Steel enterprises massively reported losses

The financial reporting season of the third quarter of 2022 has just begun, and many businesses are preparing to announce business results. Accordingly, in addition to businesses that reported good growth in revenue and profit, there were also many businesses that recorded losses in this quarter.

With the steel industry, after winning big in 2021, businesses in this industry are entering the phase on the other side of the slope of the business cycle.

 

Business below cost plus cost burden, causing steel enterprises to record large losses

The difficulty is not over yet
Consumption was slow, steel prices turned to decrease while inventories were high, production costs increased, causing steel enterprises to face "disastrous" business results in the third quarter of 2022.

After a hot period since the beginning of the year, the domestic construction steel price has dropped 15 times in a row from April to August 2022, with a decrease of about 6 million VND/ton.

At the end of September, steel price increased again after many price reductions with an increase of about 2 million VND to 15-16.5 million VND/ton. However, by 12.10, steel price decreased 3 times in a row to about 14.5-15.5 million VND/ton.

The instability of steel prices affects production and business activities as well as the distribution of this item.

According to the Vietnam Steel Association (VSA), the reason for the continuous decrease in steel prices in recent years is the sharp drop in input material prices along with large inventories, forcing businesses to lower product prices to stimulate consumer demand.

On the other hand, domestic steel production is still increasing while the amount of steel sold is on a decreasing trend.

Steel production is still increasing while the amount of steel sold is on a strong downward trend

Currently, the domestic demand for steel is at a low level, and exports have fallen sharply because the price is higher than the regional price. Specifically, in September 2022, construction steel production recovered, reaching 2.4 million tons, up 23.4% compared to August and up 1.7% over the same period in 2021.

However, sales volume only reached nearly 2 million tons, down 7.2% from the previous month and down by nearly 10% over the same period. In which, sales of construction steel stood at 920,248 tons, down nearly 22% from the previous month and up 7.8% over the same period in 2021.

During this period, the price of raw materials for steel production also fluctuated strongly, causing steel enterprises to be greatly affected, production and business activities difficult, and low efficiency.

In the context of difficult business activities, the profit of steel enterprises is also forecasted to drop sharply compared to the peak of the same period.

Steel enterprises suffered heavy losses
Up to the present time, many steel enterprises have announced their consolidated financial statements for the third quarter of 2022 with unsatisfactory results, even losses.

Thu Duc Steel Joint Stock Company - VnSteel (Code: TDS) has just announced its financial report for the third quarter of 2022, with poor business results.

Thu Duc Steel reported a loss of nearly 22 billion dong in the third quarter of 2022

Specifically, in the third quarter, this business recorded more than 412 billion dong in revenue, a slight increase of 2% over the same period last year.

However, due to business below cost, accompanied by a series of increased expenses, this business suffered a net loss after tax of approximately 21 billion dong, while the same period last year still had a profit of nearly 5 billion dong.

During the period, financial income increased slightly, but financial expenses increased nearly 4 times, mainly interest expenses; Administration expenses also doubled, leading to a loss of 29.5 billion dong at the end of this period.

It is known that while the same period last year, this steel business only lost 644 million dong, equivalent to a loss 34 times larger than the same period. This is also the most losing quarter of Thu Duc Steel since equitization (in 2008).

Accumulated in the first 9 months of 2022, Thu Duc Steel suffered a loss of 15.7 billion dong, while in the same period had a profit after tax of more than 46 billion dong. Equity therefore decreased from 297 billion dong to 276 billion dong.

As of September 30, Thu Duc Steel's total assets were VND 492 billion, down 13% compared to the beginning of the year. In which, inventory is more than 420 billion dong, accounting for more than 85% of the company's total assets. This number is equivalent to the number at the beginning of the year, proving that goods are sold poorly.

Thu Duc Steel said that due to the impact of the global economic recession, high inflation led to slow consumption of goods, high inventory prices, and erratic fluctuations in the prices of purchased materials.

Meanwhile, the selling price was not enough to cover the cost of capital, causing a loss in gross profit in the third quarter of the company. In addition, because the demand for construction steel is directly related to the real estate industry along with interest expenses, banks tightening credit room is also a burden for the company during this period.

Vicasa Steel reported a record loss of nearly 22 billion VND in the context of the general difficulties of the entire steel industry

Similarly, another company in the VNSteel group, Vicasa Steel - VnSteel (Ticker: VCA) also reported a record loss of nearly 22 billion dong in the context of the general difficulties of the whole steel industry because of falling prices and demand.

Specifically, Vicasa Steel recorded revenue in the third quarter of more than VND 477 billion, down nearly 18% over the same period last year.

During the period, the company did business at below cost, so the gross loss was nearly 10 billion dong, while in the same period there was a profit of nearly 12 billion dong. In addition, many expenses increased over the same period, causing Vicasa Steel to have a pre-tax loss of approximately VND 24 billion and a loss after tax of nearly VND 22 billion, while in the same period only nearly VND 2 billion in profit after tax. This is also the record quarterly loss of this steel business since going public.

Compared to the third quarter of 2021, Vicasa Steel's product sales volume was very small, prices dropped sharply, inventory prices were high and financial costs increased due to slow turnover of goods, increased borrowing rates, which impacted on the results in the year. this stage of the company.

In 9 months, Vicasa Steel recorded revenue of 1,834 billion dong, down 4% over the same period and a loss after tax of 13 billion dong, in contrast to 42 billion dong in the same period.

As of the end of September 2022, Vicasa Steel's total assets were VND 530 billion, down 8% compared to the beginning of the year. Of which, VND 377 billion is inventory, accounting for more than 70% of total assets and unchanged from the beginning of the year.

Poor business results in the third quarter of 2022 is not only the story of Vicasa Steel or Thu Duc Steel, but this is a common problem of steel enterprises today.

In the context of difficult steel industry, Pomina Steel recently had to stop operating a blast furnace (BF) from September 23 and at the same time had to cut many employees of the company.

Previously, Pomina recorded a loss of nearly 64 billion dong in the second quarter in the context of a sharp decrease in steel output and selling price. In addition, the impact also comes from the decline in financial revenue and increased expenses.

In a recent report, SSI Research estimated the profit after tax in the third quarter of Hoa Phat was about VND 2,100 billion, down sharply by 80% compared to the peak in the third quarter of 2021. The decline in profit during this period was due to the decrease in steel price, especially HRC hot rolled coil price down 32% y/y, high coking coal price and exchange rate loss due to 2.5% devaluation of VND. against USD.

Previously, SSI Research also forecast that the profit in 2022 of Hoa Sen Group is VND 1,400 billion, down 67% compared to 2021 and Nam Kim is VND 1,350 billion, down 39% compared to last year.

With the price of raw materials for steel production fluctuating sharply and the price of construction steel falling, domestic steel mills are facing large losses due to high inventory prices. On the other hand, traders and stores also reduced their buying volume because they were afraid that prices might drop further in the near future.

Cafe Land