Bright prospects for steel firms despite challenges

Given recent international developments, global markets are likely to exhibit some signs of volatility and instability, Dang Tran Hai Dang, deputy head of market research at the Vietinbank Securities Company, said at a conference held in Hanoi.

He said factors that investors and steel companies should pay attention to include uncertain US policies under the Trump administration, the slowdown of China’s economy and the Britain’s exit from the European Union.

These factors indicate unclear prospects for the global economy this year, he said, citing a report of the International Monetary Fund (IMF) that has forecast global economic growth this year at just 3.4 percent.

The Vietnamese economy will also face a lot of challenges when the US Fed raises its lending rates, putting pressure on the Vietnamese dong to depreciate so as to make local products more competitive, Dang said.

In addition, Brexit and the US’s withdrawal from the Trans Pacific Partnership (TPP) are likely to negatively impact Vietnam’s exports, he added.

Nguyen Van Sua, Vice Chairman of the Vietnam Steel Association, said that the global steel industry has been through ups and downs since the middle of the 20th century, as can be seen by growth rates in different periods.

The industry’s annual growth rate was 5.1-7.4 percent during 1950-1970, 0.5-2.5 percent in 1970-2000; 6.2 percent in 2000-2005; 4.5 percent in 2005-2010; 2.5 percent in 2010-2015; and 2.9 percent in 2015.

In 2016, the global steel sector saw a slight recovery but there was still a surplus in the market with the production reaching nearly 1.63 million tonnes, a year-on-year increase of 0.5 percent, compared to a consumption volume of 1.5 million tonnes.

China was the top producer with 808.4 million tonnes, ahead of other countries like Japan, India and the US.

Sua said that one of the main reasons that helped China’s steel products become more competitive was preferential tax policies designed to boost export volumes.

He said Vietnam’s steel producers have not optimised their production capacity and have not met the market’s demand for some products like hot-rolled coil steel, leading to the strong increase in steel and steel product imports. In 2016, total steel imports rose 25 percent year-on-year to 17.5 million tonnes.

Despite all the challenges, there are still positive signs for the prospects of the steel sector and steel companies’ shares in 2017, Sua said.

There are plenty of opportunities for local steel companies if they can apply a closed production system to reach maximum production capacity, reduce production costs and assure high product quality to make their products more competitive.

They should also explore missing links in the sector’s value chain to reduce the volume of imported steel products, and diversify their product base, he said.

In general, listed steel companies have recovered after 2015, with profits growing 70 to 130 percent.
Hoa Phat Group and Hoa Sen Group are the two companies that have the top profitability ratio, while Nam Kim Steel JSC and SMC Investment Trading JSC have the highest returns-on-equity (ROE) ratios.

Listed steel companies had a robust year in 2016 with increasing combined marginal profits and net profits. 

Some of the listed firms recorded outstanding profit growth, like the Hoa Phat Group (89 percent), Hoa Sen Group (131 percent) and Nam Kim Steel JSC (312 percent).

In 2017, Vietnam will see more foreign capital flowing in as the country is one of the top 10 fastest growing securities markets in the world, the conference heard.

On March 8 this year, the VN Index reached a nine-year high of 716.6 points with a market average profitability rate of 18-20 percent. The benchmark index has gained more than seven percent since the beginning of the year with total market capitalisation of 72 billion USD, an increase of 26.6 percent year on year.

Investors will also be attracted by the Government’s efforts to divest from State-own enterprises and put those companies on the stock market, as also the low market price-to-earnings (P/E) ratio.

Vietnam’s steel producers and traders will integrate deeper in the global industry, especially given that the Government has signed 12 free trade agreements and is negotiating four others, Sua said.

He said that there was still room for local steel companies to grow as Vietnam still has a huge demand for their products to develop its economy and infrastructure.

He forecast that the total volume of steel and steel products produced in the country will reach 50 million tonnes by 2020 and 73 million tonnes by 2025.