(HSV VIETNAM GROUP) – Although the steel market has many positive signals and is expected to grow 10% in output in 2024, there are still many risk factors related to the Chinese market and rising raw material prices.
Steel demand remains healthy in the short term
In the first month of this year, finished steel output and sales are estimated to increase by 32.3% and 37.7% over the same period last year to 2.6 million tons and 2.4 million tons, respectively. Of which, construction steel alone (accounting for about 40% of finished steel products) recorded a 15.2% increase in sales to more than 1 million tons.
However, it should be noted that last January coincided with the Lunar New Year, so there will be a lower base level, which contributes to this year's January growth figure.
According to the Vietnam Steel Association (VSA), construction steel demand in January still maintained a good level in the short term. From the fourth quarter of 2023, factors causing an increase include input material prices (iron ore, coke coal, waste, electricity prices), financial costs and USD/VND price slippage. Therefore, factories have to increase selling prices to partially offset the increase in raw material prices.
VSA believes that in the post-Tet period, competition between factories will be fierce on selling prices to expand or maintain market share.
Construction steel prices as of the end of last year fluctuated between 13.8-15.3 million VND/ton. Entering 2024, the price of this commodity has increased by 150,000 - 370,000 VND per ton to 14 - 14.5 million VND/ton then flatlined until the end of February. However, the current price is still 8% lower than the end of 2023 and 18% in 2022.
VSA also expressed caution, saying that although steel demand in January remained at a good level in the short term, in general there are no signs of improvement in the long term.
Expect output growth of 10% in 2024
Mr. Nghiem Xuan Da, General Director of Vietnam Steel Corporation (VNSteel - Code: TVN), commented that in 2024, the steel market has shown initial signs of recovery.
"With the Government's programs to promote the economy, including removing difficulties in the real estate sector, supporting interest rates, promoting public investment... we forecast that the steel industry will increase output by 10% in 2024," Mr. Da commented.
Ms. Trang Thi Thu Ha, Chief of VSA Office, said steel consumption in 2024 is expected to increase by 6.4% to nearly 21.6 million tons. Of which, exports of finished and semi-finished steel products increased by 12% to nearly 13 million tons.
This target is set based on the expectation that Vietnam's GDP will grow by 6 - 6.5% this year. In addition, world steel demand is expected to increase by 1.9% to 1.8 billion tons in 2024. Of which, ASEAN steel demand is expected to increase by 5.2%.
Currently, ASEAN is Vietnam's largest steel export market, accounting for 32%, with the EU and US ranking second and third with 28% and 9% respectively.
Regarding a longer perspective, Ms. Ha believes that by 2030, the average steel consumption will reach 290 - 300 kg/person, up from the current figure of 240 kg/person, while the population in 2030 will also increase to about 104 million people.
"Vietnam's steel production prospects increase by about 10% in 2024 and 8% in 2025 when the demand for steel in domestic economic sectors recovers. It is forecast that finished steel production in 2024 - 2025 will reach about 28 - 30 million tons and domestic steel consumption demand will reach about 21 - 22.5 million tons," Ms. Ha said.
"2024 will be the start-up year for the steel industry after hitting bottom in 2023. The market will begin to recover from 2025." That is the opinion of Mr. Nguyen Viet Thang - General Director of Hoa Phat Group when discussing with us about the prospects of the steel industry in 2024.
According to Mr. Thang, 2023 is the bottom of the steel industry and 2024 the market will be better. However, the level of increase will depend on many factors such as how quickly the Chinese economy recovers, the Fed's roadmap to reduce interest rates, and whether the US economy has a recession outlook or not.
For the domestic market, consumption cannot recover quickly. "Hopefully, the real estate market will recover in the second half of this year, which will create demand for the steel industry. We plan to increase steel production this year by over 10% with the expectation of consumption growth at the same level," Mr. Thang said.
In the fourth quarter of 2023, Hoa Phat Group achieved revenue of 34,925 billion VND, an increase of 33% compared to the same period in 2023. Profit after tax reached 2,969 billion VND, an increase of 249% compared to the same period in 2022 and an increase of 48% compared to the previous quarter.
