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In the industry report just released, Maybank KimEng Securities Company (MBKE) gives a neutral perspective on the steel industry in 2022. Accordingly, after a brilliant 2021, steel enterprises are facing challenges. from the decrease in selling price. In addition to the supply bottlenecks due to the simultaneous reopening of developed countries and the closure in developing countries due to the Delta variant, China's restriction on steel production has created an imbalance in supply. severe demand, pushing steel prices to record highs in mid-2021.
Crude steel prices continue to fall in 2022
"The Delta variant has turned the world situation upside down in 2021 and indirectly pushed industrial metal prices in general and steel prices in particular. In terms of demand, in addition to the Government of countries promoting investment in the facility infrastructure to cope with the economic downturn, the simultaneous reopening of developed countries has created a high demand for construction materials since the third quarter of 2020", the assessment report.
Accordingly, from a record increase in the third quarter of 2020 (industrial production +12.7% QoQ and construction +12.7% QoQ), industrial production and construction of OECD countries has expanded continuously for 4 consecutive quarters.
The simultaneous reopening of developed countries has created a high demand for construction materials since the third quarter of 2020.
On the supply side, recent social distancing in developing countries due to the impact of Delta sea and low vaccine coverage have created a bottleneck in steel supply. In addition, according to MBKE, part of the reason is also due to China's policy when limiting domestic steel production not to exceed 2020 output, in order to reduce pollution before the 2022 Winter Olympics and the general election. 2022, as well as its long-term goal to be carbon neutral by 2050.
As a result, HPG's monthly steel production output has decreased by 30%, from 100 million tons in May 2021 to about 70 million tons in October 2021. Also because of that supply-demand imbalance, steel prices were pushed to a record high in May 2021.
Entering the fourth quarter of 2021, supply bottlenecks are gradually easing due to slowing demand in developed countries and the reopening of developing countries thanks to high vaccination rates, leading to steel prices. reduction. Specifically, by the end of November 2021, China's hot rolled coil (HRC) price dropped 25% to about $750/ton from more than $1,000 in May 2021.
Steel prices were pushed to a record high due to the supply-demand imbalance
In 2022, the OECD forecasts global GDP growth to decline to 4.46% in 2022 and 3.24% in 2023, from 5.56% in 2021. For the steel market, the World Steel Association estimates demand China's demand will be flat, falling just 1% year-on-year, while growth in the developed world and the rest of the world more than halved to 4.3% and 5.0%, respectively. 0% over the same period.
Meanwhile, Chinese steelmakers may ramp up production again after the 2022 Winter Olympics. Therefore, the MBKE team expects supply and demand to become more balanced in the future and steel price will decrease 10-15% in 2022.
The domestic market recovered, offsetting the slowdown of the export market
The domestic steel market was hit hard when the widespread Delta strain caused construction sites to close throughout the third quarter of 2021. Construction value decreased by 11.41% year-on-year and total output of finished steel products (rebar, steel pipe, and galvanized sheet) decreased by 37.9% year-on-year in the third quarter of 2021.
Despite recording a spike in demand in October 2021 after social distancing, consumption in October - November was still poor, down 22% over the same period. Total steel consumption of the whole industry decreased by 14.6% over the same period, to 10.79 million tons.
The domestic steel market was hit hard when the Delta strain spread.
"Entering 2022, we expect the economic stimulus package from 2022 to 2023 to quickly help the domestic market recover. Besides, the infrastructure construction investment package is worth 150 trillion VND, plus with the existing level of VND 530 trillion, will help public spending increase by 38% n/n in 2022", the report said.
Moreover, the research team hopes that the adjustments to the Law on Construction, Investment and Housing will remove the bottleneck that is preventing the development of the residential real estate industry in recent years. "Therefore, we believe this will help the domestic steel market to grow by 15-20% in 2022," the report emphasized.
It can be seen that, in contrast to the domestic market context when it is heavily impacted by the epidemic as well as social distancing, Vietnamese steel enterprises have had a successful year 2021 beyond expectations in the export market. Statistics show that, in the first 11 months of 2021, Vietnam exported 12.2 million tons of steel, up 37% over the same period. Steel export surplus reached 868,000 tons, the highest ever.
Specifically, steel exports to the European and American markets increased by 7.5 times and 5.5 times, respectively, to 1.54 million tons and 921,000 tons in the first 11 months of 2021. Besides the increased demand for steel when economic The economy has reopened, the FTAs between Europe and Vietnam have come into effect since August 2020, and the bilateral relationship between Vietnam and the US due to the US-China trade war has also boosted exports. global steel.
In 2022, it is expected that steel exports to China will continue to remain low due to the country's real estate market problems. However, MKBE expects Vietnamese steel exports to other markets to grow by about 5%, thereby bringing total export volume up 4% to 13.9 million tons in 2022.
Vietnamese steel exports to other markets are expected to grow positively in 2022
In terms of business situation, listed steel companies had a favorable year in 2021 in the context of increasing foreign demand and rising prices. In the first 9 months of 2021, the revenue of listed companies increased by 61% over the same period, EBITDA coefficient +128% n/n, and EAT +239% n/n thanks to increased selling prices and open net profit margin. wide.
For the second quarter of 2021 alone, revenue increased by 72% n/n, EBITDA +186% n/n, and NPAT +304% n/n, which is also the strongest growth quarter ever. As a result, steel stock prices rose 71% in the first half of 2021, outperforming the overall market by 43%, before slowing down in the third quarter of 2021 and declining in October-November 2021 as global steel prices eased. reduction.
Listed steel companies have had a favorable year 2021
On that basis, MBKE forecasts that in 2022 the net profit margin will narrow, in parallel with the selling price and profit decrease more. However, the research team expects that the increase in domestic steel demand will help the price decrease not have much impact on the revenue and profit of steel manufacturers.
"Moreover, these companies are currently trading with historically low valuations, so downside risk is limited, in our view. We therefore have a view. neutrality to the steel industry in 2022", MBKE emphasized.
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