ALTHOUGH the Malaysian Iron and Steel Industry Federation (Misif) has projected the steel consumption in Malaysia to grow moderately for the next three years, analysts are gloomy over the sector due to persistent overcapacity in China.
Hong Leong Investment Bank Research said the firm attended a steel sector conference recently with a neutral feeling about the sector due to the persistent overcapacity issue in China which is the world’s largest steel producer.
“Although the federation has forecast steel growth at three to six per cent a year to 10.5 million tonnes this year, 10.9 million tonnes next year and 11.3 million tonnes in 2016, we feel that the overcapacity will likely cap fortunes of local steel producers.
“The decent growth in apparent steel consumption is unlikely to improve the fortunes of local steel producers, given the persistent overcapacity in China,” Hong Leong said in its research note to investors.
It has maintained a “sell” call on Ann Joo Resources Bhd, with a target price of RM0.97 and “hold” recommendations on CSC Steel Holdings Bhd with a target price of RM1.12.
Hong Leong said various measures implemented have yet to show effectiveness, hence, the Misif has recently tabled a series of requests to the Ministry of International Trade and Industry.
These include preliminary anti-dumping margins during investigation, an independent trade measure commission to be formed, restrict new added capacity and government to insist companies buy Malaysian made steel.
Others include the implementation of subsidies removal gradually and to reinstate a five per cent most favourable nation import duty for long products and maintain the 20 per cent for flat products until 2018.
Hong Leong said catalysts for the sector include China’s decision to further stimulate its economy, more effective measures introduced by the Chinese authority to curb steel capacity and potential trade action on steel dumping activities.
However, risks include whether overcapacity in China remains over the longer-term period and volatile input prices, thus making the sector a play on short-term potential price trend.
Source: nst.com
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