Vnsteel – Thu Duc Steel JSC (TDS) has become the first steel manufacturer reporting a loss for Q2 2022 amid difficulties the steel industry is facing.

The company reported a sharp fall of 45 percent in net revenue compared with the same period last year to VND358 billion, and a gross loss of VND2.5 billion.

The information was not a surprise. In the last two quarters of 2021, the business also reported a loss. This is a sign showing that the steel industry is coping with lower sales and prices.

Prior to that, at the 2022 annual shareholders’ meeting of Hoa Phat Group (HPG), its chair Tran Dinh Long warned about the "catastrophic situation" when the steel industry is in "unfavorable conditions".

“Wait to see how serious the situation is in Q2,” Long said.

According to Long, the industry would cope with difficulties in the last three quarters of the year because of the sharp rise in input materials caused by the Russia-Ukraine conflict. 

Also, China's application of its zero Covid policy has led to a decrease in demand from this market.

TDS said its Q2 revenue fell because of the 50 percent reduction in steel sales compared with the same period last year. The minus Q2 profit was attributed to a sharp decrease in finished product prices. 

Steel consumption fell sharply, which forced the company to suspend production. The high price of steel inventory from previous months affected the cost price.

The slow sales also affected cash flow. This, plus credit tightening and interest rate hikes, led to higher financial costs.

Results for the company in the next two quarters will not be good as steel prices are predicted to continue to decrease, and its inventory level is high (VND50 billion worth of inventories as of the end of Q2).

The same situation is occurring with other enterprises in the steel industry.

Mirae Asset believes that in 2022-2023, Hoa Phat may see a profit margin decrease as iron ore prices have been adjusted since Q2 and the high coke prices.

SSI Research has predicted that the margin profit in the whole year of 2022 of Hoa Sen Group (HSG) and Nam Kim Steel (NKG) will be corrected from the 2021 peak as there is no low-cost inventory.  

Meanwhile, BSC said the profit margin of the steel industry will decrease as a result of the average steel selling price decreases in 2022 amid stiffer competition.

HPG share prices have fallen from VND43,000 per share to VND22,000. HSG and NKG have seen sharper price decreases of 60-70 percent.

Manh Ha