Steel enterprises continue to reduce inventories

Enterprises reduce inventory to two-year low

After a long time of sliding steel industry, positive signals began to appear in the second quarter when the decline in steel consumption began to slow down.

According to the Vietnam Steel Association (VSA), finished steel sales reached 6.5 million tons, down 3.4% compared to the first quarter of 2023, and down 7.2% over the same period in 2022.

In particular, businesses focus more on sales activities to foreign markets in the context that the domestic real estate market is still gloomy. This helped the export of finished steel in the second quarter to reach 2.2 million tons, up 33% and 21.7% respectively compared to the first quarter of 2023 and the second quarter of 2022.

Meanwhile, the decline rate of finished steel production is stronger than consumption. In the second quarter, finished steel production reached 6.4 million tons, down 17.3% compared to the first quarter of 2023, and down 21% over the same period in 2022.

This led to a decrease in inventories of steel enterprises in the second quarter.

Typically, Hoa Phat Group Joint Stock Company, as of June 30, the company's inventory was VND 32,261 billion, down 7% compared to the end of the first quarter and 50% lower than the same period last year. This is also the lowest level in the past 2 years.

The total amount of Hoa Phat steel supplied to the market in the second quarter was 1.53 million tons, up 11% compared to the previous quarter of 1.38 million tons. In which, consumption of hot rolled coil (HRC) reached 734 thousand tons, the highest in the past 5 quarters and exceeded 11% of HRC output in the second quarter of 2022.

Consumption of steel products tended to increase month by month in the first half of this year and reached the highest level in June.

Hoa Phat said that domestic steel consumption has not improved much compared to the previous quarter because the domestic market is still weak. Steel prices fell in line with world steel prices. Second quarter revenue increased slightly from export expansion. The proportion of crude steel sales from exports increased sharply from 14% in the first quarter to 32%.

Hoa Phat has not yet run at full capacity of steel mills. In the context of unstable fuel prices, the Group maintains a low number of days of inventory in all warehouses from raw materials, fuel, work-in-progress and finished products.

Inventory days have been lowered and remained stable for the past one year and are continuing to be strictly controlled, especially for input materials. The number of days of raw materials in this period is 65 days and finished products is 46 days, a slight decrease compared to the previous quarter, reducing the total number of days of inventory to 118 days, from 172 days of the same period.

Similarly, the inventory of Hoa Sen Group JSC (Code: HSG) was only half of that at the end of the second quarter of last year and down 10% compared to the end of the first quarter. The number of days of inventory was 79 days, a sharp decrease compared to the end of the second quarter of last year. 103 days of the same period last year.

Some other enterprises recorded a deep decrease in inventories compared to the same period in the same period as the case of Pomina Steel JSC (Code: POM). By the end of the second quarter, the inventory value of this enterprise was at VND 996 billion, down 81% over the same period and down 6% compared to the end of the first quarter.

Meanwhile, inventory of Tien Len Steel Joint Stock Company (Code: TLH) only slightly adjusted compared to the first quarter and the same period last year (down 5% and 7% respectively).

Reduced inventory helps to strengthen profit margin

Maintaining this inventory policy helps businesses preserve working capital resources and strengthen internal forces to thicken profit margins. In addition, the adjustment of inventory levels to a low level since the end of last year has been effective, helping the prices of coal and ore put into steel production closely reflect and take advantage of the market's declines, especially for the price of coal and iron ore. coal, thereby reducing steel production costs significantly compared to previous periods, helping to improve COGS.

Accordingly, in the second quarter, input material prices have cooled down. The average price of iron ore 62%Fe in the second quarter of 2023 was about 113 USD/ton, down 11% compared to the first quarter of 2023 and down 19% compared to the same period in 2022. The average price of iron ore in the first 6 months of 2023 was 118. .3 USD/ton, down 15% over the same period in 2022.

The average price of coking coal in the second quarter of 2023 was at 243.8 USD/ton, down 29% compared to the average price in the first quarter of 2023 and down 45% over the same period in 2022. in the first 6 months of 2023 reached 293.6 USD/ton, down 36.9% over the same period last year.

Therefore, despite the decrease in steel prices, the gross profit margin of some enterprises still improved in this quarter.

Enterprises rely on public investment projects

In the gloomy context of the current real estate and civil construction market, some businesses look to public investment projects.

Mr. Pham Cong Thao - Deputy General Director of Vietnam Steel Corporation - Joint Stock Company said: "I expect public investment projects will help improve domestic steel demand, the government itself is also promoting credit. much, continuously reducing interest rates. Therefore, I expect demand to improve from the fourth quarter.”

Infrastructure construction currently accounts for 18% of Vietnam's steel consumption structure.

According to Mr. Dinh Quoc Thai, General Secretary of VSA, in the field of public investment, the steel industry expects more from bridge and culvert construction projects because these are projects that consume a lot of steel. As for road construction projects, the benefit level is only "indirect" in items such as railings. Other larger components such as road surface are mainly plastic, soil, sand and not much steel because currently Vietnam still uses traditional technology.

“We expect more from the improvement of highway works with the use of reinforced concrete roads and viaducts for the Mekong Delta,” said Mr. Thai.

According to him, VSA and other building material associations have also submitted to the Prime Minister a proposal that should not build a regular highway, but should build a viaduct in this area to ensure safety and durability. steady. The Prime Minister has also directed the study of this proposal.

Vietnambiz