Steel stocks chill as weak demand sends a shiver through the industry

Workers checking products at a warehouse of Hòa Phát Group. — Photo hoaphat.com.vn

From the start of August, foreign investors have collectively sold over 100 million of Hoà Phát’s (HPG) shares, amounting to nearly VNĐ2.5 trillion - a record figure for HPG in recent years.

Over the past month, no stock on the exchange has seen a more significant net sell-off by foreign investors than HPG.

The relentless selling pressure from foreign investors has driven HPG shares to their lowest levels since the beginning of the year. Compared to the peak in mid-June, the stock price has plummeted by almost 15 per cent.

This decline has led its market capitalisation to below VNĐ160 trillion, causing the national leading steel producer to lose its position among the top ten most valuable companies on the Vietnamese stock exchange.

With the highest number of outstanding shares in the non-financial category (approximately 6.4 billion units) and a high free float ratio, HPG has long been regarded as a 'national stock' with active trading. However, foreign investors have recently found the leading steel stock to be less attractive.

Indeed, it's not just HPG shares feeling the pressure. Even HSG shares of the Hoa Sen Group are facing a similar situation due to foreign selling.

In August, Dragon Capital sold over 11 million HSG shares, reducing its ownership from 5.43 per cent to 4.86 per cent, and is now no longer a major shareholder of Hoa Sen Group.

Since February, the fund has sold around 40 million HSG shares.

Previously, news of European Union and Indian anti-dumping investigations on Vietnamese steel hit the market hard, with HPG falling by nearly 14 per cent in a quarter, HSG down by 8.5 per cent and Nam Kin Group (NKG) down by 17.4 per cent.

These prices now match or even dip below early-year levels.

Experts note these as relatively low compared to the steel stocks' true value. While signs of a mild industry recovery emerge, prompting foreign investors to buy in and lift stock prices, challenges persist, particularly weak domestic demand. A solid rebound may only materialise by 2025.

When will the 'ice age' end?

In fact, the global steel sector remains entrenched in an 'ice age,' a predicament that impacts Hòa Phát and other local steel manufacturers. Rebar steel futures have slumped to around CNY3,000 per tonne, the lowest level in 8 years since 2016. Similarly, hot rolled coil (HRC) prices have descended to a 4-year low, dropping below $700 a tonne.

Steel rebar on the Shanghai Futures Exchange closed last Friday at CNY3,037 per tonne, down 1.4 per cent. Last week, price even broke below the 3,000 level. — Source: tradingeconomics.com

Global steel prices saw a fleeting recovery only to sharply regress following China's official manufacturing PMI unexpectedly plunging to 49.1 in August, representing the most substantial decline this year.

China's National Bureau of Statistics (NBS) reported that construction PMI also dipped to 50.6, signalling the feeblest activity growth since data collection commenced in 2020.

Against this backdrop, domestic steel firms like Hoà Phát are anticipating rulings from the Ministry of Industry and Trade concerning anti-dumping investigations. Such measures are hoped to alleviate some pressure on the domestic market.

These investigations primarily target imported HRC from China and India, alongside galvanised steel imports from China and South Korea.

However, during this interim period, the Vietnamese steel industry has received successive unfavourable updates as both the European Commission (EC) and India's Directorate General of Trade Remedies (DGTR) have instigated anti-dumping enquiries into specific hot-rolled coil steel products originating from or shipped from Việt Nam.

KBSV Securities predicts a significant drop in China's steel exports to key markets such as the US and EU due to increasing trade protection measures. They anticipate Hoa Sen Group's profit margins to decline in the upcoming financial quarter due to inventory provisions.

Vietcap Securities (VCSC), on the other hand, has reduced the target price for HPG shares by 5 per cent based on a projected 5 per cent net profit decrease for 2024-2028 and a 21 per cent price-to-earning (P/E) ratio drop for 2024-2025.

Despite this, VCSC maintains a target P/E of 18.0 to reflect Hòa Phát's robust growth during 2024-2025.

It also expects a 5 per cent lower net profit for 2024-2028, with reduced forecasts for 2024-2026 due to cautious views on the steel market amidst weak Chinese demand.

This is partly offset by increased forecasts for 2027-2028, driven by Dung Quất 2's second blast furnace impacting HRC sales.

On the stock market, HPG, HSG and NKG shares all closed lower on Monday, down 0.6 per cent, 1.75 per cent and 1.9 per cent, respectively.