The Center for Analysis and Investment Advisory of SSI Securities Joint Stock Company (SSI Research) believes that the domestic demand for finished steel products may decline by single digits in 2023. However, the acceleration of public investment may partially offset the reduced steel demand from the civil channel.
Domestic demand may continue to weaken due to the sluggish real estate market and tight monetary policy. According to the Ministry of Construction, the number of newly licensed apartments for construction in the first three quarters of 2022 decreased by 41% over the same period.
In addition, the progress of backlog projects may also be delayed, due to liquidity problems of real estate investors. The household channel (which used to be more resilient) could also be affected by a slowdown in the overall economy, with higher unemployment and interest rates.
According to the Vietnam Steel Association (VSA), large steel mills have stopped the operation of some blast furnaces such as Hoa Phat, Formosa, Tisco... or extended production plans such as Southern Steel, Maruichi Sunsco...
VSA's data shows that in November, finished steel production reached 1.8 million tons, down 11% compared to October and down 37% compared to the same period in 2021. Sales of all kinds of steel reached 1.9 million tons, up 3% from the previous month but down 16% compared to November 2021.
Accumulated in the first 11 months of the year, finished steel production reached 27.1 million tons, down 11% compared to the same period in 2021. Sales of finished steel reached 25.1 million tons, down 7% over the same period in 2021, of which exports reached 5.7 million tons, down 19% over the same period last year.
Source: Bloomberg, SSI Research
The Center for Analysis and Investment Advisory of SSI Securities Joint Stock Company (SSI Research) believes that the domestic demand for finished steel products may decrease by single digits in 2023. Looking at past data, it can be seen that Vietnam's steel industry has faced this before. Construction steel sales fell 7% year-on-year in 2022.
However, the acceleration of public investment can help offset some of the reduced steel demand from the residential channel.
Steel prices may be less volatile in 2023 due to stable Chinese demand. After a 2-4% decline in 2022, China's demand is expected to remain flat or recover slightly between 1-2% in 2023, which is fueled by the reopening in the months at beginning of the year.
Demand in the Chinese market is likely to remain weak, as new home sales have declined since the second half of 2021, but will be supported by recent government measures to address liquidity issues of real estate investors and infrastructure investors.
Besides, the steel output of the world's largest manufacturers also declined as mills had to cut output after a long period of losses.
After reaching a peak in May 2022 at 96.6 million tons, China's steel output gradually declined to 74.5 million tons in November, causing a balance between supply and demand. These factors may help regional steel prices to be more stable in 2023.
However, SSI Research thinks it is unlikely that steel prices will increase sharply, as the reopening in China will also lead to increased supply. In addition, the current price level is already 20-40% higher than the pre-COVID level.
"We forecast finished steel exports may fall more than 10% in 2023. Profits of companies may recover from 2022 but risks remain high: Steel and raw material prices More stability can help stabilize the profits of steel companies in 2023, "said SSI Research.
However, weak demand can lead to low utilization rates, at only 60-75% (compared to over 80% in 2022 and more than 90% in 2021), which will put pressure on revenue, cash flow, and profit margin of the company for the coming year. In addition, the narrowing price gap between Vietnam and other markets will make export profit margins less attractive than in the 2020-2021 period.
(Enterprise & Business)
Read more: Steel Industry Report
Steel Industry Report - December 2022