China Steel Corp (CSC, 中鋼), the nation’s biggest steel mill, is expected to raise steel prices for the third straight time for June deliveries, buoyed by improving demand, an analyst said.
In addition, CSC is benefiting from an uptrend of global commodity prices that began in February, which has spread to the worldwide steel industry, Fubon Securities Investment Services Co (富邦投顧) analyst Kevin Lin (林茂揚) said in a report released last week.
Lin expects the rebound to carry into the second quarter of this year, as the US Federal Reserve is expected to hold its loose monetary policy in the first half of this year on growing risks of economic weakness.
“There is a good chance that CSC will raise prices during a regular meeting to be held in the middle or at the end of April, after increasing prices twice on inventory buildup demand,” Lin said in the report.
“CSC has increased prices at a milder pace in previous months than its global peers… In the latest price adjustment, Chinese steelmakers increased steel prices by more than 200 yuan [per tonne] in April,” Lin said.
The Kaohsiung-based steelmaker has only hiked prices by a combined 5.4 percent on the past two occasions.
Lin expects improving industry prospects to lift CSC’s stock price this quarter. He suggested investors increase their shares in CSC.
As a result, Lin upgraded his rating on CSC to “overweight” from an “equal-weight” rating he made in October last year, according to the report.
He also increased the stock’s target price from NT$21 to NT$24.5, implying an 11.62 percent upside in the rest of this year, compared with CSC’s closing price of NT$21.95 on Friday last week.
CSC started making monthly pre-tax profits of NT$250 million (US$7.72 million) in February, due to alleviating global steel oversupply and significant output cuts, primarily by China, which helped boost global steel prices.
Improved profitability in February helped shrink the steelmaker’s losses in the first two months of this year to NT$68 million.
Fubon expects CSC to extend the positive note to the first two quarters of this year.
The company is expected to make net profit of NT$202 million in the first quarter and to increase its net profit to NT$1.27 billion in the second quarter, benefiting from rising prices and lower manufacturing costs, Lin said.
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