Steel consumption decelerates, and exports are difficult

Following the fluctuations from 2019, the steel industry market in 2020 entered a period of instability and refinement. Raw steel prices still fluctuate unpredictably, steel exports face difficulties due to trade tensions and the rise of protectionism, the domestic market faces fierce competition, and the real estate and construction markets cool down…

Therefore, production and consumption of finished steel products in 2020 will still increase, but the growth rate has decreased much compared to the previous year. According to data from the Vietnam Steel Association (VSA), cumulatively in the 11 months of 2019, steel production increased by 4.1% and sales increased by 6.3% while in 2018 recorded increases of 16.2% and 16.2% respectively. 23.6%. Of which, steel exports recorded 4.2 million tons, down 2.6% over the same period.

Ngai Cau believes that the growth rate of Vietnam’s steel industry consumption in the next 5 years will be at 9%/year (base scenario). Historical data over the past 10 years has also clearly shown the correlation between GDP growth and construction steel consumption growth with an increase rate of about 1.68 times higher during good growth periods of the real estate market. This number is forecast to decrease by 1.4 times in the next 5 years. However, we think that the steel industry still has a lot of potential in the long term. The reason is that Vietnam’s orientation is still towards industrial production activities, the need for infrastructure construction is still very large with major projects being considered for implementation such as highways and northern railways. South, North, South, urban elevated routes, the subway system,…

Selling prices do not decrease too much, businesses can accelerate

Last year, steel industry enterprises experienced a fierce battle for market share and a race to reduce costs, forcing many businesses to accept a significant decline in profits or even negative growth.

In 2020, total demand is forecast to increase weakly but capacity increases sharply, making competition even fiercer. However, SSI Research assesses that the pressure to reduce steel prices is not too great because the profit margin before interest, depreciation and tax (EBITDA) of many manufacturers is close to 0. Smaller and inefficient companies have You can choose to cut production output when revenue cannot offset costs. Large companies can take advantage of this opportunity to accelerate market share thanks to their existing advantages in production costs, transportation and distribution systems.

The export market for steel of all types in the six months of 2020 also continued to decline sharply, reaching only 2.28 million tons, down 19.3% over the same period last year. The recovery of the export market depends greatly on the ability of Southeast Asian countries to control the epidemic, which accounts for 60% of total steel exports and 57.8% of total export turnover. industry today. But VSA also recommends that businesses need to be careful in controlling prefabricated steel products exported to the US market when this product has been included in the early warning area in the field of trade defense. Because the trade defense trend will continue to be used by markets with many products, especially with steel. Therefore, when businesses themselves approach markets such as Europe and the US, in addition to meeting requirements on standards, techniques, and origin, they also need to pay more attention to trade defense regulations to Prepare and receive lawsuits.

However, to revive the manufacturing industries, the Vietnamese Government, with the determination to both repel the epidemic and develop the economy, increased investment capital from the state budget in August and the first eight months of 2020. increased by 45.4% and 30.4% respectively over the same period last year. This is the highest increase in the 5-year period (2016-2020).

Thanks to that, in August 2020, steel production of all types reached more than 2.34 million tons, an increase of 11.36% compared to the previous month; Steel sales of all types reached more than 2.07 million tons, an increase of 5.88% compared to July 2020; Steel exports of all kinds reached 462,138 tons, up 8.81% over the previous month.

Steel consumption in the first 8 months of 2020 (tons)

Steel consumption in August 2020 (tons)

Currently, the average domestic steel selling price is about 11,000-11,050 VND/kg depending on each product type and each specific business. According to VSA, businesses have fierce competition to maintain market share or develop more market share, competing in both construction and civil sectors. Therefore, domestic construction steel prices have not adjusted much despite rising raw material prices…

Businesses need to change to thrive

In 2021, it is predicted that there will still be many difficulties for the steel industry as manufacturing enterprises continuously reduce prices to gain market share. In particular, steel imported from China at cheap prices is greatly affecting domestic consumption. The protectionist trend in the international market still shows no signs of slowing down, and the domestic real estate and construction markets have not shown signs of improvement. But this is also a “test” for steel industry enterprises to restructure, improve competitiveness and gain market share. In addition, although steel exports are forecast to remain difficult, the Vietnam – EU Free Trade Agreement (EVFTA) taking effect from August 1 is expected to help Vietnamese steel products appear. clearer in this market. Enterprises themselves need to be carefully prepared to receive opportunities as well as meet committed technical standards; Understand the market’s legal framework and technical barriers to be more proactive in exporting, avoiding the trouble of trade defense lawsuits.

Vietnamese steel industry enterprises need to take appropriate steps, proactively approach and increase competitiveness through improving product quality, expanding markets, and continuing to review and reevaluate sales policies. products and distribution system to make appropriate adjustments, ensuring increased consumption output, building a stable distribution system, and long-term development.

