Outlook for steelmakers bullish, despite US tariffs - Taipei Times
Sat, Jun 02, 2018 - Page 12 News List

Outlook for steelmakers bullish, despite US tariffs

By Kuo Chia-erh  /  Staff reporter

Yuanta Securities Investment Consulting Co (元大投顧) yesterday gave an optimistic outlook for the nation’s steelmaking industry because of an uptrend in global steel prices, despite rising trade protectionism.

Global steel prices are expected to continue rising, as Beijing has prolonged its measures to curb excess steel production in Henan and Tangshan, affecting 13.5 percent of total crude steel capacity in China, Yuanta analyst Leo Lee (李侃奇) wrote in a report.

The World Steel Association forecast that the compound annual growth rate of US steel demand would reach 1.2 percent from this year to 2025, driven by continued strong consumer spending and rising business confidence in the US, the report said.

Although US President Donald Trump’s order under Section 232 of the Trade Expansion Act of 1962 to impose additional tariffs of 25 percent on imported steel has raised concerns about a trade war, Yuanta said the higher tariffs would have a limited impact on local steel producers.

Taiwanese makers have lowered their proportion of exports to the US, as the US government had already announced a series of anti-dumping duties on steel imports, the report said.

The steel sub-index on the Taiwan Stock Exchange closed up 1.3 percent yesterday, with China Steel Corp (CSC, 中鋼) shares rising 0.64 percent and Yieh Phui Enterprise Co (燁輝) shares adding 0.99 percent.

In the report, Yuanta said upstream steelmakers would outperform downstream suppliers, partly because of a broadening spread of hot-rolled steel products, given that the average hot-rolled steel price last year returned to 2013 levels, but the average price of iron ore was only half the 2013 level.

“Overall, we believe the industry dynamics favor upstream hot-rolled steel makers like China Steel Corp and Chung Hung Steel Corp (中鴻鋼鐵), compared with downstream steel sheet makers, such as Yieh Phui Enterprise Co and Sheng Yu Steel Co (盛餘鋼鐵),” Lee said.

Yuanta gave a positive guidance for CSC’s business outlook for this year after the Kaohsiung-based company’s announcement that it has increased product prices for delivery next quarter by an average of NT$426 (US$14.26), or 1.9 percent, per tonne were higher than expected.

Yuanta also forecast that Chung Hung would this year see its revenue and operating profit from hot-rolled products grow 15 percent and 5 percent year-on-year respectively on the back of higher product prices and a solid gross margin of between 10 percent and 15 percent.

“We expect Chung Hung will return to positive retained earnings this year,” Yuanta said, adding that the steelmaker has suffered from long-term accumulated losses since 2011, mainly due to a downcycle in the steel sector and unstable raw material sources.

Hot-rolled products account for about 70 percent of Chung Hung’s total revenue.

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