US steel tariffs to have slight impact

VNS
Shares of steel companies have been volatile in recent days following the information that the US may impose steep tariffs on steel imports, but market insiders say this, if it happens, would have a moderate direct impact on domestic steel producers.

Analysts expect the operation of steel companies will not be effected significantly by the new tariff if it is put into action. (Photo: baocongthuong.com.vn)

Analysts expect the operation of steel companies will not be effected significantly by the new tariff if it is put into action. (Photo: baocongthuong.com.vn)

On March 1, US President Donald Trump announced that Washington was set to slap tariffs of 25 percent on steel and 10 percent on aluminium imports into the US. This announcement sent steel stocks around Asia plummeting, including Vietnamese companies.
Hoa Phat Group (HPG), Vietnam’s biggest listed steel firm, dropped by the maximum daily limit of 7 percent on Friday. It recovered on Monday but still has lost a cumulative 8.4 percent in the last four sessions.
Hoa Sen Group (HPG) decreased by 6 percent on Friday and Monday but regained this value in the last two trades. Nam Kim Steel (NKG) and Pomina Steel (POM) shrank 6.4 percent and 4.1 percent in four recent sessions, respectively.
According to Viet Dragon Securities Co (VDSC), the US plan for a tariff hike on steel imports would not have a significant impact on listed steel companies.
Construction steel producer Hoa Phat Group exports only around 2 percent of its total production volume, and the portion exported to the US is even smaller.
Meanwhile, Hoa Sen Group and Nam Kim Steel, which produce galvanized steel, export about 45-50 per cent of production, mostly to ASEAN countries. The exports to the US accounted for just 10 percent of Hoa Sen Group’s total exports while this number in Nam Kim Steel is around 15 percent.
“Therefore, if implemented, these tariffs would hit NKG more significantly than HSG, not only because of its higher export volumes, but also because NKG is less able to adjust its sales between export/domestic markets compared to HSG,” Barry Weisblatt, VDSC’s head of research, wrote in a note.
Opportunity for a bargain
The recovery of HSG in the last two trades as well as smaller decreases in value of NKG and POM showed that investors seemed to be more composed.
Vietnam’s steel export totaled US$3.15 billion in 2017, of which export to ASEAN countries accounted for 59.2 percent of total value while the US import value made up just 11 percent.
“We still kept our view that the operation of steel companies will not be effected that much by the new tariff, if it ever happens. Therefore, the correction of steel stocks that have good fundamentals as well as bright outlooks (like HPG), should be a chance for investors,” Quang Vo, an analyst at Viet Dragon Securities Co, wrote in a note.
Hoa Phat Group released its 2018 business plan, targeting revenue growth of 19 percent. This company often sets conservative targets and in 2017, it beat its target by 30 percent, while its net profit hit a record high of over VND8 trillion ($351 million).
It also announced a 40 percent dividend for FY2017, which will be paid in the second and third quarters of 2018 and a 30 percent dividend ratio for FY2018.
The HPG shares rose 6.4 percent in 2017 but have leapt 28 percent since the beginning of this year, being traded at around VND61,000 per share.
Meanwhile, 2018 is forecast as another positive year for Nam Kim Steel when its Nam Kim 3 Plant, which is in the final phase of construction, will contribute over 50 percent of its total capacity, lifting coated steel production to over 1.2 million tonnes per year, helping maintain the company as the second largest firm among Vietnamese producers.
Domestic demand for steel products is expected to grow by 20-22 percent this year and this will also help offset possible reductions in import demand from overseas markets.

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