Steel firms report declining profits in Q2

Hanoi (VNS/VNA) - Many steel enterprises saw profits drop by up to 90% in Q2 of this year, amid plunging steel prices.

In the second quarter of this year, VNSTEEL–Thu Duc Steel JSC (TDS) recorded net revenue of 358 billion VND (15.3 million USD). It suffered a net loss of nearly 2 billion VND, down more than 45% over the same period last year.

According to the company, the output price decreased continuously from the beginning of the second quarter until now, along with a decrease in steel consumption.

This caused the company to stop production, and the high price of steel inventory from previous months made the situation worse. This was in contrast to the second quarter of 2021 when there were supply chain disruptions and strong demand created conditions for high steel prices.

Slow consumption also affected cash flow in Q2, along with credit tightening and high-interest rates over the same period of last year also made financial costs, especially loan interest, increase sharply. During the quarter, financial expenses jumped from 85 million VND to 2.7 billion VND. The positive point was the reduction in selling and administrative expenses.

The company is expected to continue facing difficulties in the future as steel prices are still declining.

At the end of the second quarter of 2022, TDS recorded 498 billion VND of inventory, of which the provision for devaluation was about 7.5 billion VND. The company's short-term debt also increased from 219 billion VND to 307 billion VND.

SMC Trading Investment JSC (SMC) recorded net revenue of 6.62 trillion VND in Q2, up 11% over the same period. However, net profit dropped sharply by 90%, to 47 billion VND.

As a company specialising in steel trading, the falling steel price has dealt a huge blow to SMC's business. In the second quarter of this year, the profit margin of the company was only 3.1%, while in the same period last year the figure was 11.6%.

Financial expenses in the period increased nearly nine times, to 110 billion VND, half of which was interest expense. Selling expenses also increased sharply to 56 billion VND.

In the first 6 months of this year, SMC recorded revenue of 13.25 trillion VND, up 20% over the same period last year. Meanwhile, net profit decreased by 82% to 127 billion VND.

At the end of the second quarter of 2022, the company still had VNĐ3.37 trillion of inventory, a sharp increase from 2.54 trillion VND at the beginning of the year. In which, SMC's provision for devaluation of inventories was more than 170 billion VND.

Profit decline also occurred at other enterprises such as Me Linh Steel Joint Stock Company (MEL), Cao Bang Cast Iron And Steel Joint Stock Company (CBI) and Thai Nguyen Iron and Steel Joint Stock Company (TIS) as they saw their net profits down by 90% over the same period last year.

According to a report from SSI Research, steel consumption has slowed down in recent months, with domestic finished steel consumption in April-May 2022 dropping about 32% year on year.

Steel prices also plummeted rapidly, in which construction steel prices have experienced nine consecutive declines in the past month, to 16 million VND per tonne. The price of the hot rolled coil (HRC) in Vietnam also plummeted to 650 USD per tonne.

The inventories of the above steel enterprises were still quite high at the end of the second quarter of 2022. TIS is holding more than 2 trillion VND of inventory, a sharp increase of 43% over the same period last year, while MEL and CBI decreased slightly to 463 billion VND and 396 billion VND, respectively./.