Inventories of construction materials should benefit from public investment projects in 2022

VIETNAM, December 31 – Hot-rolled coils stored in a warehouse of the Hoà Phát group. Photo

HÀ NỘI – The announcement of the launch of 12 projects along the North-South Highway in 2022 is seen as the main driver of the building materials group, including steel, stone and asphalt.

At a recent conference, Deputy Prime Minister Lê Văn Thành called on the Ministry of Transport to find solutions to renew the investment procedures and organize human resources to develop plans and complete the procedures for the start of 12 highway projects in 2022, thus creating a premise for the completion of projects in 2025.

In the recent Outlook 2022 report, VNDirect Securities Corporation also sees public investment as the primary driver of the building materials industry.

The company estimates that the disbursement of public investment capital in 2022 will increase by 15-25% compared to the actual disbursement in 2021, as the bottleneck of lack of building stone and backfill was resolved after the government granted mining licenses to new mines.

In addition, the prices of building materials such as iron and steel, cement and building stone are expected to decline in 2022, which will create favorable conditions for public investment. While commodity prices soared in 2021, actual disbursements of public investment capital were at a low level, just 85-95% of the full-year plan.

Meanwhile, many key transport infrastructure projects have completed site preparations and clearance, with main work scheduled to start in 2022. This will increase the demand for construction materials, improving the revenues and profits of businesses in the sector. .

In the report, VNDirect said that the asphalt business will enter a cycle of strong growth and that the period 2022-2023 will be a profitable period for the group, as the asphalt laying usually takes place in the later phase of the projects. road construction.

For example, Petrolimex data showed that its asphalt revenues skyrocketed during the period 2014-15, when public investment capital in transport infrastructure increased sharply. In 2016-2019, as infrastructure spending declined, the company’s revenue in this segment decreased by approximately 50% compared to the previous period.

With around 30 percent of the national asphalt market share in the period 2015-2020, Petrolimex is likely to win contracts thanks to its large warehouses, extensive distribution system and long-term relationships with state-owned companies, the securities firm said, adding that Petrolimex also regularly fulfills contracts.

For the building stone industry, due to the characteristics of the industry, transportation costs often represent a large part of the expense of the finished product. Depending on the distance and type of transport, the price of stone delivered to the site can be twice the price of stone at the quarry.

Thus, VNDirect believes that listed companies with quarries located near motorway projects will be a priority for mobilization thanks to their strengths and the quality of their products.

It is estimated that major infrastructure projects in the south, including the Mỹ Thuận-Cần Thơ and Phan Thiết-Dầu Giây highways, will require 30-32 million cubic meters of building stone during the period 2020-25, which is equivalent to 150-160 per cent of the authorized mining capacity of listed companies in the industry.

As a result, companies that have high quality quarries with favorable locations will be the main source of supply, especially Tân Cảng and Thiện Tân quarries owned by four companies including Bình Dương Mineral and Construction JSC (KSB), Biên Hòa Building Materials Production and Construction JSC (VLB), Hóa An JSC (DHA) and Đồng Nai Materials & Building Investment JSC (DND).

The key project will be a powerful driver of building stone business profits in 2022-2023.

Positive outlook for the steel industry

VNDirect also sees bright prospects in 2022 for the steel industry, which has garnered a lot of attention lately.

The acceleration of infrastructure development and the warming of the residential real estate market will allow the country’s structural steel consumption to increase by 10 to 15% next year. Likewise, local consumption of coated steel will also increase slightly by 5% in 2022, compared to a strong growth of 39% this year.

In addition, the export outlook is also positive as the global demand for steel will increase dramatically, thereby stimulating Vietnamese steel manufacturers to boost exports to major markets.

VNDirect predicts that the price of Vietnamese structural steel will hit 15,500 VN per kilo (US $ 0.68 per kilo) in 2021, up 38% from last year, before falling 8% and 5% in 2022 and 2023, respectively, at 14 VN, 300-13,600 per kilo.

The brokerage expects Hòa Phát Group (HPG) to achieve compound growth of 12% and 9%, respectively, in revenue and net income in 2022-25 thanks to strong construction demand.

However, there are still risks if domestic prices for building materials rise too much, the government may put in place tariffs to cool the prices. In addition, higher than expected raw material prices will also reduce the gross profit margin of the industry. VNS

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