KUCHING: Prices of steel products will likely stage a rebound in the coming fourth quarter, even though prices are expected to remain weak throughout the third quarter this year.
VOLATILE PRICES: Prices of steel products will likely stage a rebound in the coming fourth quarter, even though prices are expected to remain weak throughout the third quarter this year.
According to RHB Research Institute Sdn Bhd’s (RHB Research) recent research report, steel consumption would be seasonally stronger in the fourth quarter on the back of more condusive weather for construction activities and worldwide seasonal stock replenishing activities as well as the concerns on overcapacity, which were likely to ease in the near term and the spot price of iron ore fines that had bottomed.
The research firm believed the concerns on overcapacity were likely to ease in the near term, due to the reduced supply pressure following production cuts by key steel making producers in various countries. While this might not necessarily translate to an immediate upswing in the prices of steel and steel related products, it believed the production cuts would help ease concerns on overcapacity.
This might as well attributed to the recent positive news flows on steel sector consolidation in China, which will boost buying sentiment of steel products. RHB Research stated that these included Baosteel’s (the second biggest steel producer in China) moving to scale back its 2012 capacity target by 38 per cent and the Chinese government’s move to further consolidate the steel sector’s capacity.
Meanwhile, for iron ore fines, the research firm believed it would at least stabilised at current level, given that steelmakers in China, currently the world’s biggest consumers of seaborne iron ore fines, were likely to resume iron ore stockpiling activities in anticipation of a seasonally stronger steel consumption in the fourth quarter.
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Inherently weak bargaining power against customers (steel producers) and suppliers (metallurgical coal miners) aside, it expected the recent production cuts announced by key steel producers would further surpressed independent metallurgical coke producers’ pricing power, and hence weakening their near-term earnings outlook further.
However, RHB Research highlighted that it was still early to turn bullish. The risk on a sharper-than-expected slowdown in global economy remains and this might once again hurt buying sentiment on steel products.
Based on the given factors, it pegged Ann Joo Resources Bhd at a new target price of RM2.74 per share, CSC Steel Holdings Bhd at RM2.22 per share and Kinsteel Bhd at RM0.83 per share.