The profit margin of steel manufacturers will decrease from this high base level in 2021, as selling prices tend to decrease following the decline of raw material prices; Increased competition in the industry...

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In the recently released steel stock outlook report, BSC Securities believes that in 2022, domestic steel consumption will grow well based on increasing disbursement of public investment, focusing on infrastructure. , and civil construction activity resumes when the epidemic is under control.

Specifically, the National Assembly has approved an economic recovery support package worth VND 350,000 billion, of which VND 113,850 billion is allocated for infrastructure development, focusing on key projects such as the North – East Expressway. In the South East, Long Thanh airport, large logistics ports…, leading to an increase in iron and steel consumption demand.

Construction activity in 2021 was delayed for the first 9 months of the year to support disease control. In 2022, the supply of apartments will double, and the supply of townhouses will increase by 20%-30% compared to 2021 (according to CBRE Vietnam’s forecast) are the factors promoting domestic steel consumption.

However, BSC also forecasts that the average steel price in 2022 will be further adjusted down, following the decline of iron ore prices, which account for 45%-50% of billet production costs.

The export market is the bright spot of steel enterprises in 2021. Export steel output of the whole industry +38% over the same period. For the main export steel products of Vietnamese enterprises, which are galvanized steel sheets, the main input material is hot rolled coil (HRC) manufactured in Vietnam, which is currently more competitive than the selling price in Vietnam. EU, US and ASEAN markets.

In 2022, BSC believes that the advantage in production costs will maintain steel export volume equivalent to 2021, however, if the trend of steel prices in the EU and North American markets continues to decrease in the last quarter, especially when competitors increase exports to these markets, it will be difficult for businesses with a large export proportion to maintain impressive profits like in 2021.

Profit margins of many steel companies will grow strongly in 2021 thanks to taking advantage of fluctuations in raw material prices, increasing inventories at low cost and benefiting from a sharp increase in steel prices in the first three quarters of the year.

However, the profit margin of steel manufacturers will decrease from this high base level in 2021, as selling prices tend to decrease following the decline of raw material prices; Competition in the industry increases.

Accordingly, steel prices have started to cool down since the second half of 2021, when governments, especially China, implemented measures to control speculative activities in the commodity market.

Iron ore prices recovered slightly at the end of the year due to the seasonality of production and factories increasing the amount of raw materials. However, in the medium and long term, ore prices are forecast to gradually decline as suppliers increase mining output to pre-pandemic levels, driving down production costs.

The price of thermal coal has increased sharply along with the global energy price fever and power shortage in China. This situation cannot be resolved in the short term when demand still exceeds supply and political tensions make China refuse to import Australian coal and have to buy it on the market at high prices.

For competition, import tax barriers for iron and steel products are loosened when implementing the Regional Comprehensive Economic Partnership (RCEP) to create conditions for countries in the group to increase steel exports to the market. Vietnam.

On that basis, BSC recommends neutrality for the steel industry in general in 2022 based on the following views: (1) Positive domestic consumption thanks to the policy of accelerating disbursement of public investment and construction activities recovered from the low of 2021; (2) The profit margin of the steel industry declined due to the decrease in the average steel selling price in 2022 as competition in the industry increased.

According to Vneconomy