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Steel producers record big profits on high prices

Update: July, 31/2021 - 09:47
Inside a steel production line of Hoà Phát Group. Photo hoaphat.com.vn

By Ly Ly Cao

HÀ NỘI — 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 Việt Nam (SSC), Hoà Phát Group (HPG) said that its revenue reached VNĐ35.4 trillion (US$1.54 billion) in the second quarter, resulting in profit after tax of over VNĐ9.7 trillion. 

In the first half of this year, Hoà Phát reported revenue of nearly VNĐ66.9 trillion, up 67 per cent year-on-year. Its profit after tax was more than VNĐ16.7 trillion, 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 ton yesterday, up 32 per cent since the beginning of 2021. 

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

According to Việt Nam Steel Association (VSA), construction steel prices rose nearly 9.3 per cent for the year to VNĐ16,500 per kg in July, which was up 50 per cent 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,” Việt 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 per cent and 36 per cent respectively over last year,” the company added. 

Tiến Lên 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 VNĐ1.4 trillion, up 36 per cent over last year. 

During the period, the company’s sales expenses rose sharply to over VNĐ31.4 billion from just over VNĐ8.1 billion of the second quarter in 2020.

However, the steel producer still set a record net profit of nearly VNĐ196.7 billion, while it had lost over VNĐ15.4 billion in the same period last year. 

In the first six months of 2021, its net revenue reached nearly VNĐ2.4 trillion, up 21 per cent year-on-year. This led to profit after tax of VNĐ316.8 billion, compared to a loss of VNĐ11.7 billion last year. 

Similarly, Việt Nam Steel Corporation (TVN) posted net revenue of VNĐ10.9 trillion in the second quarter, up 35.7 per cent over the year. The gain in revenue was over rises in cost of goods sold, so its gross profit climbed 128 per cent to VNĐ886.6 billion. 

After deducting expenses, the company’s profit after tax was VNĐ576.3 billion, 2.6 times higher than the second quarter of 2020. This is also the highest quarterly profit since Việt Nam Steel was founded. 

As of June 30, the company’s net revenue increased 32.5 per cent to VNĐ20.37 trillion, resulting in profit after tax of 970.5 billion, 3.8 times higher than that of last year. 

While steel maker Hoa Sen Group (HSG) posted an increase in revenue of 90 per cent to nearly VNĐ13 trillion in the second quarter. Its profit after tax reached VNĐ1.7 trillion, over 5 times higher than last year. 

It reported net revenue of VNĐ33 trillion and profit after tax of over VNĐ3.37 trillion 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," Trần Bảo Thạch, Deputy Director of Hà Nội 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 Friday, up in a range of 0.42 - 2.46 per cent. VNS

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