According to a report of SSI Securities Company, the steel industry was up 111% year to date and 188% from March 2020 (the lowest level) - much higher than the VNIndex of 96% and 122%, respectively. The positive growth of the steel industry in 2020 resulted from the following factors.
Due to the successful control of the pandemic since May, the sales volume of domestic finished construction steel and flat steel (including galvanized steel sheet and steel pipe) from May to November 2020 recovered positively with a growth of 1% and 7% over the same period, respectively. The contributions to the growth included steady demand from the residential channel, accelerated public investment with the total value in 11 months in 2020 increasing 34% year over year, and increasing steel prices, thus enticing distributors to hoard inventories.
Vietnam's steel exports benefited more from the disruption of supplies. To be specific, the production output of steel in major markets such as the EU, US, India, Japan, and South Korea in 11 months of 2020 decreased by 15%, 18%, 12%, 17%, and 7% year over year, respectively.
Thanks to a recovery in the global demand and disruptions in the supply chain, the exports of steel witnessed strong growth since the second quarter. The total export turnover of steel products in 11 months of 2020 increased 48% year over year, according to the General Department of Vietnam Customs. The exports were strongly supported by increasing investment in infrastructure in many countries, especially China, to protect GDP growth in the context of the private sector slowing down; the recovered automobile industry because the pandemic encouraged customers to switch from public transport to private vehicles; gradually stabilized production segment in the second half of the year.
Due to recovered global demand and disruptions in supplies of both steel and raw materials, steel prices rose sharply in the second half of the year. The price of domestic construction steel increased by 25% year to date and 36% compared to the low level of April. Meanwhile, the HRC (hot-rolled coil) price increased by 43% year to date and by 80% compared to the bottom level. The steel prices tended to increase in the second half of the year due to strong demand, capacity cuts in China, and rising iron ore prices because of supply disruptions, especially in Brazil.
The market share of Hoa Phat Group (HPG) dramatically increased from 26.2% in 2019 to 32.5% in the first 11 months of 2020. This was due to the increased capacity of the Dung Quat Iron and Steel Complex and significant competitive advantages in production scale and cost compared to domestic competitors. The market share of another company, Hoa Sen Group (HSG) also rose from 30% in 2019 to 33% in the first 11 months of 2020. This mainly came from the export channel. The company has diversified its market base in recent years, thus expanding its export volumes better than other domestic enterprises.
Overall, the pre-tax profits of leading steel manufacturers witnessed strong growth in the third quarter of 2020 compared to the same period last year. While HPG's growth was boosted by revenue growth, the growth of galvanized steel companies such as HSG and Nam Kim Steel JSC (NKG) mostly come from the improved gross margin, thanks to increased steel prices and decreasing domestic market competition when new capacity is not available.
Regarding the growth prospects of the steel industry in 2021, the domestic demand growth is expected to recover to a normal level of 8% compared to the low level in 2020. The drivers of steel demand include infrastructure investment and FDI inflows, which also promote civil construction along with FDI projects and infrastructure.
The export demand will still be quite positive, but the competition will be fiercer due to the recovery in some markets. According to the World Steel Association, world demand is expected to increase by 4.1% in 2021 after falling by 2.4% in 2020. The demand in emerging markets (excluding China) is also expected to increase by 9.4% in 2021.
Compiled by VietnamCredit