November 22, 2008

Steel demand likely to remain strong in Asia

According to Aseambankers, demand for steel is expected to remain strong, given the tight global supply and firm demand from Asia and the Middle East.

Aseambankers said in a report that “This was only a marginal downgrade from an earlier forecast, which is positive, considering that expectations were for steel consumption to decline considerably as a US led slowdown spreads to the rest of the world. It said that with a perceived shortage in steel supply over the near term and we expect steel prices to at least be supported until early 2009.”

Aseambankers said “Nonetheless, we believe the increase in utility costs may still result in some profit margin contraction over the next two quarters for some steel producers unless effective cost minimization strategies are in place. It added that earnings reported over the next two quarters were still expected to be strong YoY.”

The research house said “In view of the challenges facing the industry, particularly with rising material costs, we prefer exposure to selected stocks such as Ann Joo Resources Bhd, for its prudent procurement of scrap and its progression towards becoming an integrated steel player once its mini blast furnace is operational in early 2009.”

Aseambankers also picked Kinsteel Bhd, which apart from benefiting from the high prices of bars and billets, stood to gain from the export of direct reduced iron where prices trailed the strong trends of scrap prices.