Galvanized steel industry unexpectedly reduces pressure on provisioning

The rebound in hot-rolled steel sheet prices after a period of decline is helping to reduce the pressure on galvanized steel sheet businesses to make provisions for inventory.

Hoa Sen Steel increased its inventory stockpiles in the first nine months of the 2023-2024 fiscal year (Photo: Le Toan)

Provisions for bad debts decreased significantly.

Continuing the recovery trend from 2023, in the first half of 2024, the galvanized steel sheet business group is showing positive business results.

Accordingly, in the first eight months of 2024, total domestic consumption of steel sheets reached over 1.527 million tons, an increase of 18.9% compared to the same period; total exports reached 2.152 million tons, an increase of 48% compared to the same period.

Besides improved consumption figures for the industry, the profit picture of listed galvanized steel companies also showed significant growth. In the first half of 2024, the three largest privately owned galvanized steel companies listed on the stock exchange, including Nam Kim Steel Joint Stock Company (NKG), Hoa Sen Group Joint Stock Company (HSG), and Dong A Steel Joint Stock Company (GDA), recorded an average revenue growth of 16.8% year-on-year; and an average after-tax profit growth of 228.7% compared to the first half of 2023.

In contrast to the positive business results of galvanized steel sheet companies, the price of hot-rolled coil (HRC) – a key input material for galvanized steel sheets – continues to decline. This raises concerns that prolonged low HRC prices could lead to inventory write-downs for galvanized steel sheet companies.

In 2024, the galvanized steel sheet group achieved positive business results. Along with improved industry sales volume, the profits of listed galvanized steel sheet companies also increased significantly.

Statistics from January 29, 2024 to August 15, 2024 show that world steel prices decreased by 29.5%, from 3,952 to 2,788 CNY/ton; HRC prices decreased by 42.3% from January 3, 2024 to July 23, 2024, from 1,135 to 655 USD/ton.

However, from August 15th to October 1st, world steel prices increased by 22.6%, to 3,417 CNY/ton; from July 23rd to October 4th, HRC prices increased by 10.5%, to 724 USD/ton.

Statistical data from Rong Viet Securities Company shows that HRC prices in Vietnam and the Chinese market are similar, with negligible differences. Furthermore, galvanized steel companies tend to stockpile 3-6 months' worth of inventory to meet their production input needs.

The Chairman of the Board of Directors of Hoa Sen Group, Mr. Le Phuoc Vu, shared: “Hoa Sen is both an importer, manufacturer, distributor, and exporter, therefore, the company maintains inventory to ensure about 4 months of production.”

Furthermore, as of June 30, 2024, Hoa Sen's inventory increased by VND 2,529.15 billion compared to the beginning of the year, reaching VND 10,157.76 billion, accounting for 51.5% of total assets; Nam Kim Steel's inventory increased by VND 24.4 billion, reaching VND 5,743.1 billion, accounting for 44.5% of total assets; and Ton Dong A's inventory increased by VND 915.25 billion, reaching VND 4,042.2 billion, accounting for 31.9% of total assets.

In fact, after witnessing the sharp decline in steel and HRC prices in Q2/2024, the trend of stockpiling in the galvanized steel sheet group decreased quite significantly, but still remained high compared to the end of 2023.

Sharing more about the current inventory accumulation strategy of steel companies, Mr. Tran Nhat Trung, Director of Analysis atACB Securities Company (ACBS), said: “Vietnamese steel prices have remained at their lowest level in the past three years. Issues in the domestic real estate sector are also being resolved as many related laws are being expedited and taking effect sooner than expected. The prospect of real estate recovery, along with steel prices at their lowest level in three years, is the main driving force for steel companies to accumulate inventory. The inventory-to-total-assets ratio of steel companies is gradually returning to high levels in 2021-2022, as steel prices and commodity prices have increased sharply. However, it will be difficult for steel companies to achieve any breakthrough by the end of 2024. We believe that the real estate market will only truly recover in 2025-2026, boosting the growth of the steel industry.”

Because of the need to build up inventory to support production amidst the simultaneous decline in steel and HRC prices during the first seven months of the year, some forecasts suggest that the pressure to adjust inventory prices downwards for galvanized steel sheet businesses is expected to increase in the near future.

It takes time to assess the impact.

If the market doesn't receive new information, the inventory stockpiling strategy of the galvanized steel group will face difficulties. However, thanks to China's launch of a series of measures to support the real estate sector, along with its loosening of monetary policy, these synchronized solutions are expected to revive the economy in general and steel prices in particular.

Rong Viet Securities Company commented: “We believe that the decline in China's HRC prices will slow down after policies supporting the real estate industry, thus we can expect HRC prices in both China and Vietnam to bottom out. Along with that, the HRC trend in the US and European markets shows signs of recovery, which could widen the price difference between HRC in Vietnam and the world in the latter part of 2024, improving export profit margins for businesses.”

From another perspective, the CEO of a galvanized steel sheet company believes that the rebound in HRC prices from their low levels is good news for galvanized steel sheet businesses that increased inventory in the first half of 2024, but because HRC prices have only recently recovered, more time is needed to assess the impact.

Source: https://baodautu.vn/nganh-ton-ma-bat-ngo-giam-ap-luc-trich-lap-du-phong-d227549.html