The author is an analyst of Shinhan Investment Corp. He can be reached at hyunwook.kim@shinhan.com. -- Ed.
The global steel industry suffered sharp increases in feedstock prices and decline in demand sparked by US-China trade disputes in 2019. With the COVID-19 pandemic further weighing down on market conditions this year, most global steelmakers are planning to cut output. However, China is moving in the opposite direction. The country expanded the size of its steelmakers through restructuring, and will likely focus on expanding its influence in the global steel industry through massive crude steel production. China’s aggressive move should further strengthen its dominance over competitors in a market hit by COVID-19.
Initiate coverage with NEUTRAL view
We initiate our coverage on the steel/nonferrous metal sector with a NEUTRAL view for the following reasons. First, the global steel market faces growing concerns over oversupply due to increasing crude steel production in China, amid weakening demand from the pandemic and US-China conflicts. Second, the rising influence of Chinese steelmakers, which have expanded their size through M&As, poses a long-term threat to Korean players. Third, steelmakers are expected to see limited improvement in profitability due to higher feedstock prices and delays in ASP hike caused by weakness in downstream market conditions.
Top pick: POSCO
