Hanoi (VNS/VNA) - The high prices of raw materials have causeddomestic steel companies to increase selling prices many times to compensatefor production costs and reduce losses.

In the context of weak domestic steel demand and rising costs pushing up globalcommodity prices, the selling prices of finished steel are increasing slowerthan the prices of input materials.

Analysts say that the business performance of construction steel companies isstill insignificant.

According to the Vietnam Steel Association (VSA), steel prices havecontinuously increased mainly due to the fact that input prices of inputmaterials for steel production such as coal, iron ore, scrap steel, andhot-rolled coils are still climbing.

VSA believes that the high prices of raw materials have caused domesticfactories to increase selling prices many times to compensate for productioncosts and reduce losses.

Since the beginning of the year, steel prices have been continuously adjustedup, with a total increase of more than 1 million VND per tonne. Although theupward momentum has slowed down, steel prices will continue to increase in thecoming months.

As for steel giant Hoa Phat Group, the analysis team of VNDirect SecuritiesCompany said: "With weak demand, Hoa Phat Group may transfer the risk ofincreasing input material prices to consumers. In addition, low factoryoperating efficiency in the first half of 2023 will also affect the company'sprofit margins, so we forecast Hoa Phat Group's net profit may be stillnegative in the first quarter of 2023."

New data released by the group shows that consumption of steel products indomestic and foreign markets both decreased over the same period. This reflectstwo different states of the construction market in early 2022 and 2023.

In the first quarter of 2022, construction steel consumption reached a recordhigh thanks to strong growth in market demand. In 2023, the market was quietdue to weak demand, leading to negative steel consumption.

Accumulated in the first two months of this year, Hoa Phat Group's crude steeloutput reached 809,000 tonnes, down 42% over the same period last year. Salesof construction steel, hot rolled coil (HRC) steel and billet was recorded at877,000 tonnes, down 34% compared to the first 2 months of 2022.

At the recent 2023 General Meeting of Shareholders of Hoa Sen Group, arepresentative of this enterprise said that steel exports still saw manypotential uncertainties in the context of increasing competition and challengescaused by trade barriers.

Forecasting the market situation in 2023, according to this business, thefierce competition in the domestic market, tightening monetary policies,increasing interest rates, and escalating exchange rates may negatively affectthe economy and production of steel companies.

Hoa Sen Group proposed two consumption plans for the financial year 2022-2023.

Under the first plan, the sales volume will reach 1.52 million tonnes, therevenue will be 34 trillion VND and the profit after tax will be 100 billionVND. In the more positive plan, this enterprise can achieve a sales output of1.62 million tonnes, revenue of 36 trillion VND and profit after tax of 300billion VND.

Previously, according to the report of the fiscal year 2021-2022, theconsumption output of Hoa Sen Group reached more than 1.81 million tonnes,completing 91% of the yearly plan; revenue reached 49.7 trillion VND,completing 107% of the plan; consolidated profit after tax reached 251 billionVND, completing 17% of the plan.

According to the analysis team of VNDirect, the prolonged low demand of thedomestic civil construction sector will have a significant impact on the demandfor construction materials in 2023. This means that the demand in short termfor steel products remains low.

However, the demand for iron and steel is expected to improve thanks to morepublic investment projects being implemented.

Recently, the Ministry of Transport was assigned by the Government to disbursepublic investment with a capital of 94 trillion VND this year, 1.7 times higherthan in 2022.

Other positive signals from the export market, especially recovering demand inChina - the largest steel producer and consumer, accounting for more than 50%of total supply and demand in the world - will support domestic steelenterprises.

The research team of DSC Securities said that iron ore prices have witnessed astrong increase of nearly 50% from 85 USD per tonne to nearly 120 USD pertonne.

DSC expects demand as well as steel prices to increase further in the secondhalf of 2023. However, the DSC team noted that these recovery signals are stillquite weak and likely to be unsustainable.

China had abolished its zero-COVID policy, but it will still take a certainamount of time to really restart the economy. According to DSC, FDI growth andpublic investment are also not certain factors. When the supporting factorshave not been put into practice, steel prices may end up gaining momentum due tohigh expectations and enter a correction span.

However, last week, steel stocks still recorded gains in the context that thesteel industry is expected to recover thanks to the government's boost inpublic investment and recovery in demand in China.

Accordingly, Nam Kim Group (NKG) increased by 8.8%, Hoa Sen Group (HSG) rose by7.2% and Hoà Phát Group (HPG) gained by 4.7%./.