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1

STEEL INDUSTRY REPORT Q1/2020


CONTENT

2

Section Page Section Page

Abbreviations 3 2. Industry value chain 28

Executive summary 5 3. Scale 30

I. Business environment 7 4. Construction steel 34

1. Macroeconomic situation 8 5. Steel pipe 38

2. Legal framework 10 6. Galvanized steel 39

II. Global market 14 7. Import – export 40

1. Definition and classification 15 VI. Planning and forecasts 43

2. Production process 17 1. Planning 43

3. Production 21 V. Enterprise analysis 44

4. Consumption 24 1. Enterprise introduction 45

III. Vietnam market 26 2. Financial analysis 49

1. History of development 27


ABBREVIATIONS

3

Abbreviation Full written Abbreviation Full written

ACFTA ASEAN - China Free Trade Agreement DBS Development Bank of Singapore

AEC ASEAN Economic Community EAEU Eurasian Economic Coalition

AISI American Iron and Steel Association EAF Electric Arc Furnace

ATIGA ASEAN Trade in Goods Agreement (ATIGA) EVFTA EU-Vietnam Free Trade Agreement

MONREMinistry of Natural Resources and

EnvironmentGDP Gross domestic product

BOF Basic Oxygen Furnace HRC Hot Rolled Coil

Census The United States Census Bureau IEA International Energy Agency

CISA China Iron and Steel Association ITA US International Trade Administration

G&A expenses General administrative expenses JISF Japan Iron and Steel Federation

CRC Cold Rolled Coil JPC Joint Plant Committee

JSC Joint Stock Company CPTPPComprehensive and Progressive Agreement

for Trans-Pacific Partnership

ABBREVIATIONS


ABBREVIATIONS

4

Abbreviation Full written Abbreviation Full written

KOSA Korean iron and steel Association VSA Vietnam Steel Association

OECDOrganization for Economic Co-operation

and DevelopmentWCA World Coal Association

GDVC General Department of Vietnam Customs WSA World Steel Association

GSO General Statistics Office of Vietnam Co., Ltd Liability Limited Company

ABBREVIATIONS


EXECUTIVE SUMMARY

5

WORLD

Raw materials:

• World steel supply: World crude steel production in 2019 reached X

million tons, increasing by X% compared to 2018.

Steel consumption demand:

Total steel consumption of Asia always

ranked first in the world in the period of 2011 - 2018

VIETNAM

• It is estimated that in 2019 steel pipe production will reach X thousand

tons and consumption will reach X thousand tons.


EXECUTIVE SUMMARY

6

Enterprises

Business performance of steel enterprises in 2018 was quite optimistic

but paled in comparison with 2 years ago.

Forecasts

2019 will continue to be a hard year for steel enterprises.


7

BUSINESS ENVIRONMENT


Part I. Business environment

1. Macroeconomic situation

8

• Gross domestic product (GDP) the whole year of 2019 is estimated to

increase by X%

• VND/USD exchange rate in 2019 continues the slight upward trend.

Source: VIRAC, GSO

Source: VIRAC

Urbanization rate in Vietnam, 2012 - 2019

Source: VIRAC, SBV

GDP growth rate by quarter, 2016 - 2019

VND/USD, 1/2013 – 12/2019



1. Macroeconomic situation

9

• Domestic coal supply in the near future will be in great shortage and

continue to be imported.

Source: VIRAC, Indexmundi

Source: VIRAC, GSO

Coal price movements, 2013 – 2019

Coal production output and export volume, 2008 – 2019



2. Legal framework

10

• Circular No. 101/2015/TT-BTC dated June 29, 2015

• Decree No. 38/2015/ND-CP of the Government

• Circular No. 165/2014/TT-BTC was issued by the Ministry of Finance on January 1, 2015



2. Legal framework

11

• Ministry of Industry and Trade issued Decision No.1656/QD-BCT

• Joint Circular No. 58/2015/BCT-BKHCN issued by the Ministry of Industry and Trade, and the Ministry of Science and Technology

Country/Territory ProducerOld anti-dumping duty (applied from

October 5, 2014 to May 13, 2016)

New anti-dumping duty (applied from

May 15, 2016 to October 6, 2019)



2. Legal framework

12

• On March 3, 2016, the Minister of Industry and Trade issued Decision No. 818/QD-BCT

• Resolution No. 1084/2015/UBTVQH13 dated 10/12/2015 of the National Assembly Standing Committee

• Ministry of Industry and Trade issued Circular No. 12/2015/TT-BCT

• Decision No. 1931/QD-BCT

• Decision No. 2754/QD-BCT



2. Legal framework

13

• Ministry of Industry and Trade issued Decision No. 2968/QD-BCT dated July 18, 2016.

