Bright prospects for VN steel firms despite challenges

Viet Nam’s listed steel companies can achieve higher growth in 2017 despite a volatile and predictable international market if they optimise operations and exploit missing links in the sector’s supply chain, experts said yesterday.

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 Ha Noi.

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 per cent.

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 Viet Nam’s exports, he added.

Nguyen Van Sua, Vice Chairman of the Viet Nam 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 per cent during 1950-1970, 0.5-2.5 per cent in 1970-2000; 6.2 per cent in 2000-2005; 4.5 per cent in 2005-2010; 2.5 per cent in 2010-2015; and 2.9 per cent 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 per cent, 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 Viet Nam’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 per cent year-on-year to 17.5 million tonnes.

More opportunities

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 per cent.

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 per cent), Hoa Sen Group (131 per cent) and Nam Kim Steel JSC (312 per cent).

In 2017, Viet Nam 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 per cent. 

The benchmark index has gained more than seven per cent since the beginning of the year with total market capitalisation of $72 billion, an increase of 26.6 per cent 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.

Viet Nam’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 Viet Nam 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. 

VNS