Galvanized steel industry unexpectedly reduces provisioning pressure

The rebound in hot-rolled coil steel prices after a period of decline is helping to reduce the pressure on inventory provisioning for galvanized steel businesses.

Hoa Sen Steel increases inventory accumulation in the first 9 months of the 2023-2024 fiscal year (Photo: Le Toan)

Provisions reduced significantly

Continuing the recovery momentum from 2023, in the first half of 2024, the group of galvanized steel enterprises is showing positive business results.

Accordingly, in the first 8 months of 2024, the total domestic consumption of corrugated iron reached more than 1.527 million tons, an increase of 18.9% over the same period; the total export output reached 2.152 million tons, an increase of 48% over the same period.

In addition to the improved industry output data, the profit picture of the listed galvanized steel group also increased significantly. In the first half of 2024, the group of 3 largest listed private galvanized steel enterprises on the stock exchange, including Nam Kim Steel Joint Stock Company (code NKG), Hoa Sen Group Joint Stock Company (code HSG) and Ton Dong A Joint Stock Company (code GDA), recorded an average revenue growth of 16.8% over the same period; after-tax profit grew an average of 228.7% compared to the first half of 2023.

In contrast to the positive business results of the galvanized steel group, the price of hot rolled coil (HRC) - an important input material for galvanized steel, continued to decline. This led to concerns that if HRC prices remain low for a long time, it could lead to inventory reduction provisions for the galvanized steel group.

In 2024, the galvanized steel group will have positive business results. Along with the improvement in the industry's consumption output, the profits of the listed galvanized steel group will also increase significantly.

Statistics from January 29, 2024 to August 15, 2024, world steel prices decreased by 29.5%, from 3,952 to 2,788 CNY/ton; HRC prices from January 3, 2024 to July 23, 2024 decreased by 42.3%, from 1,135 to 655 USD/ton.

However, from August 15 to October 1, world steel prices increased by 22.6% to 3,417 CNY/ton; from July 23 to October 4, HRC prices increased by 10.5% to 724 USD/ton.

Statistics from Rong Viet Securities Company show that HRC prices in Vietnam and the Chinese market are similar, with insignificant differences. In addition, galvanized steel enterprises tend to store 3-6 months of inventory to serve as input materials for production.

Chairman of the Board of Directors of Hoa Sen Group, Mr. Le Phuoc Vu shared: "Hoa Sen is both an importer, manufacturer, distributor and exporter, so the Company maintains inventory to ensure about 4 months of production."

In addition, as of June 30, 2024, Hoa Sen's inventory increased by VND 2,529.15 billion compared to the beginning of the year, up to VND 10,157.76 billion, accounting for 51.5% of total assets; Nam Kim Steel's inventory increased by VND 24.4 billion, up to VND 5,743.1 billion, accounting for 44.5% of total assets; Ton Dong A's inventory increased by VND 915.25 billion, up to VND 4,042.2 billion, accounting for 31.9% of total assets.

In fact, after witnessing the decline in steel and HRC prices in the second quarter of 2024, the inventory accumulation trend of galvanized steel group decreased quite sharply, but was still high compared to the end of 2023.

Sharing more about the current inventory accumulation strategy of steel enterprises, Mr. Tran Nhat Trung, Director of Analysis at ACB Securities Company (ACBS), said: “Vietnam's steel prices remain at their lowest level in the past 3 years. The problems of the domestic real estate industry are also being resolved when many laws related to the industry are being accelerated and take effect earlier than expected. The prospect of the real estate industry recovering along with steel prices at their lowest level in 3 years is the main driving force for steel enterprises to accumulate inventories. The inventory ratio to total assets of steel enterprises is gradually returning to a high level in the period of 2021-2022, when steel prices as well as commodity prices increase sharply. However, it will be difficult for steel enterprises to have any breakthroughs at the end of 2024. We believe that it will not be until 2025-2026 that the real estate market can truly recover, promoting growth in the steel industry.”

Because of having to accumulate inventory to serve production in the context of steel and HRC prices falling simultaneously in the first 7 months of the year, some forecasts predict that the pressure to adjust inventory prices of galvanized steel enterprises will increase in the coming time.

It takes time to see the impact.

If the market does not receive new information, the inventory accumulation strategy of the galvanized steel group will face difficulties. However, thanks to China launching a series of solutions to support the real estate sector, and simultaneously loosening monetary policy, these synchronous solutions are expected to recover the economy in general and steel prices in particular.

Rong Viet Securities Company commented: “We believe that the decline in China's HRC will slow down after policies to support the real estate industry, so we can expect the HRC prices of China and Vietnam to bottom out. Along with that, the HRC trend in the US and European markets shows signs of recovery, helping the gap between HRC prices in Vietnam and the world to widen in the final period of 2024, improving the export profit margin of businesses.”

From another perspective, the CEO of a galvanized steel company said that the rebound of HRC prices from a low price base is good news for galvanized steel companies that have increased inventory in the first half of 2024, but because HRC prices have just recovered, more time is needed to consider the impact.

Source: https://baodautu.vn/nganh-ton-ma-bat-ngo-giam-ap-luc-trich-lap-du-phong-d227549.html