China Steel Corp (中鋼), the nation’s biggest steelmaker, yesterday announced higher steel prices for July and August delivery, but also warned of increasing challenges ahead amid rising material costs.
The latest increase, with prices rising by an average of NT$1,645 (US$51.10) per tonne, or 6.8 percent, is the Kaohsiung-based company’s fourth hike this year, in line with market expectations. On April 9, when the company announced that prices would increase by an average of NT$2,212 per tonne, or 10 percent, for June shipment, China Steel said more hikes were in the pipeline for the third quarter.
China Steel was expected to raise prices by between US$50 and NT$60 (NT$1,609 and NT$1,931) per tonne this time, or an average of 7 percent, Grand Cathay Investment Services Corp (大華投顧) said in a report on Tuesday.
The rising costs of coking coal and iron ore began to impact on China Steel’s cost structure earlier this year, prompting the company to raise domestic steel prices by a total of 24.6 percent so far this year.
The company said in an e-mailed statement yesterday that it expected prices of coking coal and iron ore to climb further in the third quarter.
Higher material costs in the second quarter pushed up steel product prices by more than US$160 per tonne, China Steel said.
Despite the price hikes, the company said it still had difficulty covering the higher cost of raw materials.
In addition, China’s recent measures to cool its housing and automobile markets have led to an “overcapacity and increased inventory in steel.”
“Coupled with speculation that China would cut export rebates for metals, China’s steel prices have begun to trend lower since the middle of April, while its exports of excess steel production have caused the Asian steel market to stagnate,” China Steel said in the statement.
TAKING A HIT
As China Steel runs out of low-cost inventory at the end of next month and fails to fully pass on the material price hike to its customers, the company will take a hit on its third-quarter earnings, Grand Cathay forecast.
“We expect China Steel’s third-quarter profit to drop 31 percent sequentially to NT$7.5 billion, or NT$0.58 per share, despite a forecast 7 percent rise in quarterly revenue to NT$67.5 billion,” Grand Cathay said in the report.
Grand Cathay downgraded its rating on China Steel to “neutral” from “outperform,” with a short-term target stock price of NT$41. Citigroup rated the stock a “buy” with a target price of NT$38.20 in a client note issued on May 21. Shares of China Steel rose 0.5 percent yesterday to NT$30.15 on the Taiwan Stock Exchange before the company’s announcement of the price hikes.
Under the latest adjustments, China Steel said prices for benchmark hot-rolled sheets and coils would rise by NT$1,062 per tonne, or 4.39 percent, for July and August shipments.
Prices for steel plates used in construction will rise by an average of NT$1,893 per tonne, while those for steel bars and wire rods and cold-rolled sheets and coils will increase by NT$1,777 and NT$2,546 respectively.
Electro-galvanized sheet prices will also increase by NT$2,000 per tonne, while electrical sheets and hot-dipped, zinc-galvanized sheets will rise by NT$2,500 and NT$2,332 respectively.
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