Domestic steel consumption is expected to grow thanks to the recovery of the economy. Photo: Nguyen Thanh

Profit decreased due to raw material prices

The Russia-Ukraine conflict has exacerbated the possibility of inflation. At times, oil prices have reached their highest levels since 2014. Prices of other metal products and fuels such as iron, steel, aluminum, or coal in the world have increased sharply again. Therefore, all steel enterprises have targeted a sharp decrease in profit compared to the previous year due to the lack of benefits from low-priced inventory.

Recently, the leadership of Hoa Sen Group Joint Stock Company (HSG) has outlined three business plans. In which, the planned output is two million tons and the revenue is VND46,399 billion for all three options, down 11% and 5% respectively compared to the previous year. Particularly, the profit target will change from VND1,500 billion to VND2,000 billion and VND2,500 billion, down from 42% to 65%.

HSG's management explained that this year's profit decline depends on the price of raw materials. In 2021, the export channel will achieve strong growth through two major markets, the US and Europe where profit margins are higher than in other markets. However, steel export output is expected to slow due to the recovery of the global supply chain, countries will increase protectionist policies for imported steel, and steel prices will be adjusted stably from the second half of the year when the situation is not stable.

Supply disruption is resolved, oversupply may occur when steel mills increase production to solve the product shortage.

Similarly, Nam Kim Steel Joint Stock Company (NKG) also plans consolidated revenue of VND28,000 billion, equivalent to last year, and consolidated profit after tax of VND1,600 billion, down 28%.

According to Mr. Vo Hoang Vu, General Director of NKG, it is forecast that HRC price this year will be as high as US$850 or more because production, logistics, coke and ore prices have increased, increasing the cost of other products of the raw material manufacturer. While the export market cannot be as high as in the second and third quarters of 2021, growth is expected.

In 2022, SMC Trading Investment Joint Stock Company sets revenue of VND20,000 billion, profit after tax of VND300 billion, down 6.2% and 66.8% respectively compared to 2021. Total consumption was 1.25 million tons, down 2.9% over the same period last year.

Vietnam Steel Corporation - Joint Stock Company (VNSteel) announced this year's revenue plan to reach VND38,000 billion, consolidated pre-tax profit of VND500 billion, down 6.4% and 51.6% respectively compared to 2021. With the same view that business efficiency is affected by rising costs, the company's management also said that steel enterprises in Vietnam, besides expanding export markets, will also have to face fierce competition from other countries, it is difficult to bring about high efficiency from export activities as in 2021.

According to experts from SSI Securities Company, the total consumption of finished steel products in the industry will increase from 4% to 6% in 2022 due to the growth of the domestic channel from 8-10%.

Exports can be supported by demand in developed markets, where steel consumption is expected to increase by 4.3% thanks to economic recovery and infrastructure investment. However, Vietnam's export volume is still likely to fall from the highs reached the previous year, especially in the second half of 2022.

In the same opinion, the Vietnam Steel Association (VSA) said that the steel market will have a breakthrough in 2021, especially for export. Steel consumption reached 29.42 million tons, up 15.6% compared to 2020; exports alone reached 7.76 million tons, up 70%. However, in 2022, the export market is no longer as positive as the previous year, but the domestic market will recover strongly thanks to the 2022-2023 economic stimulus packages, boosting public investment and the residential real estate market being restored.

Profit has fallen since the first quarter

The profit in the first quarter of 2022 of many enterprises has recorded a deep decline.

Many member units of VNSteel declined a sharp drop in profits in the first quarter, especially in construction steel and galvanized steel while cold-rolled steel grew. Specifically, in the construction steel segment, Southern Steel estimated the profit before tax in the first quarter was about VND5 billion, down 93% compared to the same period last year. Vicasa – Vnsteel reduced its profit by 27% to VND10.3 billion, Thu Duc Steel - Vnsteel down 47%, Vinakyoei down to 63%.

In the galvanized sheet segment, TVT Company sharply reduced its profit from VND27.6 billion to VND73 million; SCCS dropped 23% to VND30.1 billion. Only a few companies in the cold-rolled steel segment recorded increased profits.

The report of Vnsteel said that the steel market in the first quarter of 2022 fluctuated greatly, and the prices of steel products increased. The uptrend in prices continued to be maintained until the beginning of April. This greatly affected the domestic steel industry; enterprises were facing high input costs in the selling price of finished steel which did not increase in the same proportion due to competitive pressure, directly affecting business performance, not to mention risks due to the sharp increase in commodity prices.

Similarly, in the first quarter, SMC recorded net revenue of VND6,630 billion, up 31% compared to the last year. However, the high price made the average profit margin narrow. Profit after tax of parent company shareholders reached VND80 billion, down 62%. Tien Len Steel Group Joint Stock Company also recorded an increase in net revenue of 83.4% over the same period, reaching VND1,795.7 billion. But COGS increased sharply by 105.5%. This made this steel company earn VND86.4 billion in profit after tax, down 28.1% over the same period.