In the steel industry prospect report, Rong Viet Securities Company said that the steel industry has little chance to recover in 2023 due to still weak consumption and pressure on exchange rates and interest rates on financial costs.

Public investment to support domestic steel consumption

In 2023, the Government promotes investment in infrastructure projects with the goal of ensuring economic growth that can support domestic steel demand, especially construction steel.

According to the medium-term public investment plan for the 2021-2025 period, the total planned public investment capital for the 2021-2025 period will reach VND 2.87 million billion, up 43.5% compared to the 2016-2020 plan. Traffic projects accounted for a large proportion when the total expenditure reached 507.4 trillion dong, accounting for 46.6% of the central budget’s medium-term investment capital allocation plan.

Therefore, construction steel manufacturers can benefit (Hoa Phat, Formosa, Pomina…) and disbursement of public investment has accelerated gradually in the fourth quarter of 2022.

The real estate industry is quiet in 2022 and is not expected to recover in 2023. Capital into civil real estate projects since the beginning of the year has been congested since the beginning of the year due to the tightening of bank credit control, development of individual corporate bond issuance, and investor confidence decline following regulatory events involving several major real estate businesses.

According to the Ministry of Construction, the number of projects licensed and eligible for commercial housing sales in the first nine months of 2022 decreased by 49% and 24% compared to the same period last year. The number of land plots and resort projects decreased by 56% and 54% respectively over the same period last year. The issue of supply-demand mismatch will not be resolved in the short term, while a rapid increase in home loan interest rates will reduce the absorption capacity of projects.

Steel exports will increase gradually from mid-2023

Global investment and consumption demand and indirectly steel demand will shrink in 2022 due to rising interest rates and weakening purchasing power. This will continue when the wave of tightening monetary policy is forecast to continue until May 2023. The easing of interest rate pressure globally from the third quarter of 2023 will encourage global steel demand. According to the World Steel Association (WSA), world steel demand will decrease by 2.3% in 2022 and increase by 1% in 2023:

ASEAN will lead the growth in steel consumption thanks to a strong investment orientation in infrastructure. This is expected to continue to be the main export market of Vietnamese steel as of 10 months of 2022.

Europe will enter a mild recession in 2023, causing the region’s steel demand to decline for the second consecutive year. European production and consumption growth may be limited for several years due to high energy prices.

However, Rong Viet said that this securities company does not expect a sharp increase in exports in the first half of 2023, in the context of increasing competition challenges and trade barriers.

The price of steel has reduced its fall but it is difficult to rebound strongly

Reduced demand pulled steel prices down rapidly from May 2022 but the decline has slowed down and prices tend to bottom out in the first quarter of 2022. Most of the upstream producers such as Formosa Ha Tinh, Hoa Phat, Pomina… have drastically reduced their capacity mobilization. The same situation is also recorded in many parts of the world (China, EU, Japan, …). As a result, the falling momentum of global steel prices has been restrained.

Declining competition from mid-2023 creates favorable conditions for steel prices to recover: Domestic price competition among Vietnamese manufacturers will decrease as high-priced inventories accumulated in 2022 are released gradually over the months. next. Meanwhile, export competition and import competition increased as many major players (China, and India) boosted exports to Southeast Asia in the first half of 2023.

Assuming China’s economic activities normalize from the third quarter of 2023, the country’s steel consumption will focus on the domestic market. Accordingly, the steel price level may fluctuate around the current level before gradually increasing from mid-2023 thanks to the return of demand in the European and American markets and reduced competition from China.

Assuming China’s economic activities normalize from the third quarter of 2023, the country’s steel consumption will focus on the domestic market. Accordingly, the steel price level may fluctuate around the current level before gradually increasing from mid-2023 thanks to the return of demand in the European and American markets and reduced competition from China.

Manufacturers’ profit margins recover slowly

The profit margin (gross and after tax) of steel enterprises gradually decreased from the second quarter and turned to a loss in the third quarter of 2022, due to factors such as falling steel prices, and high raw material prices, combined with pressure on foreign exchange rates. prices and interest rates increase. Rong Viet believes that the profit picture of enterprises has not improved in the short term in the fourth quarter of 2022 in the trend of steel prices continuing to go down (albeit slowly), weak consumption along with increasing interest rates.

Meanwhile, the prospect of profit margin recovery in 2023 is not very positive.

After a very volatile year affected by the Russia-Ukraine conflict, the prices of coking coal, iron ore, and scrap steel will have a “softer” year when world steel demand is forecasted to be quiet in 2023.

Similar to steel prices, prices of steelmaking materials are expected to fluctuate in a narrow range around the price level at the end of 2022 due to the low demand for raw materials from upstream factories globally and only marginally higher. at the end of the year. The gross profit margin of businesses, both upstream (Hoa Phat, Formosa, Pomina,…) and downstream (Nam Kim, Hoa Sen, SMC,…) will expand slightly from Q3 onwards on an export basis. recover.

The burden of VND devaluation and rising interest rates are still large, continuing to affect financial costs. Businesses are and will limit the impact of exchange rate and interest rate issues by tightening borrowing needs and managing working capital more closely.

Source: CafeBiz