Posted on 04 Sep 2018
Chinese steel stocks are back in vogue, as the nation’s push for clean air and new infrastructure offsets worries about a supply glut.
Bolstered by prices near a seven-year high, heavyweights Baoshan Iron & Steel Co. and Angang Steel Co. are among Goldman Sachs Group Inc.’s favorite basic materials stocks, the bank said in a note earlier this month. Both posted solid growth in earnings this week, and are likely to see the uplift continue on strong steel demand through the rest of the year, according to Bloomberg Intelligence analyst Yi Zhu.
With Chinese mainland planning tougher capacity cuts over the winter to reduce air pollution, steel futures this month surged to the highest level since 2011. The government, meanwhile, has also pledged to speed up infrastructure spending in the face of an escalating trade conflict with the US, which will boost demand for steel.
“We are optimistic on steel demand,” said Sandra Huang, a Hong Kong-based analyst with UOB Kay Hian Holdings Ltd. “The infrastructure sector will receive notable support in the second half to offset a weakening in the property sector.”
Valuations will recover further because of supply cuts, said Huang, who has had an overweight rating on the sector since the beginning of the year.
Baosteel, Chinese mainland’s biggest mill, and No. 3 producer Angang have rebounded from their early July lows, outperforming broader gauges of Chinese stocks. Goldman sees 70 percent upside for Baosteel and about 50 percent for Angang’s Hong Kong-listed shares. Baosteel slid 2.5 percent to 7.86 yuan as of 10:22 in Shanghai on Thursday, while Angang was up 0.3 percent at HK$7.71 in Hong Kong.
