China Steel Corp (中鋼), the nation’s biggest steelmaker, announced yesterday that it was raising domestic steel prices for June delivery by an average of NT$2,212 (US$69.97) per tonne, or 10 percent, and said more hikes are in the pipeline for the third quarter.
The latest increase is the company’s third hike this year after it raised prices by an average of NT$612 per tonne, or 2.9 percent, for this and next month’s shipments. Last month’s shipments also rose by NT$1,011 per tonne, or 4.92 percent.
The Kaohsiung-based company said in an e-mailed statement that the hike was to reflect rising demand. Worldwide demand for steel is expected to increase 10.2 percent to 1.234 billion tonnes this year, China Steel said, citing the World Steel Association’s forecast.
The range of the price increases are in line with market consensus and represent the largest increase since the third quarter of 2008, indicating the recent strong run-up in raw material prices in iron ore and coking coal, analysts said.
China Steel was expected to raise prices by between NT$2,200 and NT$2,500 per tonne, or 8 percent to 10 percent, according to Capital Securities Corp’s (群益證券) estimate.
China Steel said that the combined costs of coking coal and iron ore have risen by between US$160 and US$200 per tonne during the April-June quarter, after major Australian and Brazilian miners decided to raise prices by between 80 percent and 100 percent and shifted the conventionally annual contract pricing to price changes on a quarterly basis.
The higher material costs “went far beyond steel mills’ expectations,” the company said in the statement.
Angela Chuang (莊慧君), an analyst at Capital Securities, said China Steel’s production costs had risen by US$150 per tonne since April 1, including a 55 percent increase in coking coal prices and a 90 percent hike in iron ore prices.
“We expect another 20 percent rise in material costs in the third quarter,” Chuang said yesterday by telephone. “To fully reflect these higher material costs, China Steel will need to continually pass the cost on to its customers in the coming months.”
Under the latest adjustments, China Steel said it was raising prices for the benchmark hot-rolled sheet and coil by NT$2,500 per tonne, or 13 percent, for June shipments.
That was higher than Citigroup’s forecast of an 8 percent increase per tonne, according to a note from the brokerage firm issued last week.
The company said it would also raise the price of plates used in construction by an average of NT$1,800 per tonne, add NT$1,600 to bar and wire rod prices and NT$2,700 to cold-rolled sheets and coils, which are used in the automotive industry.
The company also increased prices for electro-galvanized sheets by NT$2,700 per tonne, added NT$3,000 onto electrical sheet prices and slapped another NT$2,500 on hot-dipped, zinc-galvanized sheets.
China Steel will announce domestic prices for July and August deliveries next month.
Asked if the higher material costs would impact on China Steel’s financial results in the second quarter, Chuang said the impact is limited because the company would run out of its low-priced inventory at the end of next month. The higher costs will hit the company beginning in June, she added.
With a positive outlook for China Steel this year, Capital Securities forecasts that the company will post NT$35 billion in net income this year, or NT$2.66 per share, up 78.6 percent year-on-year. It recommended a buy rating on the stock, with a target price of NT$42, compared with Citigroup’s target price of NT$38.2.
Shares of China Steel rose 0.29 percent to NT$34.1 yesterday before the announcement of the increased prices.
The stock has risen 3.33 percent so far this year, compared with a 1.17-percent fall on the benchmark TAIEX.
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