Bright prospects for steel firms despite challenges
HÀ NỘI — Việt Nam’s listed steel companies can achieve higher growth in 2017 despite a volatile andpredictable international market if they optimise operations and exploit missing links in the sector’s supply chain, experts said yesterday.
Given recent international developments, global markets are likely to exhibit some signs of volatility andinstability, Đặng Trần Hải Đăng, deputy head of market research at theVietinbank Securities Company, said at a conference held in Hà Nội.
He said factors that investors and steel companies should pay attention to include uncertain US policies under the Trump administration, theslowdown of China’s economy and the Britain’sexit from the European Union.
These factors indicate unclear prospects for the global economy this year, he said, citing areport of the International Monetary Fund (IMF) that has forecast global economic growth this year at just 3.4 per cent.
The Vietnamese economy will also face a lot of challenges when the US Fed raises its lendingrates, putting pressure on the Vietnamese đồng to depreciate so as to make local products more competitive, Đăng said.
In addition, Brexit and the US’swithdrawal from the Trans Pacific Partnership (TPP) are likely to negativelyimpact Việt Nam’sexports, he added.
Nguyễn Văn Sưa,Vice Chairman of the Việt Nam Steel Association, said that the global steel industry has been through ups and downs since the middle of the 20th century, as can be seen by growth rates in different periods.
The industry’s annual growth rate was 5.1-7.4 per cent during 1950-1970, 0.5-2.5 percent in1970-2000; 6.2 per cent in 2000-2005; 4.5 percent in 2005-2010; 2.5 per centin 2010-2015; and 2.9 per cent in 2015.
In 2016, the global steel sector saw a slight recovery but there was still a surplus in the market with the production reaching nearly 1.63 million tonnes, a year-on-yearincrease of 0.5 percent, compared to a consumption volume of 1.5 million tonnes.
China was the top producer with 808.4 million tonnes, ahead of other countries like Japan,India and the US.
Sưa said that one of the main reasons that helped China’ssteel products become more competitive was preferential tax policies designedto boost export volumes.
He said Việt Nam’s steel producers have not optimised their production capacity and have not met themarket’s demand for some products like hot-rolled coil steel, leading to thestrong increase in steel and steel product imports. In 2016, total steel imports rose 25 percent year-on-year to 17.5 million tonnes.
Despite all the challenges, there are still positive signs for the prospects of the steelsector and steel companies’ shares in 2017, Sưa said.
There are plenty of opportunities for local steel companies if they can apply a closed production system to reach maximum production capacity, reduce production costs and assure high product quality to make their products more competitive.
They should also explore missing links in the sector’s value chain to reduce the volume ofimported steel products, and diversify their product base, he said.
In general, listed steel companies have recovered after 2015, with profits growing 70 to 130 percent.
Hòa Phát Group and Hoa Sen Group are the two companies that have the top profitability ratio,while Nam Kim Steel JSC and SMC Investment Trading JSC have the highestreturns-on-equity (ROE) ratios.
Listed steel companies had a robust year in 2016 with increasing combined marginal profitsand net profits. Some of the listed firms recorded outstanding profit growth, like the Hòa Phát Group (89 per cent), Hoa Sen Group (131 per cent) and Nam Kim Steel JSC (312 per cent).
In 2017, Việt Nam will seemore foreign capital flowing in as the country is one of the top 10 fastest growing securities markets in the world, the conference heard.
On March 8 thisyear, the VN Index reached a nine-year high of 716.6 points with a market average profitability rate of 18-20 per cent. The benchmark index has gained more than seven per cent since the beginning of the year with total market capital isation of $72 billion, an increase of 26.6 percent year on year.
Investors will also be attracted by the Government’s efforts to divest from State-ownenterprises and put those companies on the stock market, as also the low market price-to-earnings (P/E) ratio.
Viet Nam’s steel producers and traders will integrate deeper in the global industry, especially given that the Governmenthas signed 12 free trade agreements and is negotiating four others, Sưa said.
He said that there was still room for local steel companies to grow as Viet Nam still has a huge demandfor their products to develop its economy and infrastructure.
He forecast that the total volume of steel and steel products produced in the country will reach 50 million tonnes by 2020 and 73 million tonnes by 2025.