CSC Steel likely to defend market share at the expense of margins

Posted on 10 January 2020

Source: The Edge

Maintain hold with an unchanged fair value (FV) of RM1.09: We maintain our “hold” call, forecasts and FV of RM1.09 per share based on 0.5 times CSC Steel Holdings Bhd’s book value, consistent with its historical average during the last down cycle in the flat steel sector in 2012-2015.

The ministry of international trade and industry recently formalised anti-dumping duties (from December 2019 to December 2024) of 3.84%–26.39% on iron or non-alloy steel-based cold-rolled coils (CRCs) with a width of more than 1,300mm from China, Japan, South Korea and Vietnam. This represents an extension to provisional safeguard duties of 26.39% imposed from August 2019 to curb the influx of underpriced CRCs in the local market.

We do not believe the latest development could resolve the long-standing issue of dumping by foreign players. They could still possibly bypass the duties by changing the physical properties to an “alloy” (which does not attract anti-dumping duties) by adding an element (for instance, boron) to the CRCs without changing the metallurgical properties. We understand that imports have continued to dominate the local CRC market with an estimated market share of 60%–70%.

We remain cautious on prospects of the local flat steel sector amid steep competition from cheap imports in the market. While anti-dumping duties have now been put in place by the government to protect the local players, they may not completely eliminate the loopholes.

With cheap imports still flooding the local market, we believe the local flat steel producers, CSC Steel included, will have no choice but to defend their market share at the expense of margins. — AmInvestment Bank, Jan 8 

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