Steel prices to continue upward trend, could breach RM2,650 mark

Steel companies in focus include Southern Steel Bhd, which gained six sen to close at RM2.43; Malaysia Steel Works (KL) Bhd, which firmed up five sen to RM1.61; and Ann Joo Resources Bhd(pic), which remained unchanged at RM3.68. Ann Joo, for example, saw its share price tripling over the past two years, said analysts.

PETALING JAYA: Analysts are bullish on the local steel sector and expect prices to continue on an upward trend this year on the back of higher infrastructure contract awards.

After reaching another record high of RM2,642 per metric ton (MT) last month, analysts told StarBiz that there is room for steel prices to further surge. 

Some are of the view that it could breach the RM2,650 mark by year-end or the early next year amid some easing in the construction activities in China in the current quarter.

The boost to steel prices will come from stronger demand for existing and upcoming mega infrastructure projects, analysts added. UOB Kay Hian analyst Abdul Hadi Manaf, who is bullish of the sector is maintaining his overweight stance on the sector.

“We expect investors to give due attention to the steel sector, given the sector’s cheap single-digit price-earnings (PE) multiple in the third quarter (Q3 17), rising domestic demand (amid rising construction activities of mega projects) and the dearth of alternative compelling investments.” he added. 

He also believe that valuations could stretch further for companies that undertake effective capital management. “Ann Joo is our top pick, while notable stocks include Choo Bee Metal Industries, MaSteel, Leon Fuat, CSC Steel and Prestar Resources,’’ he noted.
 
According to the Ministry of International Trade and Industry (MITI) data, local steel bar prices rose further to reach another record high of
RM2,642/MT in Sep 17 (+45.5% y-o-y, +6.2% m-o-m), while local billet prices increased to RM2,363/MT (+53.6% yoy, +6.5% mom). 

This brought steel bar prices in Q3 17 to RM2,417/MT (+16.4% q-o-q), exceeding the peak of RM2,233/MT in Q1 17.

UOB Kay Hian expect the increase in domestic demand brought about by more contract awards for infrastructure and mega projects, particularly LRT 3,  to provide support to domestic steel prices. 

However, it noted that prices may ease in Q4 17 to reflect the seasonal slowdown in China’s construction activities. In September, China steel billets fetched a 12% price premium to local billets versus an 18% premium in August 17, as China billet prices have started to ease.

While most steel companies trade at about 10 times annualised PE, Choo Bee and MaSteel trade at only half their respective annualised price-to-book 
multiples. 

Leon Fuat trades at only 5.0 times 12-month trailing PE while CSC Steel’s share price has been flat since July 17. Prestar comes across as interesting, riding on the various upcoming highway projects.