Power Shortage Crisis Forces The EU To Seek Cheaper Steel Sources In Asia, Including Vietnam?

With the significant amount of time the EU needs to find alternative energy sources, EU steel buyers will need to seek cheaper steel sources in Asia, including Vietnam.

 In the past two months, the decline in steel prices in foreign markets seems to have stabilized. The price differences between HRC from Vietnam and the United States, as well as Vietnam and the EU, have remained stable at $330-380 per ton and $200-250 per ton, respectively, over the past four weeks.

 However, according to assessments by Rong Viet Securities, there are few signs of prices rebounding, given China's slow reopening of its economy and concerns about recession in Western countries.

 Recently, the cut-off of natural gas supply to Europe by Russia has caused a surge in electricity prices in Europe. To cope with this situation, some steel mills in the region have partially reduced or completely halted production operations. The mills are also offering higher selling prices, but buyers are still cautious due to weak final consumption demand.

 The sharp increase in electricity prices could continue to dampen demand. As a result, investors should not be overly enthusiastic about a price hike driven by pushing costs at this time.

 However, VDSC (Viet Dragon Securities Company) believes that the EU's ban on Russian oil imports, which has been in effect since December, will further exacerbate the power shortage in the region. As the EU will take a considerable amount of time to find alternative energy sources, EU steel buyers will need to seek cheaper steel sources in Asia, including Vietnam, as the demand in the EU recovers.


 In the domestic market, after continuous declines for four months, steel prices from various mills began to rise in the last week of August while HSG (Hoa Sen Group) was the first coated steel producer to raise prices since early September. Although the increase of 150-200 VND/kg is insignificant compared to the price reductions in recent times, this move has stimulated distributors to resume purchasing. Other flat steel producers may follow a similar pricing and consumption trend.

 Regarding consumption, the seasonal factors usually make July and August the low-consumption season for steel, putting more pressure on prices. Although domestic coated steel consumption may be encouraged by the price increase starting from September, VDSC remains cautious about the price and output growth of each producer, as foreign demand remains subdued and producers will have to compete to deal with high-priced inventory in Q2.

 Many coated steel producers have increased their HRC reserves during the period of the Russia-Ukraine conflict in March and April, anticipating that the war would cause a steel and steel production material shortage.

 Based on these factors, VDSC predicts a gloomy profit outlook for flat steel producers in Q3 before easing pressure from Q4/2022.

 Global economic recession concerns have led to a decline in HRC prices, and foreign demand has stagnated since April and May. Consumption will heavily depend on the domestic market, at least until the end of the year. Intense competition in a smaller market seems to limit the possibility of price hikes, thus restricting the potential for profit margin recovery.

 "Compared to Q2, reduced consumption in July and August combined with low or negative profit margins may result in losses recorded in Q3. Positive market conditions are expected to be reinforced in Q4, thus reducing pressure on profits," VDSC anticipates.

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