Accumulated for the whole year 2023, Hoa Phat will reach VND 120,355 billion in revenue, down 16% over the same period last year. Profit after tax is 6,800 billion VND, down 19% compared to 2022 and completing 85% of the year plan.
In a recent report, experts from SSI Securities (SSI Research) expect total steel consumption to recover by more than 6% over the same period in 2024, of which domestic consumption will reach a growth rate of nearly 7%.
Accordingly, the domestic channel has shown the first signs of recovery by the end of 2023 when consumption volume from September to November increased by 13% over the same period after a decrease of 20% in the previous 8 months. Steel consumption in 2024 will be supported by the macroeconomic situation and a better real estate market. In the previous cycle, construction steel consumption in 2013 increased by about 3% compared to the bottom in 2012.
Besides, export volumes can maintain growth thanks to the positive global demand outlook. According to the World Steel Association, world steel demand is expected to increase 1.9% in 2024 compared to 1.8% in 2023.
Demand from developed economies is expected to increase by 2.8% in 2024 after decreasing by 1.8% in 2023. Of which, US and European demand increased by 5.8% and 1.6%, respectively. On the other hand, demand from most ASEAN countries is expected to increase by 5.2% in 2024, higher than 3.8% in 2023.
Therefore, Vietnam's steel export volume is expected to improve in the first quarter due to the increasing gap between HRC steel prices in North America and Europe and steel prices in Vietnam. In addition, Europe's stricter control of the import of semi-finished steel products produced by Russia in 2024 will also support Vietnamese steel exports to Europe.
Hoa Phat's CEO believes that HRC products will recover faster because current demand is still quite good, especially in the fields of mechanical engineering and manufacturing. Besides, the price difference between HRC steel and construction steel is also larger.
"HRC steel prices are currently much better than construction steel, the price difference is relatively large because the construction industry is still facing difficulties, while the processing and manufacturing industry is recovering better," he said.
Risk comes from China
Although Vietnam's steel industry is expected to recover this year, there are still concerns related to the Chinese market and increasing input material prices.
"We do not expect steel prices to increase sharply because overall demand will still be affected by weak demand in China because the real estate market has not seen much improvement," SSI Research said.
Additionally, rising input costs could reduce profit margins in the short term if demand slows. Coke and iron ore prices have increased 18% and 27% respectively in the past four months, due to increased Chinese imports, seasonal stockpiling by steel companies and rising production and transportation costs.
Last year, the country's real estate market fell into crisis, causing demand for construction steel to weaken. In addition, the lack of regulations on annual output quotas also motivates Chinese steel mills to increase production and exports.
According to data from the General Administration of Customs of China (GACC), the country's steel exports in 2023 will reach more than 90 million tons, an increase of 36% compared to 2022. This is also the highest level since 2016. The average export steel price in 2023 is only about 706 USD/ton, down 35% compared to 2022.
The majority of steel is exported to regions with few trade barriers, including Southeast Asia, the Middle East, South Asia, Central America...
In 2023, Vietnam imports 8.3 million tons of steel from China, an increase of 63% compared to 2022 and accounting for the highest proportion of about 78% of the structure of steel export markets to Vietnam. The price of imported steel from China during the year reached an average of 681 USD/ton, down 30% compared to last year.
Signs that China's steel demand is still weak appeared right from the beginning of this year. According to Bloomberg, iron ore prices fell to their lowest level since October - after falling nearly 9% in the week ending February 23.
Vale SA, the world's second-largest iron ore producer, said it is looking to increase sales to markets outside China. This is a sign that mining companies are not optimistic about the recovery of the billion-dollar market.
Facing this challenge, Vietnamese steel businesses are showing concern about China's wave of export promotion.
CEO Hoa Phat said that in 2024 the domestic steel market will face many risks, including that the Chinese economy may not prosper.
"The pressure from the Chinese market is huge. Last year, this country exported more than 90 million tons of steel and is expected to increase to 100 million tons this year. Clearly, many countries are building fences with China. If Vietnam does not have adequate trade defense measures, certainly with its location right next to China, the pressure on this country's steel to pour into the domestic market is very large. Therefore, we hope that state agencies will have legitimate and fair support measures. equal," Mr. Thang said.
Ha Diem HSV