The steel industry changed its structure after the upheaval due to the Covid-19 pandemic

Domestic steel enterprises need to proactively control raw material inventories to have additional purchasing plans to ensure sufficient supplies are maintained for production after the “Covid storm”.

“The pandemic has highlighted the delay in structural reforms at steel companies,” said Atsushi Yamaguchi, senior analyst at SMBC Nikko Securities.

Asian steel companies are rushing to close high-cost facilities and reduce capacity. Posco announced in July that it would close a blast furnace in Pohang – possibly reducing up to 1.3 million tons of steel per year, equivalent to 3% of total capacity. Posco is also considering closing or repairing another blast furnace as early as 2025.

The announcement comes three years after Posco first announced its intention to close the blast furnace. This time, the “death sentence” seems certain, when the Covid-19 pandemic caused demand in Korea and Posco’s revenue to decrease by 16% in the second quarter. In Japan, annual steel output is expected to fall by 80 million tons, the first decline in 52 years.

Vietnam’s steel industry during the pandemic

The Covid-19 epidemic broke out twice and developments remained complicated, continuing to put pressure on the business situation in 2020. It is noted that the construction industry only grew by 4.5% in the past 6 months, lower than the previous year. 7.8% over the same period but higher than the GDP growth rate of 1.8%. Consumption of construction steel and steel pipes decreased by 8.1% and 6.8% respectively; while galvanized steel consumption only decreased by 1.2% due to strong domestic demand.

Most significantly, export activities encountered many difficulties, due to weak demand and social isolation to control the epidemic, finished steel export output decreased by 12.8%. The export output of galvanized steel and construction steel decreased by 12.1% and 12.6%, respectively.

According to analysts, the steel industry has been undergoing structural changes after Covid-19, with companies tending to diversify their export market base to reduce dependence on any one market. In particular, consolidation may accelerate in favor of market leaders.

Recognized by Rong Viet Securities (VDSC), the leading enterprise in the industry continues to dominate. Particularly, Hoa Phat (HPG) won more market share in the Central and Southern regions, helping to increase the national market share from 26% to 31%. It is known that the demand for long steel is increasing due to large investments in infrastructure, not only in Vietnam, but also in many other Asian countries. HPG is preparing to increase prices in the second half of 2020 due to increased production costs. HPG also faces some risks in raw material prices and steel prices that may fluctuate unfavorably. The hot rolled steel segment may encounter difficulties in selling prices and factory operations.

The steel industry is cyclical and one can clearly see the dependence of the Vietnam Steel industry on the construction and real estate market when construction needs still account for 65% of steel demand in Vietnam. According to statistics from the State Bank of Vietnam – SBV, real estate business credit balance in 2018 accounted for 7.5% of credit balance of the entire economy. This number is still lower than the outstanding credit balance for real estate business at the peak of the previous real estate cycle (2010) which was 9.2%. The difference at the present time compared to the previous period is the development of personal consumer credit, more specifically, credit for home purchase and repair, accounting for up to 6% of outstanding credit in the entire economy. international. If you add these 2 credits

The amount of credit for real estate is larger than in 2010. Credit risks are quite obvious, but increased credit is a quite natural factor of today’s modern economies. development, outstanding debt in general and outstanding consumer credit in particular will increase even more. According to the scenario, the real estate market will adjust slightly in the coming years and cause the growth rate of steel consumption to slow down.

Restructuring after the upheaval

Statistics show that in the second quarter of 2020, consumption of finished steel products decreased by 7% over the same period in the first 6 months of 2020, of which domestic consumption decreased by 6%. Export output decreased more sharply at -13% over the same period due to social distancing policies in export markets.

However, compared to the 14% year-on-year decrease in the first quarter of 2020, the 1% year-on-year decrease in the second quarter of 2020 can be considered a sign of recovery. Domestic demand even increased by 1% year-on-year in the second quarter of 2020 compared to a decrease of 13% in the first quarter of 2020. According to the assessment of SSI Securities Company, this is due to pent-up demand from the first quarter as well as stable revenue consumption in the civil construction channel.

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. HPG’s profit is estimated to increase by 15% thanks to phase 2 of Dung Quat Complex, while HSG’s profit is estimated to decrease slightly due to the adjustment in gross profit margin.

Commenting on the change in industry structure after COVID-19, SSI believes that consolidation may accelerate in favor of leading market companies. Companies tend to diversify their export market base to reduce their dependence on any one market.

It is estimated that demand in the second half of the year will recover and increase by 4-5% over the same period due to the loosening of social distancing policies and increased public investment (estimated to account for about 15% of steel consumption). In addition, Vietnam benefits from the continued strong demand for steel 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 2% for the whole of 2020.