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Steel companies post poor profits in second quarter

10:51 | 14/08/2019
Second-quarter earnings of steelmaking companies showed signs of deterioration as prices of iron ore continued to increase, leading to higher production costs and lower profit.

The factory of the Nguyen Tin Steel SJC in Thuan Dao Industrial Park of Long An province (Photo: VNA)

Hoa Phat Group (HPG), the biggest listing steelmaker, reported revenue of 15.3 trillion VND (656.7 million USD) in the second quarter, up 6 percent year-on-year, but its profit after tax declined 7 percent in the reviewed period, reaching 2.05 trillion VND.

Ending June, the company’s revenue increased 10.3 percent on-year to more than 30 trillion VND, but its net profit dropped 12.8 percent to 3.86 trillion VND.

Hoa Sen Group (HSG) reported its net revenues slumped by 30 percent to 7.2 trillion VND (309 million USD) in the third quarter for the fiscal year 2018-2019 (April 1 – June) but its net profit rose 94 percent year-on-year to 161 billion VND.

It said it managed to cut management costs by 50 percent thanks to installing the enterprise resource planning (ERP) and focus on exploring new export markets.

Sharp increases in iron ore prices were attributable to unenthusiastic business results of steel companies, according to analysts at Vietinbank Securities JSC.

The price of iron ore, which account for 30-40 percent of the cost of steel production, rose to 130 USD per tonne in some future contracts, the highest since 2016. Higher cost of production accompanied by increasing capacity of domestic enterprises is driving up competition, a July report on the steel industry of Vietinbank Securities JSC showed.

“The increase in capacity is happening faster than in consumption which has pushed many businesses into losses since 2018 and early 2019,” the report said.

Except Hoa Phat which has a high profit margin, other businesses in the industry have very low profit margins and therefore are quite vulnerable when there are adverse developments in the industry, according to the report.

Investment in expanding capacity of large enterprises such as Hoa Phat would create competition and put pressure on many businesses in the coming years, it said.

A number of steel companies have posted their second-quarter and first-half earnings with lower revenues and profits. They included SMC, Vietnam Germany Steel Pipe (VGS), Thai Nguyen Iron and Steel (TIS) and Tien Len Steel (TLH).

For SMC, its revenue grew 8.7 percent in the first six months but its cost of capital increased by 10.56 percent, resulting in a decrease of 22 percent in gross profit.

VGS’s first-half revenue dropped just 1.3 percent year-on-year to 3.46 trillion VND but its profit after tax fell 11.7 percent to just 28 billion VND. Meanwhile, revenue and net profit of TLH declined 16.4 percent and 72 percent, respectively.

TIS reported a 5.4-percent decline in revenue and 10.5 percent drop in net profit in the first half to 5.5 trillion VND and 38 billion VND, respectively.

According to analysts, the steel industry is facing many challenges, including the trade war between the US and China, intense competition in the domestic market from cheap low-quality imports and slump of the property market.

In addition, the US imposition of anti-dumping tax on steel sheet products imported from Vietnam using materials imported from the Republic of Korea and Taiwan has also forced steel exporters to seek new material sources.



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