In the fourth quarter of 2023, total steel industry profit is estimated to increase by 22% compared to the previous third quarter and much better than the negative level of more than 5,000 billion in the same period of 2022. The recovery is mainly thanks to "big brother" Hoa Phat .
After a difficult period, the steel industry is receiving optimistic signals recently. Total profits of steel enterprises on the stock exchange increased for the second consecutive quarter compared to the previous quarter. According to estimates, in the fourth quarter of 2023, the total profit of the steel industry will reach about 2,500 billion VND, an increase of 22% compared to the previous third quarter and much better than the negative level of more than 5,000 billion VND in the same period in 2022. This is also a high level. within the past 6 quarters.
Compared to the same period in 2022, most steel enterprises recorded a strong recovery in profits, especially Hoa Phat (HPG) with net profit increasing by nearly 5,000 billion. Many other businesses also have profits recovered by hundreds of billions compared to the last quarter of 2022, such as Hoa Sen (HSG), Nam Kim (NKG), VNSteel (TVN), Ton Dong A (GDA),...
However, compared to the third quarter of 2023, most steel businesses have slowed down their recovery momentum. Hoa Sen recorded a sharp decrease in profit for the fourth quarter of 2023 (first quarter of the 2023-24 fiscal year) compared to the previous quarter. Pomina (POM) and SMC even reported heavy losses, both over 300 billion VND. VNSteel reduced losses significantly but has not yet been able to return to positive profits.
In that context, Hoa Phat is a rare bright spot when the steel industry's leading enterprise net profit in the fourth quarter of 2023 reached nearly 3,000 billion VND, an increase of 48% compared to the previous quarter and the highest level in 6 quarters. Therefore, it is not too much to assume that Hoa Phat will bear the entire steel industry profit in the last quarter of 2023.
Inventory is low
The recovery speed is slowing down in the context that many steel businesses are still cautious when maintaining a low inventory even though the price trend is somewhat more positive than the previous quarter. According to statistics, the total inventory value of the steel industry by the end of 2023 is about VND 66,000 billion (including provision for price reduction), slightly down compared to the previous third quarter.
Thus, steel enterprises have had 5 quarters of maintaining inventory value around VND 65,000-70,000 billion, much lower than the previous period. In particular, this number has decreased by about 50,000 billion compared to its peak in mid-2022.
The trio of Hoa Phat, Hoa Sen and Nam Kim continued to increase inventory accumulation, but the increase was not large. "Big brother" Hoa Phat is the name that recorded the strongest increase in inventory in the last quarter of 2023 but the value is not yet a trillion. On the contrary, most of the following top businesses recorded a sharp decrease in inventory compared to the previous quarter.
VNSteel, Ton Dong A, Pomina, SMC, Tien Len Steel (TLH), Tisco (TIS) all saw their inventory value decrease by hundreds of billions. SMC is the enterprise with the sharpest decrease in inventory with a value of more than 400 billion (~22%) compared to the previous quarter. This is the first time this business has brought its inventory value below a trillion billion after many years.
Demand and prices are expected to recover strongly
Steel businesses maintain low inventories while steel prices showed signs of reversing and increasing again at the end of last year. In the Chinese market, the price of rebar steel at one point increased by about 10% and at one point nearly reached 4,000 CNY/ton at the end of last year. Although it has slowed down recently, in general steel prices are relatively higher than the middle of last year. In the domestic market, construction steel prices also showed signs of recovery after hitting bottom in September.
In a recent report, MBS Securities assessed that supply is decreasing and world steel demand is expected to recover in 2024, specifically steel supply decreased slightly by 1% over the same period in the context of China cutting production. Energy and Turkey have not been able to recover. Meanwhile, world demand according to WSA's latest forecast will increase by 1.9% with the main driving force coming from construction demand in the EU and India, which is also expected to have a positive impact on prices. world steel in 2024.
Domestically, apartment supply is expected to improve from 2024, which will positively impact domestic construction steel consumption demand. Furthermore, the Government has issued a number of measures to support the real estate market. MBS expects positive factors from world steel prices and the real estate market to recover from mid-2024 to boost domestic steel prices. Thanks to that, construction steel prices are expected to recover to 15 million VND/ton, an increase of 8% by 2024.
MBS also believes that recovering demand from the EU is the main factor that has a positive impact, making the export steel market a bright spot. Steel export output is expected to reach 10.5 million tons (up 25%) in 2023 and 11.2 million tons (up 7%) in 2024. Besides, export HRC price is expected to reach 800 USD /ton (+8%) in 2024.
According to MBS's forecast, gross profit margins of steel businesses will improve from an average of 8% in 2023 to 13% in 2024. Steel prices are forecast to recover about 8% and raw material prices will decrease slightly. 6%, from there, the basis for gross profit margins of businesses in the industry to recover to double-digit levels next year.
Total profits of steel industry enterprises are also forecast by MBS to grow by up to 40% over the same period in 2024 thanks to (1) revenue is expected to recover by 25% in the context of increased output and selling prices; (2) gross profit margin recovers to 13% (compared to about 8% in 2023); and (3) financial costs decreased by 30% when exchange rate pressure and interest costs cooled.
