Business loss continuously
Many steel enterprises have continuously suffered losses in their business operations. Recently, SMC Investment and Trading Joint Stock Company (stock code SMC) has just approved the transfer of land use rights, equipment, and architecture on land at SMC Binh Duong - Dong An Industrial Park (Thuan An, Binh Duong province) with an expected selling price of 49 billion VND. Previously, in order to maintain the company's operations, the Board of Directors of SMC Steel Enterprise unanimously approved the policy of narrowing down production and business activities, personnel in the entire system, and reducing all arising costs.
Previously, in the third quarter 2023 business results report, SMC achieved revenue of VND 3,141 billion, down 44% compared to the same period last year. Operating below cost price plus expenses caused SMC to have a net loss of VND 164 billion. In the first 9 months of this year, SMC achieved revenue of VND 10,574 billion, down 44% compared to the same period last year and a loss of VND 549 billion, a sharp increase compared to the loss of VND 58 billion in the same period last year. SMC has continuously suffered losses and no longer has accumulated profits, turning into a negative number of VND 206 billion.
Many steel businesses continuously suffer losses.
Or like the "big guy" in the steel industry, Vietnam Steel Corporation (VNSteel - stock code TVN) announced its consolidated financial report for the third quarter of 2023 with net revenue reaching 7,947 billion VND, down 7% compared to the same period in 2022. As a result, VNSteel reported a loss after tax of 172 billion VND, an improvement compared to the loss of 576 billion VND compared to the same period in 2022. Accumulated in the first 9 months of the year, VNSteel's net revenue reached 23,027 billion VND, down 24% compared to the same period last year. The pre-tax loss was recorded at more than 431 billion VND while the same period last year lost nearly 383 billion VND.
In the same situation, Thai Nguyen Iron and Steel Corporation (stock code TIS) announced its consolidated financial report for the third quarter of 2023 with revenue of VND 2,414 billion, an increase of 25% compared to the second quarter of 2023. However, many increased costs caused this iron and steel company to still report a pre-tax loss of VND 57 billion, 2.3 times higher than the same period last year. This is also the 5th consecutive quarter of loss for Thai Nguyen Iron and Steel Corporation. In the first 9 months of this year, TIS achieved revenue of nearly VND 6,790 billion, down 29% compared to the same period last year. The company suffered a pre-tax loss of VND 193 billion, while in the same period last year it made a profit of VND 22 billion...
Electricity price increase "squeezes" steel industry profits
The real estate and construction markets remain gloomy, causing steel companies' revenue to drop and profits to plummet. Leaders of many steel companies all said that it is impossible to predict when the difficulties will ease as the problems of the real estate market in general have not shown signs of improving. In that context, the Ministry of Industry and Trade recently decided to adjust the average retail electricity price from VND1,920.37/kWh to VND2,006.79/kWh, equivalent to an increase of 4.5% (excluding value added tax). This is the second increase in electricity prices this year.
Electricity costs are a burden for steel companies and this impact will increase. Specifically, in a recent analysis report by MiraeAsset Securities Company, in the coming time, some manufacturing industries that use a lot of electricity may be negatively affected such as cement, chemicals, metallurgy (steel), and paper.
Electricity price increase will cause steel companies' profits to decrease by 23%
Mirae Asset estimates that electricity costs account for about 9-10% of the cost of goods sold for steel manufacturing enterprises, which is similar to that of enterprises in the chemical industry. For the cement sector, it accounts for about 14-15% of the cost of goods sold, except for large enterprises with cement rotary kilns, where electricity costs account for about 9-10% of the cost of goods sold.
Assuming that businesses cannot pass on to consumers, a 4.5% increase in electricity costs will increase the cost of goods sold. This will lead to a decrease in total pre-tax profits for each industry. Specifically, pre-tax profits for the steel industry will decrease by 23%, the paper industry by 2%, the cement industry by 21%, and the chemical industry by 1%.
The report stated: The significant decline in profits due to increased electricity costs affects the efficiency of businesses. However, if businesses can pass on the increased electricity costs, by increasing the selling price to consumers, the impact of increased input costs can be reduced.
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