Will coated steel exports remain positive?

HSG sold 158,000 tons of coated steel in July, similar to the volume of 155,000 tons in June. 

Vietnam’s coated steel companies exported 300,000 tons of product in July, up 6% compared to in June. Measures to control the pandemic in the South and several large cities have negatively affected domestic demand as sales volume decreased to 127,700 tons in July, 35% lower than the same period last year. Total coated steel sales volume reached roughly 430,000 tons in July, which decreased slightly but still in a high range.

The leading coated steel companies recorded strong export volume. HSG sold 158,000 tons of coated steel in July, similar to the volume of 155,000 tons in June. Its export volume increased from 102,000 tons in June to 123,000 tons in July. Meanwhile, NKG’s export volume reached 62,000 tons in July, stable compared to that of 63,500 tons in June. However, NKG’s sales volume in the domestic market fell from 26,000 tons in June to 13,500 tons in July.

VDSC believed coated steel export volume to Europe would be robust until 2022 owing to favorable trade policies and increasing demand. Because, Vietnam has advantages against Turkey, South Korea, and India thanks to trade policies. South Korea and India- Vietnam’s main competitors, are imposed specific quotas of only 170,000 tons/year and 210,000 tons/year respectively. Meanwhile, Turkey’s HRC was imposed an anti-dumping tax of 4.7-7.3% by the EU since April, weakening its competitiveness. Regarding Vietnam, the EU’s metallic coated sheet (4A) import quota for its group will be roughly two million tons/year in the next three years. In 1H2021, Vietnam exported roughly 300,000 tons of metallic coated sheets, mainly hot-dipped galvanized steel sheets. Hence, there is room for Vietnam’s coated steel producers to grow. Regarding demand, EU’s steel consumption is forecasted by WSA to grow by 10.2% YoY in 2021 and 4.8% in 2022 owing to recovering demand after the pandemic.

Especially, Vietnam’s lower production costs can support coated steel exports’ profitability in the mid-term. In the 2021-2022 period, high carbon and electricity prices will maintain steel production costs in Europe to be at least USD 135-155/ton higher than in Vietnam. Currently, the carbon price is roughly USD 60/ton, and a ton of steel produced by BOF will emit 1.85 tons of CO2. Besides, steel produced by EAF accounts for 40% of steel output in Europe and has a 15%-20% higher production cost than steel produced by BOF. “In the short term, a high HRC price gap between the EU & Vietnam of USD 300-550/ton (figure 3) can provide a gross margin of 19%-22% in 2H”, VDSC said.

However, VDSC said that the domestic coated steel exporters would face more challenges in 2023 as the carbon border mechanism could remove Vietnam’s price competitiveness. So the coated steel export volume and profitability could decrease in 2023.

Meanwhile, construction steel and steel pipes consumption remained weak in 3Q due to the pandemic. Directive-16/CT-TTg has been applied in the South, which accounts for 34% of construction steel consumption. Therefore, most construction activities were suspended in this area, leading to low sales volume in July. Construction steel consumption was roughly 770,000 tons in July, down 10% YoY. Steel pipe consumption even decreased at a higher pace to 143,500 tons in July, down 41% YoY. VDSC expected sales volume would still be stable at a low level in August, similar to in July.