Import demand is expected to continue to maintain positive momentum in the coming quarters amid high domestic price differentials between the EU and the US and the Asian region.
In a recent Steel Industry Outlook Report, VCBS Securities Company said that steel production activities will recover strongly in mid-2023, increasing supply in the context of producers making profits again after input prices (ore, coal) adjusted down, supporting profit margins. In addition, more positive hydropower output supports the electricity supply to manufacturing plants.
Construction steel export output also showed signs of strong recovery from August 2023 in the context of China gradually reducing competition in construction steel exports at the end of the year.
According to VCBS, although galvanized steel export sales have not yet reached the high level of 2021, they have shown a good recovery compared to the bottom level of August 2022. Of which, a large contribution comes from the amount of steel exported to the EU market because the supply here was severely affected after the earthquake in Turkey and the energy shortage.
Domestic market demand recorded negative figures in the first 9 months of 2023 and has not shown clear signs of recovery. In the first 9 months of 2023, domestic construction steel consumption reached 5.37 million tons, down 18% over the same period; steel pipes decreased by 7% and galvanized steel decreased by 4.3%.
The reasons for this decline are: The domestic real estate market has not recovered due to a lack of new construction projects; Disbursement of public investment capital has not reached the plan; Fierce competition for Chinese steel products in the context of this country’s excess supply.
Assessing the prospects of the steel industry in 2024, VCBS expects that Chinese steel prices will maintain a low price level of around 3,600 – 4,200 USD/ton as at present until at least the first half of 2024 due to the fact that steel demand has not recovered due to the Chinese housing market showing no signs of warming up with the number of newly built houses continuously decreasing due to capital for project development still facing many obstacles here; The confidence of home buyers in China is weakening and there is not much motivation to return; Support policies for the real estate market need more time to penetrate to help the market truly recover.
“Based on the RMI (China Real Estate Index) which is closely correlated with steel price fluctuations, we highly appreciate the possibility that the steel price cycle will bottom out in the next 6 months at least. Currently, the RMI is below 100 (RMI is at 93.44 – as low as the Chinese real estate crisis in 2014-2015), showing that the Chinese real estate industry is still in a very weak stage. The recovery process from the bottom usually takes 6 months to 1 year after the Government’s stimulus policies,” VCBS assessed.
Meanwhile, the price of steel bars in Vietnam, after a continuous decline, has been flat at 13.5 million VND/ton (lowest), and has slightly recovered to 14 million VND/ton. This situation comes from: Pressure to reduce prices following world steel prices; Domestic steel consumption demand has decreased sharply in the third quarter of 2023, forcing manufacturing enterprises to lower prices to push inventory sales; Competition with cheap imports, especially from China.
VCBS assessed that the steel price at 13.5 million VND/ton (HPG’s lowest bar steel price) is the bottom of bar steel because at this price, steel production enterprises using EAF electric furnace technology maintain a break-even or loss gross profit margin.
In addition, the current domestic steel bar price is as low as the imported price from China, so the potential for a price reduction is not much. However, the steel price cycle will fluctuate in correlation with the Chinese steel price as stated in the previous section and it is unlikely that the price will increase sharply in the near future.
Steel prices have recovered in the recent period mainly due to short-term expectations from the Chinese government’s policy packages and high input prices. VCBS expects rebar prices to remain at VND14-15 million/ton until the end of the first half of 2024 before there are subsequent price increases.
Regarding the export market outlook, this Securities Company also assessed that the export market demand will continue to be positive in 2024. Specifically, according to the forecast of the World Steel Association (WSA), global steel consumption demand will grow by 1.9% in 2024. Of which, there will be a significant recovery in most countries such as Europe, Asia, America, etc. The country with the largest weight and lacking growth momentum in 2024 is China with a forecast of steel consumption growth of only 0%.
VCBS believes that this growth assumption will be reasonable in the context of interest rate foundations in major countries such as Europe and the US decreasing in the second half of 2024 and there is no case of economic recession. Steel import demand in key countries such as the US and EU has a good recovery rate in the first 9 months of 2023 from the bottom of the fourth quarter of 2022. Import demand is expected to continue to maintain positive momentum in the following quarters in the context of high domestic price differences between the EU and the US and the Asian region.
In addition, public investment creates demand for steel. VCBS expects that in 2024, public investment will make a breakthrough due to disbursement for backlogged projects from 2023, and the Government’s additional economic stimulus package. However, this unit also notes that the proportion of steel in public investment is not much, so the contribution is not really significant.
In addition, the gradual recovery of the domestic real estate industry will support industry demand in 2024. Accordingly, the real estate construction market (accounting for 60% of steel demand) is gradually having its difficulties resolved thanks to revised policies.
The number of projects under implementation shows a clear growth in the North and a recovery in the South . This helps the demand for construction materials to recover in the coming quarters. The negative point comes from the fact that the number of newly licensed projects is decreasing and at a very low level.
VCBS estimates that total construction steel consumption in 2023 will decrease by about 15% before recovering by 11% in 2024. The driving force for growth will largely come from the recovery of the civil construction market.
