021, which was up 50pc over the same period last year, according to the Vietnam Steel Association (VSA). Higher prices have led many small constructors to bankruptcy and even big constructors have halted work.
Although record-high steel prices have provided significant benefits for steel producers in the short term, it has created economic pressure on many downstream industries including construction, machinery manufacturing, real estate and public investment.
The Chinese government’s intervention in commodity prices is likely to pressure overall steel demand in Asia and consequently lower prices in the H2.
In Vietnam, the difference between the price of hot-rolled coil (HRC) and finished products of galvanized steel companies was much thinner than the difference between iron ore and construction steel. This will increase the risk of lower margins as low-cost inventory runs out and input costs catch up with product prices or product prices fall.
Financials of major Vietnamese steelmakers
Hoa Phat Group (HPG)
In H1 2021, revenue rose to VND66.9 trillion, up 67pc from the prior year. Its profit after tax was more than VND16.7 trillion, three times higher than the same period last year. Driven by strong construction activities, construction steel consumption and total sales of galvanized steel and steel pipes grew by 14pc and 36c in H1 2021. In Q2 2021, revenue was at VND35.4 trillion ($1.54bn) and profit after tax of over VND9.7tr.
Tiến Lên Steel (TLH)
In H1 2021, net revenue increased to VND2.4 trillion, up 21pc from the prior year. Profit after tax was VND316.8bn, compared to a loss of VND11.7bn last year. In Q2 2021, consolidated net revenue was at VND1.4 trillion, up 36pc over last year. Net profit recorded at VND196.7bn, down VND15.4bn in the same period last year.
Hoa Sen Group (HSG)
In H1 2021, net revenue was at VND33 trillion and profit after tax was recorded at VNĐ3.37 trillion. In Q2 2021, it posted an increase in revenue of 90pc to nearly VND13 trillion. Its profit after tax reached VND1.7 trillion, over 5 times higher than last year.
Việt Nam Steel Corp (TVN) – In Q2 2021, net revenue was VND10.9 trillion, up 35.7pc over the year. Gross profit climbed 128pc to VND886.6bn. After deducting expenses, the company’s profit after tax was VND576.3bn, 2.6 times higher than the second quarter of 2020.