Item

Previous

self-

defense

tariff

Temporary self-

defense tariff

(valid until

October 2016)

Official self-defense

tariff (effective from

02/08/2016)

Official schedule of applying self-defense tariff,

3/2016 – 3/2019

Source: VIRAC, Ministry of Industry and TradeSource: VIRAC, Ministry of Industry and Trade


14

GLOBAL MARKET


Part II. Global market

1. Definition and classification

Definition

Classification

22



1. Definition and classification

23



2. Production process

Steel production process

Closed production process model

25

Source: VIRAC,




26

Steel production process

Source: VIRAC, WSA




Process: including 4 basic steps

1) Ironmaking:

26

Chemical reactions in the furnace

Source: VIRAC

2) Steelmaking:




3) Continuous Casting:

4) Rolling:

26



3. Production

38

Source: VIRAC, WSA

• According to World Steel Association (WSA), world crude steel

production in 2019 reached X million tons, increasing by X%

compared to 2018.

World steel production, 2000 - 2019

Source: VIRAC, WSA

World crude steel production, 2011 - 2019


• Steel is an important heavy industry, the input for many other industries

in the world such as construction, mechanical engineering, automobile

manufacturing, energy, ...


3. Production

39

Source: VIRAC, WSA

Top 10 countries by steel production output, 2019

Country 2019 Change (yoy) % Market share



3. Production

39

Source: VIRAC, WSA

Steel production by production method, 2018



4. Consumption

41

Source: VIRAC, WSA

Source: VIRAC, WSA

World steel consumption in 2012 – 2014 increased sharply owing to great

demand, reaching X million tons in 2014.

Total steel consumption of Asia always ranked first in the world during the

period of 2012 – 2018.

Source: VIRAC, WSA

-4%

-2%

0%

2%

4%

6%

8%

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

World iron and steel consumption, 2012-2018

Steel consumption in some regions, 2012-2018

Steel consumption by region 2018



4. Consumption

42

Source: VIRAC, OECD

Source: VIRAC, WSA

• Steel consumption per capita varies among regions

• Steel consumption growth rate by sector also differs among

countries and regions.

Construction Automobile Mechanic Metal product Other vehicles Household appliance

Year 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

Tốc độ tăng trưởng tiêu thụ thép theo ngành giữa các khu vực 2014 – 2016 (%)

Steel consumption per capita, 2018


26

VIETNAM MARKET


• Vietnamese steel industry started from 1959

• In recent years, Vietnam’s steel industry has experienced high growth rate

Part III. Vietnam market

1. History of development

64


Long steel industry value chainThe current value chain of long steel production in Vietnam includes:

Ore + limestone + coal => Cast iron => Steel refining => Steel casting =>

Steel rolling.


2. Industry value chain

66


Flat steel industry value chain

World flat steel value chain, 2015


2. Industry value chain

Source: VIRAC

Source: VIRAC

67


• As of the end of 2018, the whole country has about X enterprises

operating in steel production,

73


3. Scale

Source: VIRAC, GSO

Source: VIRAC, GSO

Enterprises and Labors in the steel production industry, 2014 - 2018

Number of enterprises by region 2018



3. Scale

74

Vietnam’s crude steel production, 2013 – 2019

Source: VIRAC, WSA

In 2019, Vietnam’s crude steel production reached X thousand tons, increasing approximately by X% compared to last year

Source: VIRAC, WSA

Crude steel production in regional countries, 2019


Currently-invested steel projects

75


3. Scale

Source: VIRAC

EnterpriseAdded capacity

Product Location Time

(Ton/Year)


Consumption

75


3. Scale

Steel products consumption, 2019

• Total steel consumption in 2019 reached X million tons,

increasing by X% compared to the same period last year.

Source: VIRAC, WSA

Source: VIRAC, WSA

Steel products consumption, 2013 – 2019



4. Construction steel

74

Source: VIRAC, VSA

Construction steel production, 2013 – 2019Construction steel

According to the latest update of VIRAC, Hoa Phat’s market share in

construction steel has increased by over X% thanks to the rise in the South’s

demand and export volume.

