Small steel companies struggle in Q3 due to COVID-19

As the domestic market has been heavily affected by the COVID-19 pandemic, many small steel enterprises experienced a sharp decline in profit in the third quarter of 2021.

In its third quarter financial statement, Pomina Steel Corporation (POM) said that its net profit dropped 78% on-year to VND3.5 billion (US$153,267). However the company’s consolidated net revenue still rose 38.9% to VND3.1 trillion. 

Meanwhile, due to the complexity of the COVID-19 outbreak in southern localities such as HCM City, Binh Duong and Ba Ria - Vung Tau, construction consumption also stopped, resulting in lower prices.

Moreover, extra costs due to the “three-on-site” model triggered a decline of 14.7% in gross profit to VND119.7 billion. Its gross profit margin inched down to 3.8% from 6.3%. 

The company's revenue growth was boosted by exports with revenue of VND1.9 trillion, 4.5 times higher than the same period last year. 

The strong rise in exports offset the decline in domestic consumption that was down 55%. 

For the first nine months of the year, Pomina recorded net revenue of VND9.6 trillion, up nearly 32% over last year, while posting a profit after tax of VND205.9 billion. In the same period last year it lost VND127.8 billion. 

This year, the company set a target of VND12 trillion in revenue and VND600 billion in profit after tax. Thus, after nine months, it respectively completed 80.35% of the revenue target and 34.3% of the profit target.

Other steel enterprises operating in the south also recorded a sharp drop in business results in the third quarter as both consumption and production were seriously hit by the pandemic. 

Of which, Thu Duc Steel JSC (TDS) in its financial statement reported a net loss of VND643.7 million, while in the same period last year it posted a net profit of nearly VND2.2 billion. 

The fall was due to losses of 31.8% year-on-year in net revenue, while production costs increased sharply. Because of the pandemic, it could only arrange the “three-on-site” for one production shift. Therefore the production cost was very high, while output was low. 

The company's production cost climbed sharply because of rising debts, transportation costs, and raw material costs.

Vietnam-Italy Steel JSC (VIS) also suffered a net loss of VND92.3 billion in the third quarter of 2021, despite an 18.4% increase in net revenue. In the same period of 2020 it recorded a profit of VND26.7 billion.

The reason was the sharp rise in cost of goods sold, up 30.9% over last year, eroding the company’s profit. In addition, financial revenue decreased by 42.2% while interest expenses jumped by 21.6%. 

As of September 30, the company still witnessed a net loss of VND18.6 billion although net revenue rose 56.1 percent year-on-year.

It explained that the implementation of the COVID-19 prevention measures in many localities had delayed construction activities, freezing the output of steel products. Both its billet and steel mills had to stop operating at times, but the company still paid fixed costs. 

Also adding to the pressure, the prices of raw materials increased while the company could not sharply raise the price of semi-finished products, and inventories rose sharply, causing the company to pay extra costs for holding goods.

Similarly, the financial statements of Vicasa (VCA) showed that its profit after tax slid 48% in the third quarter of 2021, while revenue only decreased by 4%.

On the contrary, leading steel producers still performed well during the period thanks to strong export demand and higher global steel prices. 

Hoa Sen Group (HSG) posted an increase of 89% in revenue and double in profit. While Hoa Phat Group (HPG)’s profit was 2.73 times higher than the same period last year.