How are HPG, HSG, and NKG evaluated?

Oversupply and insufficient demand have been the primary drivers of the drop in Chinese steel prices. Construction steel and HRC prices have dropped to their lowest levels in five years, down 24% and 21%, respectively, since the start of the year. In terms of demand, the real estate market slump has deteriorated despite the government's various stimulus measures.

MBS claimed that in July 2024, China's house prices plummeted to a nine-year low, down 5% year on year. It also predicts that the real estate crisis will last until the end of 2024, and that steel pricing potential will be dependent on supply as steel mills reduce production.

Meanwhile, Reuters reports that the Chinese government has been delaying the approval of coal-based steel factories since 2024 in order to safeguard the environment and limit  new production. Furthermore, key steel-producing provinces such as Hebei and Jiangsu have reduced output by 20% to 30%, with gross margins falling to a negative 4%, the lowest in five years.

As a result, China's steel export volume in July fell 9% from the same month previous year. Tighter supply might boost steel prices. Chinese construction steel prices rose 4% in September compared to their August lows. There is anticipation that rebar prices would improve from Q4 2024, as the pressure from surplus supply eases.

“We also note that China recently suffered from Typhoon Bebinca (the strongest typhoon recorded in the past 70 years), which destroyed some infrastructure projects in Shanghai and Jiangsu. Therefore, short-term steel demand in China will increase due to the need for steel in housing and infrastructure reconstruction plans,” MBS assessed.

This securities company also noted that domestic steel prices are expected to recover from Q4 2024 due to reduced pressure from Chinese steel. Unlike China, the potential of Vietnam's steel industry comes from the recovery prospects of the real estate market. Growth in housing supply and public investment has driven the recovery of construction steel.

According to CBRE, apartment supply in Hanoi and Ho Chi Minh City will increase by 30% and 20% year-on-year, respectively. Furthermore, public investment disbursement plans continue to grow by 12% year-on-year, reaching a value of about VND 638,000 billion as the government focuses on accelerating the construction of transportation infrastructure for economic development.

"We expect Vietnam's construction steel and HRC prices to improve favorably beginning in Q4 2024, as pressure from China eases. As a result, we predict that the average price of construction steel might reach $571/ton, up 4% year on year, while HRC may fall 7% year on year to $556/ton owing to pressure from Chinese steel in the first half of 2024," MBS stated.

How do top steel businesses, such as HPG, HSG, and NKG, benefit?

For HPG, MBS assesses it as a leading steel company benefiting from the domestic price recovery. Therefore, this firm estimates that its net profit for 2024-2025 could increase by 74% and 51% year-on-year, respectively, thanks to production growth and improved gross margins. In 2026, with the contribution of 3 million tons of HRC from the Dung Quat 2 plant, net profit could reach VND 23,576 billion, a 31% year-on-year increase.

For HSG, MBS believes that HSG, as a leader in coated steel, will also benefit from the recovery in domestic demand. As a result, net profit for 2024-2025 is estimated to grow by 2.33% and 6% year-on-year, respectively, thanks to production growth and increased gross margins. Additionally, HSG may regain market share thanks to anti-dumping duties, which help narrow the price gap between Chinese and Vietnamese coated steel.

As for NKG, MBS predicts that when demand recovers, both the steel export and domestic steel industry will enter a recovery phase beginning in 2024. With good market prospects in the EU and the United States, NKG will gain as a sector leader.

As a result, NKG's after-tax profit is expected to enter a recovery cycle, with year-on-year growth rates of 287% and 111% for the period 2024-2025, driven by revenue growth of 20% and 17% as production and selling prices recover, improved export demand, and gross margins increasing by 7.5% and 8.7% as selling prices rise faster than HRC raw material prices.