Steel producers record big profits on high prices

Hanoi (VNS/VNA) - Steel producers continued to post great results in the second quarter of this year, supported by high steel prices.

In a statement to the State Securities Commission of Vietnam (SSC), the Hoa Phat Group (HPG) said that its revenue reached 35.4 trillion VND (1.54 billion USD) in the second quarter, resulting in profit after tax of over 9.7 trillion VND.

In the first half of this year, Hoa Phat reported revenue of nearly 66.9 trillion VND, up 67 percent year-on-year. Its profit after tax was more than 16.7 trillion VND, three times higher than the same period last year.

The significant growth was driven by higher steel prices.

Due to disruptions amid COVID-19 outbreaks around the world, prices of materials for steel productions like coke and iron ore jumped, causing steel prices to surge.

On the Shanghai Futures Exchange, the price for October delivery of rebar was 5,737 yuan per tonne on July 30, up 32 percent since the beginning of 2021.

Strong construction activities during the first six months of the year also boosted steel product sales.

According to Vietnam Steel Association (VSA), construction steel prices rose nearly 9.3 percent for the year to 16,500 VND per kg in July, which was up 50 percent over the same period last year.

“The negative effects of the COVID-19 pandemic on the economy have boosted the Government to carry out great fiscal stimulus measures, helping the recovery of demand for construction materials since the second half of 2020 until the first half of 2021,” Viet Capital Securities JSC (VCSC) said in its report.

In the first half of this year, “construction steel consumption and total sales of galvanised steel and steel pipes grew by 14 percent and 36 percent respectively over last year,” the company added.

The Tien Len Steel Group JSC (TLH) also has just released its second quarter results showing good performance. Of which, it witnessed a consolidated net revenue of nearly 1.4 trillion VND, up 36 percent over last year.

During the period, the company’s sales expenses rose sharply to over 31.4 billion VND from just over 8.1 billion VND of the second quarter in 2020.

However, the steel producer still set a record net profit of nearly 196.7 billion VND, while it had lost over 15.4 billion VND in the same period last year.

In the first six months of 2021, its net revenue reached nearly 2.4 trillion VND, up 21 percent year-on-year. This led to profit after tax of 316.8 billion VND, compared to a loss of 11.7 billion VND last year.

Similarly, Vietnam Steel Corporation (TVN) posted net revenue of 10.9 trillion VND in the second quarter, up 35.7 percent over the year. The gain in revenue was over rises in cost of goods sold, so its gross profit climbed 128 percent to 886.6 billion VND.

After deducting expenses, the company’s profit after tax was 576.3 billion VND, 2.6 times higher than the second quarter of 2020. This is also the highest quarterly profit since Vietnam Steel was founded.

As of June 30, the company’s net revenue increased 32.5 percent to 20.37 trillion VND, resulting in profit after tax of 970.5 billion, 3.8 times higher than that of last year.

Meanwhile steel maker Hoa Sen Group (HSG) posted an increase in revenue of 90 percent to nearly 13 trillion VND in the second quarter. Its profit after tax reached 1.7 trillion VND, over 5 times higher than last year.

It reported net revenue of 33 trillion VND and profit after tax of over 3.37 trillion VND in the first six months of the year.

Gross profit expected to fall in rest of 2021

In the second half of 2021, VCSC believes that as China begins to taper economic stimulus, it will restrain the gain in global steel prices.

And even though high steel prices provide significant benefits for steel producers in the short term, it also creates economic pressure on many downstream industries including construction, machinery manufacturing, real estate and public investment.

"Higher construction steel prices have caused many small construction constructors to go bankrupt, and even big constructors to halt working," Tran Bao Thach, Deputy Director of the Hanoi Housing Investment and Development Corporation, said.

This situation will lead to a decrease in steel demand and will eventually rebalance the market.

The report noted that the difference between the price of hot rolled coil (HRC) and finished products of galvanised steel companies was much thinner than the difference between iron ore and construction steel. This will increase the risk of lower margins as low-cost inventory runs out and input costs catch up with product prices or product prices fall.

VCSC's scenarios suggest that the profit margin of steel producers will drop in the second half of 2021 from the high in the first six months of the year, mainly due to raw material prices rising and selling prices across the supply chain will adjust in 2022.

In addition, the rally of steel prices is expected to slow down in the rest of 2021, resulting in a reversal of gross profit.

On the stock market, HPG, TLH, TLV and HSG shares all closed higher on July 30, up in a range of 0.42 - 2.46 percent./.