While a two-day suspension of operations at its No. 1 blast furnace because of a fire on Tuesday may not cause much harm to China Steel Corp (中鋼), the company is likely to see declining profits in the second half of the year because of steel oversupply from Chinese mills, analysts said.
The nation’s biggest steelmaker said in a stock exchange filing yesterday that its No. 1 furnace would soon resume operations after completing inspections and repairs, reiterating that the fire would have no major impact on its annual production.
However, Credit Suisse analyst Sidney Yeh (葉昌明) said in a report yesterday that the company’s earnings outlook for the second half of the year was uncertain because of high inventory levels in China.
“Some investors were hoping for profit recovery in the fourth quarter given the softening of raw materials. However, we believe the timing of the steel price rebound will be pushed back given the slow pace of de-stocking in China,” Yeh wrote.
Credit Suisse revised down its earnings forecast for China Steel by 8 percent, to NT$2.62 per share this year. The brokerage maintained a “neutral” rating on the stock, but lowered its target price to NT$34.3 from NT$34.7.
JPMorgan analyst Nick Lai (賴以哲) said yesterday in a separate note that he expected China Steel to impose more price cuts during the rest of the year, after a 4 percent cut for September shipments was announced on Tuesday — affecting full-year profitability.
JPMorgan downgraded China Steel to “neutral” from “overweight,” and lowered its target price for the stock to NT$32 from NT$40.
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