Profit margin of chemical enterprises to decrease in 2023

After achieving impressive results in 2022, chemical exports showed signs of slowing down in the first two and a half months of 2023. The export turnover of basic chemicals only reached 930 million USD, down 10.9% year-on-year, due to weak global demand. Chemical export value ranks 12th in total export items of Vietnam.

VNDirect forecasts that demand from Vietnam's chemical export markets such as China and the United States will decline further until the end of 2023 due to high inflation expectations and economic recession risks.

For yellow phosphorus, the economic downturn has led to a decline in demand for electronics and semiconductors in 2023. World Semiconductor Trade Statistics forecasts the global semiconductor market will shrink by 4% in 2023 to 557 billion USD, the first annual decline since 2019.

Taiwanese chipmaker TSMC, the world's largest contract chipmaker, forecasts that first-quarter revenue will fall 5% year-on-year.

VNDirect believes that the demand for yellow phosphorus - an input material for semiconductor production will decrease in 2023. Experts forecast that the price of yellow phosphorus will reach 4,500-5,000 USD in 2023 due to weak demand.

For caustic soda, the domestic price of caustic soda is highly dependent on China, as China exports about 40% of Vietnam's caustic soda needs. The price of caustic soda in China has declined 27% since December 2022 as the caustic soda factory in China returns to operation in 2023 and aluminium demand is weak. Furthermore, reopening China's economy will improve the supply of caustic soda in Vietnam.

VNDirect forecasts that the price of caustic soda will reach about 700-800 USD per tonne in 2023, down 15% year-on-year. Because price contracts are usually signed three months in advance, VNDirect believes that the net profit of caustic soda companies such as the South Basic Chemicals JSC (CSV) and Viet Tri Chemical JSC (HVT) in the first half of 2023 will decrease compared to the second half of 2022.

The cost of electricity accounts for 20-30% of the total cost of producing basic chemicals. Experts see that Vietnam's electricity industry will record rapid growth in electricity consumption in 2022 - 2030.

According to Vietnam’s draft Power Master Plan VIII, electricity demand will increase with a high compound growth rate forecast at 9.2% in 2023-2030. VNDirect believes that the gross profit margin of businesses in the chemical industry will decline in 2023 due to rising electricity costs and lower average selling prices.

"In general, we forecast that the gross profit margin of basic chemical businesses will decrease by 4-6 percentage points year-on-year in 2023," said VNDirect.

During the 2023 General Meeting of Shareholders held on March 29, the Duc Giang Chemical Group (DGC) approved a business plan with a consolidated revenue target of 10.87 trillion VND in 2023, of which that from yellow phosphorus, the main product of the company, would reach 4.6 trillion VND. Profit after tax is estimated at 3 trillion VND. Thus, these targets decrease by 24.5% and 50% respectively compared to 2022, the year of high record profit of DGC since its establishment.

However, VNDirect still favours DGC stock as it is Asia's largest exporter of yellow phosphorus and VNDirect expects that DGC's net profit will rebound in 2024 thanks to recovering demand for other electromagnetic goods.

Source: Vietnamplus