转贴;StarBiz: Earnings up-cycle seen for steel companies

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Author: Blue Planet   |   Publish date: Wed, 25 Jan 2017, 12:10 PM 

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PETALING JAYA: Local steel players are seeing a turnaround in their fortunes thanks to a recovery in steel prices.

After several years in the doldrums, steel producers are at the early stage of an earnings up-cycle going by the recently concluded results season and are expected to register better earnings in 2017.

KAF Investment Bank noted that after a seasonally slower third quarter, steel prices have resumed their upward march since October on cost-push factors.

“Notably, Chinese coking coal prices have surged around 192% year-to-date (y-t-d) after the Chinese government stepped-up capacity cuts for the coal and steel industries.

“On the other hand, the sentiment-driven rally in iron ore prices (US$72/tonne in November) should normalise in the coming months once demand from Chinese mills start slowing down, and excess capacity eases. Along with improving domestic demand, we expect the steel price recovery to continue in 2017 off a smoother base,” the niche investment bank said in its strategy report for 2017.

Other positive catalysts for the domestic steel industry was the provisional safeguard duties on imported steel bars and wire rods at a rate of 13.9% and 13.4% effective since Sept 26, while the recent closure of ailing steel miller Megasteel Sdn Bhd is a boon for other players like Southern Steel Bhd and Mycron Steel Bhd.

KAF said based on recent channel checks, steel millers were receiving more enquiries from local contractors looking to lock-in their steel requirements following China’s planned capacity cuts of 150 million tonnes by 2020 from the 45 million tonnes forecast this year.

In terms of jobs, a number of infrastructure projects under the 11th Malaysia Plan will move from the planning to implementation stage next year, boding well for buildings materials companies like steel.

Kenanga Research noted that local steel rebar prices trading at the range of between RM1,700 and RM1,850/tonne as at end-September as opposed to the lows of RM1,450/tonne in financial year (FY) 2015 due to China exporting steel rebars at extremely low prices, causing local steel players to register losses.

Ann Joo Resources is seen as a key beneficiary of rising steel prices premised on its improving cost effectiveness  in producing iron.

It noted that in anticipation of the safeguard measures by local importers, large quantities of steel were imported in June and July this year, surging 11% and 44% year-on-year, respectively.

“However, post implementation of the measures, we expect the imports for Chinese steel to taper down going forward.

“Hence, we believe local steel prices will see more stability and potentially higher prices in the fourth quarter and local steel prices to see significant improvements in pricing from FY17 when these large quantities of Chinese steel imports depletes.

“We believe our average FY17 estimate average selling price assumption of RM1,890/tonnes remains sustainable with the reduction of imports from China,” the research house said in a recent report.

Of the listed steel stocks, Ann Joo Resources Bhd is seen as a key beneficiary of rising steel prices premised on its improving cost effectiveness in producing iron through its blast furnace-EAF hybrid technology whereas other peers in the local market are only using EAF (see chart).

Additionally, all finished steel products manufactured by the company are long products like wire rod and rebars, which are entitled under the safeguard.

On the other hand, Southern Steel Bhd produces long and flat products. Flat products are not entitled for the safeguard.

KAF estimated that for every RM100/tonne increase in bar prices, Ann Joo’s net profit would rise by 18% to 23%.

For the third quarter ended Sept 30, 2016, Ann Joo Resources swung back into profitability with a net profit of RM22.9mil compared with a net loss of RM82.3mil in the same quarter a year ago.

Southern Steel also returned to the black with a net profit of RM19.3mil in the first quarter ended Sept 30, 2016, against a net loss of RM51.9 recorded in the same period previously. The company said the return to profitability was due to higher selling price and lower cost.

Similarly, Malaysia Steel Works (KL) Bhd reversed its loses, albeit a small profit of RM1.2mil in its third quarter ended end-September compared with a RM24.1mil net loss in the same quarter a year ago.

Mycron Steel Bhd, it saw profits jump from RM2.83mil to RM10.1mil, while Lion Industries Corp Bhd narrowed its net loses to RM2.5mil in the first quarter ended Sept 30 from losses of RM16.4mil previously.

The recovery in steel prices has brought back shine to steel stocks on Bursa Malaysia dispelling the gloom plaguing them in recent years.

Shares of Ann Joo Resources and Mycron Steel have risen more than 200% y-t-d.

Malaysia Steel Works closed last Friday higher by 70%, while Lion Industries was up close to one-third from the start of the year.

Despite its strong share price run to RM2.05 as of last Friday, KAF said that Ann Joo Resources “still trades at alluring FY17-FY19 forecast price earnings of seven to eight times versus a robust earnings per share compound annual growth rate of 31%.”

Following the prepayment of the final tranche of its bonds (RM105mil) in May, net gearing is projected to improve to 58% by FY18F versus 86% as at Sept 30, it noted.

