According to VSA (Vietnam Steel Association) data, in the first four months of 2019, the country’s domestic steelmakers have produced 5.07 MnT of steel registering a growth of 37% y-o-y basis whereas Vietnam’s steel consumption surged by 29% y-o-y basis to reach nearly 5 MnT.
Now out of the key 11 steel producers listed higher revenues this year compared to the last one. SMC Corporation recorded the highest growth of 27% y-o-y in its revenues at USD 178.3 million in the first three months of 2019 driven by 25% rise in its sales volume. Another two biggest steel majors, Hoa Phat, and Hoa Sen Group’s revenues reached nearly USD 643.8 million and USD 330.5 million and their market value grew by 15% and 12% respectively.
However, there are few companies that are at the other end of the spectrum. This includes Dana Y Steel (DNY), Vietnam-Italy Steel (VIS) and Nam Kim Steel (NKG), of which DNY Steel’s revenues fell 99% compared to the same period last year. Revenues of the other two companies decreased by 21% and 18%, respectively.
The key reason for such a dramatic fall in DNY Steel’s revenue is that the company’s production was halted for six months in November last year due to pollution issues and the company earned revenues from selling off its already kept inventory. Whereas in the case of VIS and NKG steel companies the revenues suffered due to lower export volumes. Out of all three companies, NKG incurred the highest loss followed by VIS and DNY Steel.
Other loss-making companies include Pomina Steel (POM) and Dai Thien Loc (DTL).
According to these companies, the price of raw materials had increased substantially while the price of steel products had not changed that much.
Other companies, though not incurring losses, suffered declines in profits of between 17 % and 80%. Pre-tax profit at Hoa Phat Group declined 17% in the first quarter while Hoa Sen Group was down 53%.
The forecasts for 2019
Amid the trade war between two major economies, U.S. and China, high raw materials costs and tepid domestic demand, the majority of the companies have set lower profit targets for 2019.
With more blast furnaces coming online, the dynamics of Vietnam’s crude steel production processes ratio have seen a big change in 2018. The blast furnace process achieved 58% of the country’s total crude steel production in 2018, surpassing that via the EAF route, which contributed 32%. The IF process accounts for the remaining 10%. In contrast, in 2017 EAF contributed 57% of total crude steel production, whilst the blast furnaces process contributed 35%, and the remaining 8% via the IF process.
EAFs and IFs are likely to face a tougher time going forward because the higher electricity price hikes will surely see the cost of steel production increase whereas blast furnaces may suffer due to a surge in iron ore costs ultimately impacting the price and profits of steel in the country.
EBDITA at Hoa Phat Group is expected to decrease 33.5% in 2019 whereas Pomina also expects a 12% decline in pre-tax profit this year and VIS expects profit to fall from VNĐ326 billion in 2018 to VNĐ92.5 billion in 2019.
While Vietnam Steel Corp, DNY Steel, and Nam Kim Steel are yet to announce their 2019 targets. Vietnam Germany Steel Pipe, Thai Nguyen Iron and Steel, and Hoa Sen Group have all targeted higher profits.
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