Steel Sector | Initiation Report, Recovery is Underway with Diverging Prospects

STEEL SECTOR: RECOVERY IS UNDERWAY WITH DIVERGING PROSPECTS

We believe the steel industry is entering a new growth cycle, supported by (1) the ambitious public investment disbursements plan by the government, (2) the recovering domestic demand from a stronger property market, and (3) the more favorable supply-demand dynamic following China’s capacity cuts and newly imposed trade defense measures.

The sector recovered well in H1 2025. Total steel production reached 15.7 mn tons (+9.6% YoY). Domestic steel consumption remained strong with sales volume rising to 12.9 mn tons (+28.7% YoY), reflecting strong demand from the domestic market. While exports declined sharply to 2.8 mn tons (-33.3% YoY) as global demand softened and trade barriers heightened. Steel prices were adjusted up from the low base thanks to both resilient domestic demand and the production cut in China.

Looking further ahead, we believe that the new growth cycle would present bright long-term prospects for the sector and offer sustainable growth potential for the key players. Besides, the coming FTSE Emerging Markets upgrade would add more vanilla as HPG, the sector-leader, would stand to benefit from stronger foreign institutional inflows.

SECTOR OUTLOOK:

1. Public investment led domestic demand:

Vietnam’s steel consumption is projected to grow 23–25% YoY in 2025, reaching 24–25 mn tons. Major infrastructure projects such as the North–South Expressway, Long Thanh Airport Phase 1, and urban metro systems will be key demand drivers. This government-led cycle is expected to offset weaker exports.

2. China’s supply cuts and tariff protection:

Starting from 2025, China begins cutting steel production capacity, with an estimated reduction of 50 mn tons for the year. Global steel prices are expected to bottom out in H2 2025, supporting a potential rebound in Vietnam domestic steel prices and improved margins. Chinese HRC has also lost price competitiveness due to newly imposed anti-dumping duties. As of late June, average Chinese HRC import prices were ~USD 480/ton. With final AD20 duties of 23.1–27.8%, imported prices now stand at ~USD 590/ton—a 21% to 24% higher than domestic prices (USD 508–518/ton).

3. Export headwinds and trade barriers:

Vietnamese exporters face rising protectionism in key markets (US, EU, ASEAN). Export volumes fell 33% YoY in H1 2025, with coated steel hardest hit. Firms are increasingly pivoting to domestic sales, but oversupply in coated steel remains a structural challenge.

The HRC segment remains undersupplied in Vietnam, creating an advantage for integrated companies such as HPG thanks to integrated value chain, low costs of input, and stable profit margins.

4. Industry consolidation & value chain shift:

Larger producers are expanding into HRC and downstream products, while smaller, less efficient firms are being squeezed out. Integrated players such as HPG benefit from economies of scale, cost efficiency, and vertial integration. In contrast, coated steel producers (HSG, NKG, GDA) face sustained pressure from oversupply and thinner margins.

VALUATION AND RECOMMENDATION:

The sector is trading at a weighted average FW2025 P/E of approximately 14.2x. Only HPG is trading at a reasonable FW2025 P/E at 13.7x, while maintaining clear competitive advantages in scale, cost, and integrated HRC production value chain. We believe that it is a reasonable valuation for a leading company with superior capabilities and sustainable medium-term growth potential. In contrast, coated steel producers such as HSG and NKG are trading at significantly higher P/E levels relative to their earnings quality and growth outlook, which are heavily affected by tariffs and trade protectionism.

Accordingly, we maintain our BUY recommendation on HPG, the domestic HRC market remains structurally under-supplied, and anti-dumping tariffs on Chinese HRC are expected to strengthen HPG’s long-term competitive edge.

We maintain a cautious view on coated steel producers as domestic oversupply and elevated valuations may weigh on potential upside. There are still substantial obstacles ahead regarding stronger competition in domestic market, margin shrinking pressures, and rising export barriers, which current market price have not adequately factored in. Still, coated steel stocks such as HSG, NKG, and GDA are favored stocks by retail investors, and they would love to buy in if any positive headlines emerge. We think the AD19 trade protection measures and price recovery momentum, supported by China’s supply-side cuts, offer some positive catalysts for these high beta names.