Reversing the situation in 2020, what awaits steel enterprises in 2021 ? The macroeconomic recovery, infrastructure investment and FDI into Vietnam are expected to boost steel demand in 2021.
Reversing the situation in 2021
2020 is a year of unexpected fluctuations for the world’s economic. The Covid-19 pandemic has changed economic scenarios, negatively effect to domestic manufacturing, including the steel industry.
Earlier this year, the Vietnam Steel Association (VSA) stated that this year would be difficult for the domestic steel industry due to the pressure from increasing domestic supply, imported steel; tightening credit for the domestic real estate market and behind-schedule construction projects.
In the first quarter of 2019, there was sluggish signs of the global steel market and consumption. It was the world’s situation when supply outpaces demand. That led to export growth and ultimately shrank profits. VSA predicted steel production to grow slightly by 6-8%, lower than the previous year’s growth.
However, the Covid-19 pandemic has made competitive pressure from China to decrease significantly, and even increase sharply the steel products to this market. Because China’s domestic demand has increased strongly while the supply cannot meet immediately.
According to the latest data from VSA, in the first 10 months of 2020, Vietnam steel export reached 7,99 million tons, equivalent to 4.19 billion USD. Particularly, export to China has increased 19 times in the first 9 months, reached 2.53 million tons.
In contrast, steel imports to Vietnam reached 11.28 million tons, equivalent to 6.6 billion USD, down 7% in amount and 17% in value over the same period.
Besides the positive signals from the export market, domestic consumption also recovered strongly from quarter 2/2020 because construction activities return to normal, thanks to the pandemic control in Vietnam.
In November, steel production, sales and export increased sharply. For the first 11 months of the year, it increased 1% over the same period in 2019.
The recovery has been supported by the Government’s efforts to accelerate the disbursement of public investment capital. In the first 11 months, total amount of the disbursement of public investment capital reached 336.000 billion VN, up 34% over the same period. The amount increased significantly compared to the average level of the 2016-2019 period, especially from June 2020 onwards.
In the first 9 months, the business results of most steel companies prospered out of predict. Especially in the third quarter, no listed steel enterprises reported losses. It was financially successful to many enterprises, converting losses into profits.
The growth champions were Nam Kim Steel (code NKG) – reported 13 time-higher profit after tax than the same period last year; Hoa Phat Group (code HPG) and Hoa Sen Group (code HSG) – broke the record in the third quarter, far exceeding the year target.…
Many other enterprises also had impressive profit growth such as SMC, VIS… In the first 9 months, only POM reported loss. However, it significantly shrank over the same period of last year.
Steel market in 2020 is going on a positive direction, it is estimated that the consumption will keep growing at 5 – 7%. The main force is from 700,000 billion VND of public investment capital, of which 200,000 billion VND will be spent on major infrastructure projects such as: North-South Expressway, Tan Son Nhat Airport…
In addition, The China Iron and Steel Association forecasts that in the second half of 2020 the county’s consumption will increase by 40 million tons, equivalent to an increase of 8% over the same period in 2019 and 2% for the whole year.
Motivation growth in 2021
Talking about steel market in 2021, SSI Research estimates that steel demand will increase about 3-5%, thanks to the macroeconomic recovery, infrastructure investment, especially the urgent key projects such as North-South in the East, Long Thanh international airport
Besides, Vietnam gets a big chance to attract FDI because of its abilities to control the pandemic and cheap labors… Therefore, foreign companies tend to relocate to Vietnam, build new factories… leading to increase of steel demand.
In addition, opportunities from integration, CPTPP, EVFTA… are also expected to boost the steel industry to produce and export to new markets. For CPTPP, the removal of tariff series will help Vietnamese steel enterprises expand export markets and import raw materials from advantageous countries such as Australia.
According to BSC Securities, CPTPP member countries are the main source of raw materials for steel production for Vietnamese enterprises. Some members such as Canada and Malaysia also have great demand for importing more finished steel products.
Before that, ASEAN and the US were the two leading markets for Vietnam’s steel exports. However, in the context of rising protectionism, according to experts, a redirection of exports and expansion to other markets is necessary.
Meanwhile, EVFTA, came into effect from August 1, 2020, is expected to help the steel industry expand easier and more opportunities for export to the EU market. However, EU markets are in a stable state with steel trade transactions. According to VSA data, the EU market accounts for about 4.2% of Vietnam’s total steel exports. Meanwhile, the traditional market is ASEAN, China still accounts for a large proportion, nearly 55% and 19% respectively …
Therefore, in order to enter the EU market, products are required to meet many high and strict standards. Vietnamese steel manufacturers who want to meet that standards must improve their technology, techniques, change their production processes, and change business practices.
In addition, according to the World Steel Association, global steel demand is expected to recover 4% in 2021. This will also support the export of Vietnamese manufacturing enterprises
