Steel stocks indicate signs of recovery

(ĐTTCO) - The sudden and virulent spread of the Covid-19 pandemic very early this year saw a sharp decline in the consumption of steel in the first months of 2020, as compared to the same period last year. Although unexpectedly, the steel market is now showing some positive signs of recovery. This factor has led steel stocks to rise marginally, despite impending risks and a volatile market.

Illustrative photo.

Illustrative photo.

Signs of recovery

The first two quarters of 2020 showed a sharp decline in the consumption of steel, as compared to the same period in 2019. With the exception of galvanized steel, consumption of all steel products went down. Hot rolled coil steel saw a sharp decline, while construction steel sales fell by nearly 6% for the first time since the 2008 financial crisis. Pipe steel consumption also took a hit, although galvanized steel production showed slight increase. It is seen that the steel industry is always strongly affected when construction projects are delayed or stopped, and this time the industry has been seeing a negative growth rate due to a pause in projects caused by the current and ongoing Covid-19 pandemic.

However, although demand for construction steel has been negative, the demand for industrial production is still quite strong. As compared to a 11.36% increase in July this year, the August consumption figures saw a significant increase in steel production by almost 2.34 million tons. Sale of steel also reached more than 2.07 million tons, up by 5.88%, and steel exports were up by 462,138 tons, an increase of 8.81%.

New projects in residential and commercial real estate are currently at an all-time low, with the ban in international travel and trade completely paralyzing the tourism industry and foreign trade. Despite this, some positive signs of recovery are visible in both the domestic and export steel markets. Except for cold rolled coil steel, all other segments in the steel industry are showing growth. For instance, the construction steel segment saw an unexpected rise of about 15% in August after showing negative growth in the first two months of the year. Pipe steel too seems to have made a successful recovery due mainly to a relatively good domestic demand in housing, industrial real estate, and manufacturing.

Rise in stock price 

Signs of recovery in the consumer market also led to steel stocks record an impressive increase compared to other sectors. After a long time of trading below par value, many steel stocks restored or saw rise in share price again. For instance, at the beginning of April the Hoa Sen Group Joint Stock Company (HSG) was trading below VND 5,000 per share, but now is up to VND 15,000 per share, an increase by three times. Other stocks also showed signs of recovery, with the Nam Kim Steel Joint Stock Company (NKG) increasing from less than VND 5,000 per share to about VND 8,500 per share. The Hoa Phat Group Joint Stock Company (HPG) too increased from VND 16,000 per share to VND 26,000 per share, an increase of about 60%.

The Hoa Phat Group Joint Stock Company saw growth from the sudden increase in the volume of consumption in the month of August. With the accumulated consumption in the first eight months of 2020, construction steel volume at HPG reached 2.13 million tons, which was a rise of 20%. The estimated market share of HPG construction steel in first eight months rose 32%, up by 6% compared to 26% in 2019. Sales volume of other HPG products also saw good growth, especially the consumption of pipe steel which reached 497,000 tons, while square billet also reached 1.17 million tons. The Hoa Sen Group Joint Stock Company also reported profits after a long period of decline in growth. Many other steel businesses too have started to record positive growth results after a negative growth period, such as the Viet Y Steel Joint Stock Company (VIS) and the Thong Nhat Flat Steel Joint Stock Company (TNS).

Volatility still remains

According to the Hoa Phat Group Joint Stock Company second quarter financial statement, the accumulated profit-after-tax of the first six months reached VND 5,060 bn and net revenue was at VND 39,654 bn. With this result, HPG announced a completion of 46% of its revenue plan and 56.2% of its profit target for the whole year. The agriculture segment brought in VND 841 bn of profit-after-tax in the first six months for HPG, while in the same period in 2019 it was only VND 109 bn. However, this sharp increase in the input cost of iron ore as compared to the low price of finished steel products has made investors wary of investing in HPG. As iron ore is the main raw material for HPG construction steel production so any rise in iron ore price as compared to low construction steel price can reverse the profit margin for the steel company.

According to the Vietnam Steel Association (VSA), after many months of serious  decline, raw steel prices rose again in August and are currently trading at USD 115 to USD 118 per ton, up USD 9 to USD 12 per ton compared to the beginning of July, an increase by USD 30 compared to the beginning of May. At the same time, the price of raw steel is also close to the same record high price that was seen in July 2019, which was caused by the collapse of a dam at the Vale mine in Brazil. Scrap steel price also increased from USD 251 per ton in May to USD 280 per ton at the beginning of August. Price of hot rolled coil steel also increased strongly in last two months, between USD 450 per ton and USD 490 per ton, almost nearing the price of USD 500 per ton seen in the same period last year.

The increase in price of iron ore has become an added concern for steel enterprises in the last few months of the year. For instance, the manufacturing process at the Hoa Sen Group Joint Stock Company requires hot rolled coil steel to create the final product of corrugated iron sheets. Therefore, any increase in hot rolled coil steel now will affect the profit margin. In the first half of 2019, when the price of hot rolled coil was high at about USD 500 per ton, the gross profit margin was only between 11.3% to 13.4%. However, in the first half of the year, the price of hot rolled coil steel has decreased gradually to USD 400 per ton, pushing HSG gross profit margin to almost 17.3%, which is of serious concern to the steel company.

Kim Giang

Các tin, bài viết khác

Đọc nhiều nhất