The factory of the Nguyen Tin Steel SJC in Thuan Dao Industrial Park of Long An province (Photo: VNA) Hanoi (VNS/VNA) - Second-quarter earnings of steelmaking companies showedsigns of deterioration as prices of iron ore continued to increase, leading tohigher production costs and lower profit.
HoaPhat Group (HPG), the biggest listing steelmaker, reported revenue of 15.3trillion VND (656.7 million USD) in the second quarter, up 6 percentyear-on-year, but its profit after tax declined 7 percent in the reviewedperiod, reaching 2.05 trillion VND.
EndingJune, the company’s revenue increased 10.3 percent on-year to more than 30trillion VND, but its net profit dropped 12.8 percent to 3.86 trillion VND.
HoaSen Group (HSG) reported its net revenues slumped by 30 percent to 7.2 trillionVND (309 million USD) in the third quarter for the fiscal year 2018-2019 (April1 – June) but its net profit rose 94 percent year-on-year to 161 billion VND.
Itsaid it managed to cut management costs by 50 percent thanks to installing theenterprise resource planning (ERP) and focus on exploring new export markets.
Sharpincreases in iron ore prices were attributable to unenthusiastic businessresults of steel companies, according to analysts at Vietinbank Securities JSC.
Theprice of iron ore, which account for 30-40 percent of the cost of steelproduction, rose to 130 USD per tonne in some future contracts, the highestsince 2016. Higher cost of production accompanied by increasing capacity ofdomestic enterprises is driving up competition, a July report on the steelindustry of Vietinbank Securities JSC showed.
“Theincrease in capacity is happening faster than in consumption which has pushedmany businesses into losses since 2018 and early 2019,” the report said.
ExceptHoa Phat which has a high profit margin, other businesses in the industry havevery low profit margins and therefore are quite vulnerable when there areadverse developments in the industry, according to the report.
Investmentin expanding capacity of large enterprises such as Hoa Phat would createcompetition and put pressure on many businesses in the coming years, it said.
Anumber of steel companies have posted their second-quarter and first-halfearnings with lower revenues and profits. They included SMC, Vietnam GermanySteel Pipe (VGS), Thai Nguyen Iron and Steel (TIS) and Tien Len Steel (TLH).
ForSMC, its revenue grew 8.7 percent in the first six months but its cost ofcapital increased by 10.56 percent, resulting in a decrease of 22 percent ingross profit.
VGS’sfirst-half revenue dropped just 1.3 percent year-on-year to 3.46 trillion VNDbut its profit after tax fell 11.7 percent to just 28 billion VND. Meanwhile,revenue and net profit of TLH declined 16.4 percent and 72 percent,respectively.
TISreported a 5.4-percent decline in revenue and 10.5 percent drop in net profitin the first half to 5.5 trillion VND and 38 billion VND, respectively.
Accordingto analysts, the steel industry is facing many challenges, including the tradewar between the US and China, intense competition in the domestic market fromcheap low-quality imports and slump of the property market.
Inaddition, the US imposition of anti-dumping tax on steel sheet productsimported from Vietnam using materials imported from the Republic of Korea andTaiwan has also forced steel exporters to seek new material sources.-VNS/VNA
VNA
