Posted on 28 Jun 2021
The global steel market is facing short-term headwinds due to China’s unfavorable policies to rein in inflation and to achieve net-zero carbon emissions, Yuanta Securities Investment Consulting Co (元大投顧) said in a note on Friday.
However, China’s commitment to control crude steel production this year has led to price corrections recently. As Chinese steelmakers have seen profit decline to around breakeven level, there is limited room for further price cuts, with steel prices forming a bottom, Yuanta said.
Moreover, global steel demand remains robust, thanks to widespread COVID-19 vaccinations easing the global health crisis and stimulus packages by governments worldwide ushering in the post-COVID-19 era, it said.
Steel demand from construction companies and automakers has shown no signs of abating, Yuanta said, adding that steel supply remains tight due to limited shipping capacity and labor shortages.
In an earlier note on June 11, a team led by Yuanta analyst Leo Lee (李侃奇) wrote: “We anticipate steel supply and demand dynamics will be similar to those seen in the cement industry over the past two to three years. That means tightening supply, strong demand and low inventory levels.”
“This means substantial upside to steel makers’ earnings,” the analysts added.
China Steel Corp (CSC, 中鋼), Taiwan’s largest steelmaker, has benefited the most, as it last week reported pretax profit of NT$26.9 billion (US$963.9 million) for the first five months of this year, up 848 percent year-on-year, and earnings per share of NT$1.7.
CSC on June 15 said that it would not raise prices for steel products in the domestic market next month, ending 12 months of price increases, but it would raise prices by 10 percent in the third quarter.
Domestic downstream companies have benefited from price increases of CSC’s products, with order visibility for some of them extending to the fourth quarter and gross margins to remain at relatively high levels, Yuanta said on Friday.
That is because CSC’s domestic clients profit from positive global market dynamics, as they mostly export products to the EU and US, the analysts said.
“Based on international steel prices, as well as increases in iron ore and coking coal prices, we expect China Steel to raise prices further in the third quarter,” the analysts said.
“Coupled with China’s crude steel production cuts and cancelation of export tax rebates, we expect steel prices to be supported by improving global supply and demand dynamics on slower steel supply,” they added.
CSC shares fell 0.14 percent to NT$35.75 on Friday in Taipei trading, after rising 44.44 percent so far this year, Taiwan Stock Exchange data showed.
Also in the steel sector, Yieh Hsing Enterprise Co (燁興企業) gained 4.76 percent to close at NT$15.7, Chun Yuan Steel Industry Co (春源鋼鐵) rose 4.68 percent to NT$25.70, and Ta Chen Stainless Pipe Co (大成不銹鋼) added 3.12 percent to NT$47.95.
Chung Hung Steel Corp (中鴻鋼鐵) rose 0.2 percent to NT$50.7 and Hsin Kuang Steel Co (新光鋼鐵) increased 1.2 percent to NT$67.6, but Tung Ho Steel Enterprise Corp (東和鋼鐵) dropped 2.6 percent to end at NT$46.7 percent.
Source:Taipei Times