Construction steel consumption (tons)

Along with that, improving management and administration capacity and improving technology in steel production are steps that need to be focused on, thereby helping the steel industry have a breakthrough and overcome difficulties and challenges. consciousness is present. It is necessary to quickly restructure production and business according to market signals, increase competitiveness through cost savings, improve enterprise management capacity to lower costs, improve product quality, and find more export market to limit damage.

In the first quarter of 2020, ASEAN countries were heavily affected by China’s nationwide blockade, then continued to be affected by disruption of the global supply chain. However, some infrastructure projects continue to be implemented, reducing the impact on the steel industry. The Government’s good control of the epidemic and promotion of public investment to promote economic development are estimated to bring brighter prospects for the steel and cement industries in the last months of 2020 and entering 2021.

Steel – Positive outlook for late 2020 and 2021

Vietnam’s steel industry is assessed to have shown signs of recovery since the beginning of the third quarter of 2020 when consumption output increased slightly. Specifically. Vietnam Steel Association (VSA) said: Steel production of all types in July reached more than 2.1 million tons, up 7.7% over the previous month and on par with the same period in 2019; Sales output in July reached over 1.9 million tons, an increase of 11.25% compared to June.

The latest report published at the end of August 2020 by SSI Research estimates that steel demand in the second half of the year will recover and increase by 4-5% over the same period due to the loosening and increasing of social distancing policies. public investment (estimated to account for about 15% of steel consumption).

According to statistics, consumption output recovered positively in the second quarter of 2020, due to increased demand from the residential segment. Compared to a decrease of 14% over the same period in the first quarter of 2020, a decrease of 1% over the same period in the second quarter of 2020 can be considered a sign of recovery.

Even domestic steel demand in the second quarter of 2020 increased by 1% over the same period, while the first quarter of 2020 decreased by 13%. SSI Research believes that this is due to pent-up demand from the first quarter as well as stable revenue consumption in the civil construction channel.

In the first 6 months of the year, consumption of finished steel products decreased by 7% over the same period, of which domestic consumption decreased by 6%. Export output decreased more sharply at 13% over the same period due to social distancing policies in some export markets.

However, SSI Research said, Vietnam benefits from steel demand continuing to increase strongly in China. According to the China Iron Ore and Steel Association, China’s steel consumption is estimated to increase by 40 million tons, equivalent to an increase of about 8% over the same period in the second half of 2020, and an increase of 2% for the whole of 2020.

In the first half of 2020, Vietnam’s steel output exported to China increased significantly, nearly 15 times, to 1.06 million tons, accounting for about 27% of Vietnam’s total steel export output.

In 2021, SSI Research estimates demand will increase by about 3-5% from a low base in 2020, thanks to expectations of general macroeconomic recovery, along with infrastructure investment and investment flows. FDI capital into Vietnam.

Previously in June 2020, the World Steel Association forecasted that global steel demand is expected to recover by 4% in 2021, which will support the export channel of Vietnamese manufacturing companies.

Specifically, Worldsteel forecasts that global crude steel output in 2020 will be at 1.65 billion tons, then increase by 3.8% to 1.71 billion tons in 2021.

Good sign at the end of the road

According to SSI Securities Company, the steel market in the coming months will follow a positive trend. The reason is that there will be about 700,000 billion VND of public investment capital spent by the Government in 2020, of which 200,000 billion VND will be spent on large infrastructure projects such as: North – South Expressway, Tan Son Nhat airport. … A good sign since July 2020, the disbursement of public investment capital has improved.

In addition, Vietnam benefits from continued strong demand for steel in China. According to the China Iron and Steel Association, in the second half of 2020, the country’s steel consumption is estimated to increase by 40 million tons, equivalent to an increase of about 8% over the same period in 2019, and an increase of 2% for the whole of 2020. In In the first half of 2020, Vietnam’s steel output exported to China increased significantly, nearly 15 times, to 1.06 million tons, accounting for about 27% of Vietnam’s total exported steel output. In the first 7 months of the year, China is the largest market for Vietnamese steel with 1.46 million tons, equivalent to 585.39 million USD, average price of 401.4 USD/ton, a sharp increase of 1,833% in volume, increasing 1,410% in turnover compared to the first 7 months of 2019.

Besides, Vietnam also has great opportunities in attracting FDI capital because of its ability to control the epidemic well and labor costs are still cheap. Therefore, when FDI enterprises enter Vietnam, the need to invest in factories and industrial parks will increase, leading to the demand for construction steel.

Regarding the steel market outlook in 2021, experts estimate demand will increase by about 3-5% from a low base in 2020, thanks to expectations of general macroeconomic recovery, along with investment activities. infrastructure investment and FDI capital flows into Vietnam. Besides, according to the World Steel Association, global steel demand is expected to recover by 4% in 2021, which will support the export channel of Vietnamese manufacturing companies.

Double difficulties of the steel industry

The COVID-19 pandemic has hit many parts of the globe in the past few weeks, with economic pressures and lack of downstream demand leading to the largest series of production cuts and shutdowns since 2015.

