Steel fortunes limited by real estate uncertainties

On March 25, steel giant Hoa Phat Group issued its 2022 annual report, noting that it will invest in additional tech infrastructure for the 216-hectare Yen My II Industrial Park expansion in 2023.

Yen My II Industrial Park, Source: hoaphat.com.vn

The park, located in the northern province of Hung Yen, is one of three that the company currently owns and maintains. The other two are Pho Noi A in Hung Yen and Hoa Mac in the nearby province of Ha Nam.

In the next 10 years, it plans to establish 10 such parks in addition to the current ones, with an emphasis on the development of 300-500ha megacities.

Notwithstanding the progress made in 2022, the iron and steel industry is experiencing a deterioration. According to Tran Dinh Long, chairman of the Board of Directors at Hoa Phat, the company’s financial records for the second half of 2022 reflect the company’s first consecutive severe losses, with full-year sales down 5 per cent compared to 2021.

Hoa Phat is representative of steel companies that emerged from the market quagmire in 2022 as a result of infrastructure development. Yet, not all firms have sufficient resources or the ability to develop a cash flow solution.

Elsewhere, Tien Len Steel, a local steel producer and distributor, intends to issue shares to current shareholders in order to raise $47.8 million in 2023.

It also expects to spend $21.3 million on the An Phuoc residential and commercial project in Long Thanh district of the southern province of Dong Nai, and pump $1.1 million into the Danang branch building project situated on National Highway 1A in the city’s Hoa Vang district.

According to data from the Vietnam Steel Association (VSA), the consumption of certain finished steel products was lower than anticipated during the construction season following the Lunar New Year as a result of a stagnant real estate market, while construction steel consumption is low as a result of a tightening credit system.

In the first two months of this year, building steel sales totalled 1.7 million metric tonnes, a drop of 22.3 per cent compared to the same time last year. In this time, shipments fell by 34.5 per cent to 262,000MT, a reduction of 34.5 per cent compared to the same period in 2022.

Steel is constantly monitored in terms of the nation’s economy because of its sensitivity to cash flows and its relation to the building and manufacturing industries.

According to the General Statistics Office, the consumption index of the whole processing and manufacturing sector declined by 2.9 per cent in the first quarter of 2023 compared to the same time in 2022. During that same period, it had climbed by 6.6 per cent.

Throughout the first three quarters of 2022, steel producers were among the top achievers in the manufacturing sector. Nevertheless, the steel market has seen a fall in demand as a result of economic weakness, while production units continue to stockpile commodities, forcing many steel companies to encounter problems in the latter months of 2022.

Nowadays, the largest consumers of local iron and steel are construction and public projects.

According to the VSA, the uncertainty of the real estate market may further limit domestic steel product demand. More than 90 per cent of domestic steel usage is generated by the building sector.

Yet, KB Securities Vietnam predicted that steel consumption will remain a “major problem in 2023” as the real estate sector continues to be challenging, restricting the availability of new projects. In addition, the fear of inflation and the worldwide economic downturn had a severe impact on the export prospects of steel companies.

“This year’s steel industry outlook is buoyed by positive indications such as more stable raw material pricing and China’s economic openness,” KB wrote. “On the other hand, we anticipate that public investment will be the main factor behind the future increase in steel consumption demand.”

Currently, 46.6 per cent of the government’s medium-term investment capital allocation plan is allocated to transportation projects. Thus, firms providing steel for these projects will benefit if public funding is disbursed on time, KB Securities added.

Japanese investors highly appreciate Vietnamese property market Representatives from around 180 Japanese businesses and investors on April 1 attended a Tokyo workshop on Vietnamese real estate, during which many of them highly appreciated the potential of Vietnam’s property market.

Vibrant activity felt with real estate M&A Merger and acquisition activities in the first months of the year surged with several huge deals, signalling the Vietnamese market is ready to welcome foreign investors into projects thirsty for capital.