|Profits of steel enterprises all fell deeply due to sharp fluctuations in steel prices. Photo: ST
Steel prices fell, profits also went down
By July 25, many businesses have announced lower product prices with a reduction of up to VND360,000/ton compared to the previous reduction in mid-July. According to the Vietnam Steel Association (VSA), the domestic steel market has witnessed strong price fluctuations.
Steel price had seven significant surges in the first three months of 2022 and reached VND19-19.5 million/ton, even up to VND20-21 million/ton. However, since the beginning of May 2022, steel price has plummeted 10 times in a row, down to about VND15.7-16.4 million/ton depending on type and brand.
With this development, the profits of steel enterprises in the first half of the year, especially in the second quarter, were negatively affected.
Hoa Phat Group JSC (HPG) has just announced its business results for the second quarter of 2022 with revenue still increasing by 6% over the same period, to VND37,714 billion, but profit plunged 59% year-on-year to VND4,023 billion – the lowest level since the fourth quarter of 2020.
In the first six months, Hoa Phat achieved VND12,229 billion in profit after tax, down 27% compared to the same period last year.
Previously, the decline in profit was mentioned by Tran Dinh Long, Chairman of Hoa Phat’s Board of Directors, at the general meeting of shareholders at the end of May. The reason is that the price of raw materials increased sharply due to the Russia-Ukraine conflict and China’s Zero Covid policy, causing demand to decrease, so the steel industry will face many difficulties this year.
At Thai Nguyen Iron and Steel Company (Tisco), after deducting expenses, the company only had a net profit of approximately VND6 billion in the second quarter, down 90% over the same period. In the first six months of the year, Tisco recorded a 66% decrease in profit after tax, reaching VND34.9 billion.
Similarly, SMC Trading Investment JSC (Code SMC) recorded profit after tax of VND42.45 billion, a sharp decrease of nearly 92% compared to the same period last year. In the first six months, SMC achieved VND123 billion of profit after tax, down 83.4% over the same period. SMC said that steel prices in a sharp downtrend led to an increase in the cost of goods, significantly affecting its profit.
In the second quarter, Vicasa Steel JSC – Vnsteel also recorded pre-tax profit that decreased by 98.25% compared to the same period in 2021, to just more than VND502 million compared to VND28.6 billion in 2021. The profit after tax of Thong Nhat Sheet Steel JSC (TNS) in the second quarter was only VND3.8 billion, down more than 65% over the same period; and Cao Bang Iron and Steel JSC also decreased by 88% to VND17.7 billion.
Business results of HCD Trading JSC (HCD) also dropped sharply in the second quarter of 2022 when net revenue reached nearly VND158 billion, down 18% compared to the first quarter, causing HCD to report profit after tax of VND3.1 billion, equivalent to just a fifth of the same period last year and down 85% compared to VND20.1 billion in the first quarter of the year.
The decrease in demand and selling price caused the Q2 revenue of Tien Len Steel JSC to halve year-on-year to VND306 billion, causing the company’s profit to drop by 12% to VND47 billion. In six months, Tien Len Steel’s profit increased by 4% to VND84 billion.
In particular, several businesses have recorded a loss in business results in the second quarter of 2022. Specifically, Thu Duc Steel Company – Vnsteel reported a loss of nearly VND2 billion in the second quarter while in the same period last year showed a record profit of VND34 billion.
The reason is that sales volume decreased by 50.4%, revenue decreased by more than 45%, and business was below cost, resulting in a gross loss of VND2.5 billion. In the first six months, Thu Duc Steel recorded a profit after tax of VND6.07 billion, down 87.1% over the same period.
This enterprise explained that output prices have dropped continuously since the beginning of the second quarter, causing a decrease in consumption volume. Moreover, the company stopped production, and the high price of steel inventory from the previous months affected the cost of goods. Besides, slow consumption also affected cash flow, and credit tightening and high interest rates increased interest expenses.
The steel industry still faced a lot of pressure
SSI’s steel industry report forecast that steel prices in the near future were unlikely to fall at a strong rate like in recent months when the profit margin of Chinese companies had dropped to a minimum. However, the recovery has been limited due to weak demand until China fully opens up its economy.
|Source: Mirae Asset
For domestic steel companies, SSI Research believed that profit margins would decrease in the second and third quarters, but still be much higher than the bottom in the 2018-2019 period. Additionally, exports in the second half of the year may be negatively affected by the protectionist measures imposed by the EU on Vietnamese steel.
According to Mirae Asset Securities Company, in the last six months, the steel industry will be under pressure from both coking coal supply and rising coal prices, which erodes 3-6% of the gross profit margin of steel companies. Along with that, inflation continues and the real estate industry is not recovering as expected due to real estate credit control policies, causing the steel industry to be directly affected in terms of output.
With the above business results and comments, the stocks of steel enterprises recently continued to be gloomy with strong declining sessions. According to VnDirect Securities Company, HPG became the code that took the most points from the Vietnamese stock market in the first half of 2022 with a decrease of 38%. HSG was down 54%, NKG down 40%, TLH down 55%, and SMC down 47%.
Experts said that the price of steel stock has reflected the process of creating a peak and adjusting steel prices. With the current valuation, the downside risk is not as great as in the previous period, especially for long-term investors. However, upside momentum may be limited to short-term trading, as valuations are under great pressure from low margins and the possibility of steel price volatility in the coming quarters.