The domestic steel industry continues to face challenges due to the stagnation of manufacturing industries using steel for construction, infrastructure, automobiles, motorbikes… and competitive pressure from increased domestic supply…

In the context of a gloomy global market in general, domestic production and sales of steel products in the first quarter of 2020 had negative growth rates of 6% and 12.4% respectively compared to the same period in 2019. However, excluding the growth of hot rolled coil steel (HRC), production decreased by 4% while sales decreased by 12% compared to the same period in 2019.

Specifically, steel production of all kinds reached more than 5,728,408 tons (down 6%), steel sales of all kinds reached 5,034,580 tons (down 12.4%), steel exports of all kinds reached 1,024,908 tons (down 21.3%) compared to the same period in the first quarter of 2019.

For construction steel, the number of goods sold in the first quarter of 2020 was 15% lower than the same period in 2019, of which exports decreased by 14% and domestic consumption decreased by 16%. In March 2020, prices of raw materials for steel production decreased, such as iron ore decreased by 6 USD/ton; Steel scrap price decreased by about 30 – 35 USD/ton compared to early February 2020; Southeast Asian steel billet prices dropped sharply by 40-50 USD/ton. Domestic steel selling prices are currently on average around 11,000 – 11,400 VND/kg depending on each product type and each specific business.

Growth after social upheavals

Despite the impact of the COVID-19 epidemic affecting many manufacturing industries from the beginning of the year until now, the domestic steel production industry after 10 months is still maintaining a positive growth rate.

The construction industry grew by 4.5% in the first 6 months of 2020, significantly higher than the GDP growth, of only 1.8%. Domestic galvanized steel consumption grew by 6.5%, while domestic construction steel and steel pipe consumption decreased by 8.1% and 6.8%, respectively.

The severe impact of the pandemic on the steel industry is shown through the numbers in the first 6 months of the year such as the entire industry (including construction steel, galvanized steel, and steel pipes) produced 8.1 million tons of steel, consuming consumed 7.8 million tons, of which 1.4 million tons were exported, down 6.4%, 7.0%, and 12.8% respectively over the same period last year.

Construction steel market share chart. Source: Vietnam Steel Association, compiled by VDSC

Report of the Vietnam Steel Association (VSA) in October 2020, crude steel output was estimated at 3,371,000 tons, an increase of 11% over the same period; rolled steel is estimated at 800,000 tons, up 23.6% over the same period; Steel bars and angle steel are estimated at 922,000 tons, down 0.1% over the same period. In general, for the first 10 months of 2020, crude iron and steel production output; rolled steel; Bar steel and angle steel increased by 0.1 respectively; 5.3% and 7.6% over the same period in 2019.

Notably, despite its dependence on exports, galvanized steel consumption only decreased by 1.2% over the same period last year, a significantly lower decrease than the consumption of steel pipes and construction steel.

In the second quarter, steel consumption recovered significantly, although export activities still faced many difficulties. Domestic construction steel sales increased by 13.2% compared to the previous quarter, and equivalent to the same period last year.

Domestic steel pipe consumption grew well in the second quarter, increasing by 43.6% over the previous quarter and 6.5% over the same period. In contrast, the export output of construction steel, galvanized steel, and steel pipes continued to decrease by 9.8%, 7.3%, and 29.9% over the same period, respectively. 

Waiting for innovation next time

Although the COVID-19 epidemic creates many difficulties, it is also a “test” for businesses to restructure, improve competitiveness, and gain market share. In the second half of 2020, the steel industry is forecast to continue to face many difficulties and challenges because protectionist trends in the international market and domestic real estate and construction markets have not shown signs of improvement. In addition, the source of raw materials for the steel industry’s production was interrupted. However, opportunities also arise when in the domestic market, the Government is promoting more construction activities after lifting the COVID-19 shutdown.

Although steel exports are forecast to remain difficult, the Vietnam – EU Free Trade Agreement (EVFTA) taking effect from August 1 is expected to help Vietnamese steel products have a clearer presence in the market. This. The opportunity for the Vietnamese steel industry to export to the EU market is very large, businesses need to be carefully prepared to receive this opportunity.

In the context of increasing competitive pressure, the trend of gaining market share in the construction steel segment may accelerate in favor of large companies with significant advantages in production and transportation costs. and distribution system.

Besides, in the context of protectionist trends worldwide, Vietnam may extend protective tariffs for long steel next year. The current tax rate is 17.3% for long steel billet and 10.9% for construction steel. It is worth noting that even in the case that the tax is not extended, the pressure from China will not increase significantly, because the current steel price in China is not much different from the steel price in Vietnam.

A slowing Chinese economy could negatively affect steel demand in the world’s largest manufacturing companies, and have an indirect impact on domestic steel prices in Vietnam. According to the Vietnam Steel Association, steel demand in China in 2020 is estimated to increase by 1%, much lower than the estimated growth of 7.8% in 2019.

As a result, total world steel demand growth is estimated to reach 1.7% in 2020, down from 3.9% in 2019. Capacity increased significantly while demand growth slowed, especially construction steel, can increase competitive pressure on the domestic market, and make domestic steel prices more volatile.