The European Commission Curbs 15% of HRC Imports from Vietnam: What’s the Impact on Hoa Phat?

According to VNDIRECT’s recent report on Hoa Phat Group – Joint Stock Company (HPG), the securities firm noted that globally, the European Commission has imposed a new 15% quota on HRC imports from several countries, including Vietnam. Additionally, the European Commission recently confirmed that they have all the necessary documentation to decide whether to initiate an investigation into HRC imports from Vietnam, including HPG and Formosa.

However, VNDIRECT believes that the European market accounts for only 3-11% of HPG’s total revenue in the past two years, and assuming a similar ratio for Formosa, another HRC exporter based in Vietnam, both producers will likely divert sales to other countries or increase domestic sales, thus minimizing the impact of the European Commission’s decision on HPG.

Furthermore, VNDIRECT also provided an optimistic outlook for Hoa Phat’s performance in 2024-2026.

VNDIRECT anticipates that the Dung Quat 2 project will propel HPG into the top 30 global steel producers and enhance profit margins. The operation of the Dung Quat 2 Steel Complex will boost HRC growth in 2025-2027 by adding 2.8 million tons in 2025 to the current capacity of Dung Quat 1, which stands at approximately 6 million tons (including both HRC and construction steel). Moreover, the economies of scale achieved with Dung Quat 2 will contribute to reduced input costs for coke and labor.

Additionally, the recovery of the Vietnamese real estate market will drive higher domestic sales ratios and improve EBITDA margins. HPG’s domestic EBITDA margin is typically 4% higher than its export margin. Therefore, with an increased supply of new housing expected in 2025, VNDIRECT predicts that HPG will prioritize domestic sales to maximize profits and avoid anti-dumping investigations in export countries.

Significantly lower input costs compared to steel prices will also boost profit margins. VNDIRECT anticipates that Chinese steel prices will continue to decline due to the ongoing slowdown in China’s real estate construction activities. However, input costs are expected to decrease even further due to the increasing supply of iron ore and coke from Australia. If HPG effectively manages its inventory, there is a potential for continued expansion of EBITDA profit margins.

Moreover, potential anti-dumping duties will support the domestic steel industry. According to VNDIRECT, Vietnam is likely to impose anti-dumping duties on coated steel sheets as the country faces a surplus in coated steel supply, and similar cases of duty imposition were observed during the previous Chinese steel crisis in 2015.