In addition, the threat of lower steel prices coming from China is likely to subside due to (i) China’s depleting steel inventory indicating rising domestic demand there, (ii) closure of loss-making steel mills in China, and (iii) China governments’ strong commitment in reducing steel production capacity through consolidation of steel groups coupled with financial support of RMB100b for worker retrenchment schemes. This is based on the daily report from Kenanga Research.
The timeline of the positive developments for the long steel products sector this year is as follows:
- From March to middle April, steel prices recovered in China
- Late April to May, steel prices corrected in China
- From June onward, steel prices have been rising in China
- Last week, our Government imposed additional duty on steel coils and reinforced bars on top of the existing 5% duty
Chart 1: Annjoo's monthly chart as at Sep 26, 2014_12.30 (Source: Shareinvestor.com)
Chart 2: Masteel's monthly chart as at Sep 26, 2014_12.30 (Source: Shareinvestor.com)
Chart 3: SSteel's monthly chart as at Sep 26, 2014_12.30 (Source: Shareinvestor.com)
Meanwhile, the flat steel products players are also doing quite well. They are having a pretty good run after Megasteel closed down. Megasteel used to produced HRC- the raw material for making flat steel products- at higher prices than imported HRC. Thus, the closure of Megasteel will enable flat steel producers, such as Mycron, to source for cheaper HRC and improve their bottom-line.
Chart 4: Mycron's monthly chart as at Sep 26, 2014_12.30 (Source: Shareinvestor.com)
Chart 5: Melewar's monthly chart as at Sep 26, 2014_12.30 (Source: Shareinvestor.com)
Like long products players, flat products players have had a very strong rally. You may want to wait for price pullback before gaining your entry. For bigger bites, you can consider Melewar, the 71.5%-owner of Mycron, and SSteel, the laggard & poorer performer.
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