In a recent report on Hoa Phat Group Joint Stock Company (HPG stock code), BIDV Securities Company (BSC) believes that the Dung Quat 2 project will perform well and is expected to fill 90% of its capacity by 2026 due to the advantages of continued scale downs and the timing of its operation falling into a new cycle.
Specifically, by the end of 2023, the Dung Quat 2 project had completed 45% of its construction progress. According to the plan, the project will be completed in the first half of 2025. BSC expects that the timing of the operation of the Dung Quat 2 plant will fall into a new cycle for the steel and real estate industry.
Looking back at Hoa Phat’s previous expansion projects, the Hoa Phat Hai Duong Iron and Steel Complex (Phase 1: 2010, Phase 2: 2013, Phase 3: 2016) and Dung Quat 1 (2019) were all quickly filled, consistent with the real estate cycle (2013), the steel cycle (2016 and 2020-2021).
With the real estate and steel industries at the bottom of the cycle, BSC expects the timing of the operation of Dung Quat 2 to be calculated to fall into a new cycle. Specifically, BSC believes that the legal environment will be completed in 2022-2023, and will strongly open up the supply of real estate in 2024-2025. Accordingly, the steel and real estate industries will enter a new cycle in 2025-2026.
Looking back in the past, thanks to the perfect timing, Hoa Phat’s market share has quickly expanded. After the Phase 1 of the Hoa Phat Hai Duong Iron and Steel Complex, Hoa Phat’s market share increased from 12% in 2010 to 15.2% in 2013, rising to second place, just a little lower than the steel king at that time, Pomina.
June 2014 – although the real estate market was still difficult and the demand for steel had not yet recovered, for the first time, Hoa Phat’s consumption of construction steel production had surpassed Pomina and rose to the leading position with an 18% market share. Meanwhile, the market share of the other four steel companies all declined.
In addition to the perfect timing, Hoa Phat’s success also came from the right technology. The investment in blast furnace at the Hai Duong Iron and Steel Plant helped Mr. Tran Dinh Long’s company gain a huge competitive advantage of low prices and quickly captured market share from companies using EAF technology consuming energy and high costs. In 2013, Hoa Phat’s 350m3 blast furnace was the largest blast furnace in Vietnam, although this was still a “mini” furnace that Chinese steel companies rarely used. Hoa Phat continued to build a 450m3 blast furnace, invested in the Dung Quat Iron and Steel Complex and maintained the number one position until now.
Fulbright’s 2014 report noted that, in addition to being more optimized, at that time, Hoa Phat also benefited from the policy of banning ore exports. This policy caused domestic ore prices to plummet, and this was the raw material for Hoa Phat’s blast furnace, while EAF furnace companies still had to use by-products as raw materials.
According to BSC, the operation of the Dung Quat 2 project will help HPG increase its scale by 60%. Specifically, the total capacity of Dung Quat 2 is 5.6 million tons of steel, including 4.6 million tons of HRC steel and 1 million tons of special steel, helping increase HPG’s total capacity to 14 million tons. Therefore, Phase 2 focuses on HRC products and high-quality steel.
In addition, after the Dung Quat 1 project, HPG’s HRC products have had relatively competitive production costs in Asia. In 2023 – even when steel prices were at the bottom of the cycle, HPG could still push consumption of 315,000 – 325,000 tons of HRC per month through exports, internal consumption of steel production pipes, and galvanized iron sheets. Therefore, BSC believes that the Dung Quat 2 project will continue to have good absorption thanks to the advantage of scale that will help HPG reduce production costs, increase the competitiveness of HRC in the ASEAN region, and HPG will continue to push internally through the pipe, galvanized iron, and container channels