Source: VIRAC, VSA

Self-defense tariff on construction steel, 2017 - 2021Construction steel consumption, 2011 – 9M/2019




74

Source: VIRAC, VSA

No. Exempted enterprise No. of exemption

decision

Exempted product Exempted quantity in 2019

(tons)


Construction steel market share in South and Central

Vietnam 2018, 2019

• In 2019, Hoa Phat improved their market share in long steel,

78

Source: VIRAC, VSA



Construction steel market share, 2019

Source: VIRAC, VSA


Construction steel price

• In the first 6 months of 2019, steel price increased sharply on the

market

91



Source: VIRAC, VCBS

Rebar price movements 2019


Steel pipe

Regarding market share, in 2019, Hoa Phat maintained their leading

position in the steel pipe production market (accounting for X%);

80


5. Steel pipe

Steel pipe production and consumption 2013 – 2019

Source: VIRAC, VSA

Source: VIRAC, VSA

Steel pipe market share 2019

Content is deleted for demo purposeSource: VIRAC, VSA

In 2019, galvanized steel consumption

reached X thousand tons, decreasing by 22% compared to the same

period. Reasons:

79


6. Galvanized steel

Source: VIRAC, VSA

Galvanized steel production and consumption, 2013 – 2019

Galvanized steel market share 2018 - 2019


Source: VIRAC, GDVC

In 2019, iron and steel imports reached X million tons,

• China is still the largest steel supplier for Vietnam.

Source: VIRAC, GDVC

82


7. Import - export

Steel imports, 2013 – 2019

Steel imports by market, 2019


China is still the largest steel supplier for Vietnam. The import volume from this market in 2019 accounted for X% of Vietnam’s total steel import value.

Source: VIRAC, GDVC

83


7. Import - export

Chinese steel import volume and value,, 6/2016 – 12/2019


Source: VIRAC, GDVC

• In 2019, Vietnamese steel exported to foreign markets increased by

X% in volume, decreased by X% in value and X% in price compared

to 2018.

Source: VIRAC, GDVC

84

Iron and steel export volume and value, 2013 – 2019


7. Import - export

Vietnam’s steel export markets, 2019


• The Prime Minister issued Decision No. 145/2007/QD-TTg on 04/09/2007

No. Content Planned location Start – complete time

Investment

capital

(million

USD)

Product (1000 tons)

Cast iron Billet Rolled steel

103

Part VI. Planning and forecasts

1. Planning


ENTERPRISE ANALYSIS


Enterprise Logo Total

assets

Revenue General information

123

Part V. Enterprise analysis

1. Enterprise introduction



assets


124





assets


125





assets


126




128


2. Financial analysis

Net revenue and growth rate, 2017 - 2018

Source: VIRAC, Enterprises' financial statements

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

10,000

20,000

30,000

40,000

50,000

60,000


129




In 2018, steel enterprises had declining marginal gross profit compared to the previous year. This was due to volatile price movement of input raw

materials.


130



Gross profit and gross profit rate, 2017-2018

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000


131




132



Selling expenses/net revenue, 2017-2018



133




134



G&A expenses/net revenue, 2017-2018

• Like the ratio of selling expenses / net revenue, the ratio of enterprise management expenses of steel enterprises is also differentiated, in the range of

X-X%.


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%


135



Financial expenses/ net revenue, 2017 -2018

• Many enterprises had higher financial expenses/net revenue rate in 2018 compared to 2017.


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%


• Due to characteristic production, steel producing enterprises with different products and technology will have different asset structure.

136



Asset structure, 2018


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000


• The level of using financial leverage of enterprises in the industry is quite diversified depending on the risk appetite of each enterprise.

137



Debt structure, 2018


0.00

1.00

2.00

3.00

4.00

5.00

6.00

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


138




Average inventory turnover of steel enterprises is about x-x round per year.

139



Inventory turnover, 2018


-

2.00

4.00

6.00

8.00

10.00

12.00

14.00


Long steel (Construction steel) enterprises often have higher number of receivable days.

140



Receivable days, 2017 - 2018


0

10

20

30

40

50

60

70

80

90

100


Steel enterprises with relatively fast liquidity ratios, current industry average index only reached X and there is a large gap between these two indexes.

141



Enterprises’ liquidity, 2018


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00


142




Probability ratio/asset and equity, 2018

Profit after tax, 2017 - 2018


Profit after tax of steel enterprises fell sharply compared to the previous year

except

-10%

-5%

0%

5%

10%

15%

20%

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000


64

Recommendation

Recommended uses

This report is made Vietnam Industry Research and Consultancy (VIRAC), providing only the industry overview and business analysis. All information, statements

and projections are based on reliable sources with ultimate prudence as of the time of writing. However, due to subjective and objective reasons in terms of

published formation sources, VIRAC does not guarantee or bear any responsibility for information accuracy and no liability for damages on using this report

partly or wholly. All viewpoints and statements in this report are subjected to changes without notice. This publication is protected by copyright owned by

Vietnam Industry Research and Consultancy (VIRAC). Copying, modifying and printing without permission are strictly prohibited.

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