Steel industry – Risk from material price fluctuations in 4Q2023
- In 3Q2023, Vietnam's HRC price was relatively stable at USD 570/ton, through which galvanized steel companies (NKG, HSG, GDA) could maintain the GPM equal to the second quarter. In 4Q23, due to weak demand, HRC prices tend to decrease, specifically with Chinese HRC prices trading at the price of USD 520/ton (the lowest level in 2023). However, we assess that the adjustment of Chinese HRC prices is short-term, because at this price steel manufacturers are loosing USD 50/ton and they will tend to decrease the utilization rate, according to Mysteel. Thereby, Vietnamese HRC prices will only be under short-term price pressure, and we expect the average price to stay at USD 570/ton, which will minimize the negative impact on the business results of galvanized steel companies in the 4th quarter.
- For the material price of blat furnaces, we seen significant fluctuations in September, due to: 1/ demand improvement in the Asian market (especially since India has resumed production of iron ore pellets in Mangalore to meet the demand from infrastructure development); 2/ restocking activities before China's mid-autumn festival, 3/ concerns about supply shortages of Australian coking coal. If this trend continues in the first months of the fourth quarter, the gross profit margin (GPM) of steel enterprises using blast furnaces (Hoa Phat, Pomina,…) may be negatively affected.
- Construction steel prices have not been adjusted corresponding to raw material price fluctuations, due to domestic demand shortage and competitive pressure from imported Chinese steel. The stock prices of steel manufacturing companies (HPG, HSG, NKG) have recorded a 15-25% correction compared to the peak and they are traded at an average PBR of 1.3 (the low-level in the period 2019-2023), shows that the market has started to reflect the risk of profit margin decline in the 4Q. we recommend that investors should monitor material price movements, especially in October, before making decisions to invest in construction steel companies, including HPG (HOLD, TP: VND 24,600/share), HSG (ACCUMULATE, TP: VND 19,200/share) and NKG (ACCUMULATE, TP: VND 21,000/share)....
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