News Room - Steel Industry

Posted on 13 Aug 2008

Possible re-rating for steel firms (Malaysia)

Local steel companies may be heading for a re-rating given the softening in global steel prices and anticipation of higher exports from China, the worlda€?s largest steel producer.

Strongly correlated to the crude oil performance, steel had posted sharper-than-expected price correction since mid-July.

This was well reflected by the declining prices of raw materials for steel, namely billets, trading at about US$845 against its peak of US$1,200 per tonne, while scrap eased to US$550 from its all-time high of US$700 per tonne.

According to industry analysts, the revaluation on local steel stocks would be determined by the next direction of the crude oil prices and tighter steel export policy by China.

An analyst with Affin Investment Bank told StarBiz that the position of local steel millers would continue to be protected a€?if there are no dumping activities by Chinaa€? in Malaysia and the Middle East, an important export market among local steel millers.

She concurred that the price trend of crude oil was important to steel pricesa€? performance, adding that the outlook for steel was positive given expectation of a 7% growth in global steel demand in 2009.

China Iron and Steel Association (CISA) recently reported that Chinaa€?s total steel export might rebound in the second half spurred by the widening price spread for steel products between domestic and global markets.

In June, the offer price for hot-rolled coils in the US stood at US$1,193 compared with Chinaa€?s US$870 per tonne while the US cold-rolled coils was US$1,282 against Chinaa€?s US$1,014 per tonne.

CISA vice chairman Luo Bingsheng was quoted as saying that the central government might go for a tougher export policy if steel product exports posted a rebound in the second half.

OSK Research said the correction in steel price was temporary.

a€?There is some room for a further downward adjustment before steel prices recover in October or November,a€? it said.

This was based on the research unita€?s meeting with industry players, such as steel millers, steel and scrap metal traders.

It expected spot billets price to hover at about US$950 per tonne while heavy melting scrap 1:2 grade might trade around US$600 per tonne within two months.

OSK Research said the global demand for steel was intact given the dynamism in Brazil, Russia, India and China leading the growth with an 11.1% in 2008 and 10.3% in 2009.

The International Iron and Steel Institute predicts that 2008 will be another good year for the steel industry with apparent steel consumption rising to 1.28 trillion tonnes from 1.20 trillion tonnes in 2007.