Steel firms report declining profits in Q2
Steel firms report declining profits in Q2
Many steel enterprises saw profits drop by up to 90 per cent in Q2 of this year, amid plunging steel prices.
In the second quarter of this year, VNSTEEL–Thu Duc Steel JSC (TDS) recorded net revenue of VND358 billion (US$15.3 million). It suffered a net loss of nearly VND2 billion, down more than 45 per cent over the same period last year.
According to the company, the output price decreased continuously from the beginning of the second quarter until now, along with a decrease in steel consumption.
This caused the company to stop production, and the high price of steel inventory from previous months made the situation worse. This was in contrast to the second quarter of 2021 when there were supply chain disruptions and strong demand created conditions for high steel prices.
Slow consumption also affected cash flow in Q2, along with credit tightening and high-interest rates over the same period of last year also made financial costs, especially loan interest, increase sharply. During the quarter, financial expenses jumped from VND85 million to VND2.7 billion. The positive point was the reduction in selling and administrative expenses.
The company is expected to continue facing difficulties in the future as steel prices are still declining.
At the end of the second quarter of 2022, TDS recorded VND498 billion of inventory, of which the provision for devaluation was about VND7.5 billion. The company's short-term debt also increased from VND219 billion to VND307 billion.
SMC Trading Investment JSC (SMC) recorded net revenue of VND6.62 trillion in Q2, up 11 per cent over the same period. However, net profit dropped sharply by 90 per cent, to VND47 billion.
As a company specialising in steel trading, the falling steel price has dealt a huge blow to SMC's business. In the second quarter of this year, the profit margin of the company was only 3.1 per cent, while in the same period last year the figure was 11.6 per cent.
Financial expenses in the period increased nearly nine times, to VND110 billion, half of which was interest expense. Selling expenses also increased sharply to VND56 billion.
In the first 6 months of this year, SMC recorded revenue of VND13.25 trillion, up 20 per cent over the same period last year. Meanwhile, net profit decreased by 82 per cent to VND127 billion.
At the end of the second quarter of 2022, the company still had VND3.37 trillion of inventory, a sharp increase from VND2.54 trillion at the beginning of the year. In which, SMC's provision for devaluation of inventories was more than VND170 billion.
Profit decline also occurred at other enterprises such as Me Linh Steel Joint Stock Company (MEL), Cao Bang Cast Iron And Steel Joint Stock Company (CBI) and Thai Nguyen Iron and Steel Joint Stock Company (TIS) as they saw their net profits down by 90 per cent over the same period last year.
According to a report from SSI Research, steel consumption has slowed down in recent months, with domestic finished steel consumption in April-May 2022 dropping about 32 per cent year on year.
Steel prices also plummeted rapidly, in which construction steel prices have experienced nine consecutive declines in the past month, to VND16 million per tonne. The price of the hot rolled coil (HRC) in Viet Nam also plummeted to $650 per tonne.
The inventories of the above steel enterprises were still quite high at the end of the second quarter of 2022. TIS is holding more than VND2 trillion of inventory, a sharp increase of 43 per cent over the same period last year, while MEL and CBI decreased slightly to VND463 billion and VND396 billion, respectively.
