Kinsteel Bhd has secured its iron ore requirements from the spot market at USD 200 per tonne until July 2010 to keep its margins intact amidst weaker input costs.

Maybank Investment Bank Bhd said both feedstock and steel prices had fallen month on month, partially due to weak sentiment from Europe’s financial problems. It added that growing concerns over higher iron ore pellets prices and a potential reduction in natural gas subsidy would not be a barrier for the group to achieve its targeted earnings in the second half of this year.

This was a buying opportunity given that the domestic pump-priming had yet to fully play out in terms of order-flow and long steel remained practically the only sector on Bursa Malaysia to have a positive fundamental story.

However, Maybank Investment believed the correction was temporary and expected export average selling prices to pick up this coming July as the underlying demand from emerging markets remained strong.

To support this, RHB Research Institute Sdn Bhd also believed the group’s earnings would peak in the second quarter, attributing it to the higher sales volumes coupled with margin expansion arising from selling prices that outpaced its raw material costs.

Meanwhile, beyond the first half of this year, the research firm believed earnings were likely to weaken significantly on the back of heightened risks of a sharper than expected slowdown in global economy as well as the falling input prices that would hurt both consumption and prices of steel products.

According to OSK Research Sdn Bhd, Kinsteel’s first quarter core net profit of MYR 22.6 million was 123.1% higher quarter on quarter but when annualised, it was 16.1% below its estimates.

(Sourced from theborneopost.com)