What do steel businesses expect in 2024?

However, what they are worried about is that production costs are increasing sharply while demand is still at the "expected" level. Steel demand in 2024 may gradually recover
After a difficult year, steel businesses are placing more confidence in 2024 with the expectation that the real estate industry will recover and hot-rolled steel consumption in manufacturing industries will be higher.

Mr. Nghiem Xuan Da, General Director of Vietnam Steel Corporation (VNSteel, Code: TVN), Chairman of Vietnam Steel Association (VSA), commented that in 2024, the steel market has shown initial signs of recovery. .

“With the Government's programs to promote the economy, including solving difficulties in the real estate sector, supporting interest rates, promoting public investment... we forecast that the steel industry will increase output by 10%. in 2024", Mr. Da commented.

In 2023, the steel industry will witness many difficulties, in which slow economic growth and the real estate crisis have caused consumption to decline. Accordingly, growth in the industrial and construction sector is at 3.74% - a low level compared to many years ago, negatively affecting the steel industry.

Steel consumption is estimated to reach 20 million tons, down 8% compared to 2022. Finished steel production for the whole year reaches 27 million tons, down 8%.

Many businesses narrowed production and efficiency decreased due to reduced domestic and world steel demand. Meanwhile, the price of input materials is complicated, causing many businesses to fall into losses and difficulties.

"2024 will be the start-up year for the steel industry after hitting bottom in 2023. The market will begin to recover from 2025." That is the opinion of Mr. Nguyen Viet Thang - General Director of Hoa Phat Group when discussing with us about the prospects of the steel industry in 2024.

According to Mr. Thang, 2023 is the bottom of the steel industry and 2024 the market will be better. However, the level of increase will depend on many factors such as how quickly the Chinese economy recovers, the Fed's roadmap to reduce interest rates, and the prospect of a recession in the US economy. or not.

For the domestic market, consumption cannot recover quickly. "Hopefully, the real estate market will recover in the second half of this year, which will create demand for the steel industry," Mr. Thang said.

In the galvanized steel industry, businesses also have high expectations for exports. Mr. Le Viet, Deputy General Director of Phuong Nam Steel Sheet Company, said that in 2023, the company's business activities in foreign markets, especially Europe and the US, will be greatly affected by the economic crisis. and logistics costs increased at the end of the year.

"By 2024, we highly expect that export activities to the two above markets will increase. In addition, we have also taken measures to minimize risks, looking for suitable transportation partners. to ensure competitive logistics costs," Mr. Viet said.

This person also believes that the domestic market will have many bright spots because the economic support policies introduced by the Government in 2023 have somewhat "sink in". Businesses are starting to return to business. The lending interest rates of banks decreased to the average before COVID-19, which is a great motivation for businesses. Besides, public investment activities will have a positive impact on the steel industry, including galvanized steel.

In the same vein, in a recent report, the World Steel Association (WSA) also forecasted global steel demand growth of 1.9% in 2024, reaching nearly 1.85 billion tons.

In fact, the steel market started to show positive signs from the fourth quarter of 2023 when consumption of finished steel products increased gradually over the months.

According to VSA, finished steel sales reached more than 7.4 million tons, up 24% compared to April 2022.

Of which, construction steel (accounting for 41% of sales structure), increased by 21% to 3.1 million tons. According to annual practice, the fourth quarter is also a favorable time for construction projects.

Particularly in December 2023, construction steel sales reached the highest level since May 2022. This is also the second consecutive month that construction steel sales increased compared to the same period last year.

A sign that demand is gradually recovering is the correlation between output and consumption. In the last months of the year, construction steel consumption tends to be higher than output. This shows that businesses are gradually withdrawing inventory to offset output, especially in November and December.

Pressure to increase selling prices

It can be seen that steel manufacturing enterprises are waiting for a recovery from the real estate industry and the government's continued promotion of public investment. However, what they are worried about is that production costs are increasing sharply while demand is still at the "expected" level.

The price of 62%Fe iron ore in the first days of January reached 142 USD/ton - the highest mark in 19 months. Iron ore prices are rising even as world steel demand remains low.

There are many different explanations for this upward trend in prices, mainly coming from the market's expectations for China's economic stimulus plan, including reviving the real estate market. In addition, expectations of large spending on infrastructure construction this year also contribute to price momentum.

Besides iron ore, rising electricity prices in Vietnam are also putting pressure on businesses. In 2023, electricity prices will increase twice with a total average increase of 142.35 VND/kWh (equivalent to 7.6%) compared to 2022.

Talking to us, a steel industry analyst said that the proportion of electricity in the steel industry's cost of capital fluctuates between 5 - 7%, depending on developments in coal and iron ore prices. If coal and iron ore prices increase, the proportion of electricity costs will decrease.

Depending on the steelmaking technology (blast furnace or photovoltaic furnace), the impact of increased prices of input materials on businesses will vary. Typically, an increase in iron ore prices will have a greater impact on Hoa Phat because this enterprise uses blast furnace technology. Meanwhile, increasing electricity prices will greatly affect VNSteel.

In the current context of low steel demand, it becomes difficult to transfer increased costs of electricity and other raw materials into selling prices, especially construction steel.

“This is a very difficult problem. The steel industry has had to face double difficulties when input costs increased sharply while demand was weak. This will definitely affect the financial situation of the business," Mr. Nghiem Xuan Da said.

As for the opinion of General Director of Hoa Phat, the iron ore price of up to 140 USD/ton is unreasonable compared to the current state of the economy and needs to be adjusted down.

As of January 23, the price of 62% Fe iron ore has decreased slightly to 135 USD/ton.

Faced with the pressure of rising input costs, since the end of last year, factories began to slightly raise construction steel prices even though demand was still weak, to partially offset increased costs.

“Competition on selling price and market share of factories is increasingly fierce to maintain operations. Currently, domestic factories face many difficulties due to high inventory, low selling prices and high financial costs," VSA said in a recent report.

According to VSA, the price adjustment in the coming time will not be high, continuing at a range of 100 - 150 VND/kg for each adjustment period.

As for HRC, the sharp increase in the price of this product in recent times is good news for businesses such as Hoa Phat and Formosa, but it is bad news for galvanized steel producers such as Phuong Nam Ton, Hoa Sen, Nam Kim. because this is their input material.

“In recent months, HRC steel prices have increased sharply, from about 560 USD/ton in September to 650 USD/ton in January 2024. Besides, increasing electricity costs also greatly affect production activities. These factors put great pressure on the price of galvanized steel products and partly reduce the competitiveness of Vietnam's galvanized steel products in the world," Mr. Le Viet said.

He said that under the current pressure of rising costs, the company will have to increase selling prices, but the increase is not enough to offset high input costs.

“We think that in the global supply chain and especially galvanized steel sheet manufacturers, HRC in Vietnam will find solutions to reduce costs, balance the price structure, and improve the competitiveness of product. We also want the government to have a stabilization policy, keeping electricity prices at a reasonable level to support businesses to overcome current difficulties," he said.

Vietnambiz