Posted on 13 Jun 2022
Despite the Covid-19 pandemic, Korea’s major steel and metal plays recorded their best-ever earnings results last year, and robust earnings momentum continued into 1Q22. In response to rising raw material costs, product prices have been hiked for all areas in 1H22, including for automotive steel plate and shipbuilding plate, as well as for CR and HR products. Accordingly, we forecast that domestic steel companies will be able to defend their margins in 1H22.
Steel prices turn bearish
In China, steel prices peaked in early-April and then turned downward, largely due to Covid-19 lockdowns in the nation. In addition, amid reduced automobile production and a sustained real estate market recession, the government’s infrastructure investment has also been delayed. Against this backdrop, BaoSteel, China’s largest steel company, slashed its ex-factory prices for June. The price of raw material iron ore is also declining. With a low-season approaching, it should be some time before steel prices rebound again. Given that overseas steel prices are now weakening with some time lag by region, it is expected that domestic steel prices will also be affected.
Economic slowdown fueling hopes for China’s infrastructure investment
The US Fed’s aggressive monetary tightening, China’s Covid-19 lockdowns, and the Russia-Ukraine war have all raised concerns towards the global economy. In China, it looks difficult for the country to achieve its 2022 GDP growth target of 5.5%. However, weakening economic situations have in turn raised expectations for China’s infrastructure investment expansion. The central bank of China recently lowered the 5yr Loan Prime Rate (LPR), confirming the government’s commitment to real estate market stimulation. In 2H22, sustained deregulation should accelerate infrastructure investment. That said, investors are advised to pay close attention to any change in the Chinese government’s Covid-19 policy and fiscal conditions prior to infrastructure investment.
Demand concerns in play for non-ferrous metals; expectations rising for China’s economic stimulus
In line with growing worries over the global economy, non-ferrous metal prices have corrected. This has come after a peak in prices due to supply chain issues stemming from the Russia-Ukraine war, followed by a shift in market interest to demand. Higher electricity costs due to geopolitical risks and strong energy prices have put pressure on smelter operations. And, bottlenecks at smelters should offer downward rigidity for non-ferrous metal prices in 2H22. If China expands its infrastructure investment, the impact of bottlenecks should grow even further.
Source:Business Korea