Meanwhile, Perwaja Holdings Bhd, which was badly hit by the cheap imports from Chinese steel, is currently placed under PN17 status. The company is waiting for its white knight from China, Tianjin Zhiyuan Investment Group Ltd to initiate a rescue plan soon.

Another factor that may generate interest in the RM41bil domestic steel industry is merger and acquisition (M&A). It was reported that the Federal Government was supportive of any consolidation moves by the local steel players. Malaysia Steel Institute estimated that the consolidation to be undertaken in three phases over a five-year period, could pave the way for a reduction in the number of upstream and upper-mid stream steel players to 25 from 40 currently.

As competition gets keener, analysts do not discount more local steel millers exploring M&A opportunities or strategic tie-ups with foreign players for long-term survival.

Globally, the Chinese government is also targetting more mergers to drive its aim of having its Top 10 millers producing 60% of the country’s steel output.

Steel players to see improve earnings in 2017.

Source: http://www.thestar.com.my/business/business-news/2016/12/12/earnings-up-cycle-seen-for-steel-companies/

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Business News

Wednesday, 21 December 2016

Steel could shine in 2017 as China expands capacity controls

 

SHANGHAI: China has handed the resurgent global steel industry an early boost for next year, with a clampdown on illegal mills that Citigroup Inc says could benefit the world’s biggest producers.

A campaign by China to shutter some induction furnaces, which use scrap as a raw material, may hit as much as 5% of the country’s output, bank analysts including Jack Shang and Tracy Liao wrote in a note received yesterday.

That’s raising prices for Chinese steel, and is poised to prop up iron ore and coking coal markets when blast furnaces ramp up to fill the gap, they said. That will boost steelmakers including ArcelorMittal, the world’s biggest.

“China is the largest exporter of steel in the world and Chinese export prices effectively put the floor under the global steel prices in our view,” the analysts wrote. The crackdown is “changing the investment case for global steel stocks, iron ore and coking coal,” according to the note.

The closures in four provinces show China is using an expanding toolbox of policies to restructure the world’s biggest steel industry after decades of growth.

Stricter environmental rules, and this direct action against illegal small producers, add to measures to cut capacity. At the same time, moves to stimulate growth in Asia’s biggest economy have benefited global steelmakers, with China’s exports poised to fall in 2016 for the first time in seven years.

Steel in Europe and the US could rise US$50 to US$80 a tonne in the next month if Chinese prices hold at current levels, Citigroup said. The price of benchmark hot rolled coil shipped from China has already jumped to US$530, the highest since 2013, according to Beijing Antaike Information Development Co.

Industry data for November shed an early light on how tighter restraints might play out next year, especially if this year’s resurgent demand is sustained. Run-rates at China’s steelmakers didn’t budge in November from October, even though prices were surging on a fresh bout of optimism for demand.

That’s a sign that environmental inspections which began in late-November were already having some impact, analyst Kevin Bai of CRU Group.

Citigroup singled the world’s No.1 producer ArcelorMittal as benefiting from the furnace shutdowns, because it sells iron ore and coking coal to third parties, as well as shipping steel. The firm’s value has surged 135% this year. The swing from scrap to mined raw materials could generate as much as 5 million tons a month of additional iron ore demand, and an extra 2 million tonnes of coking coal consumption, helping to prop up prices, Citigroup said.

“China has focused this year on the so-called zombie plants, but next year it’s going to target operational capacity,” Ren Zhuqian, chief analyst at consultancy Mysteel Research, said from Shanghai last week.

She said it’s possible that steel could follow the coal industry next year, with more direct government intervention.

“Supply-side reform has effectively lifted coal market sentiment this year and the market expects that to shift to the steel sector.” – Bloomberg

Read more at http://www.thestar.com.my/business/business-news/2016/12/21/steel-could-shine-in-2017-as-china-expands-capacity-controls/#kh37oeZBUijDEQJr.99

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Natural gas price hike discouraging, says Misif

Posted on 2 January 2017 - 05:38am

sunbiz@thesundaily.com

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PETALING JAYA: The Malaysian Iron and Steel Industry Federation (MISIF) is opposing the cumulative natural gas price increase of about 23% over the next three years, lamenting that it is a very discouraging decision by the government on high energy-consuming manufacturing entities within the iron and steel industry.

In a statement last Friday, MISIF said the overall and unprecedented steep increase in natural gas price would invariably impose more pressure on production cost and affect the viability and competitiveness of the industry.

It noted that the tariff rebate of RM0.40/MMBtu applicable for the January-June 2017 period, which translates to an average effective tariff of RM26.31/MMBtu, is just a meagre reduction of 2.74% from the previous average tariff.

“More worrisome is the fact that there would be an overall increase of about 23% over the next three years.

“We strongly object to this increase and reiterate our call to the government to adopt a moratorium of any increase in natural gas price for at least the next two years,” it said.

Adding to the woes are the intense competition in the domestic iron and steel industry as well as high influx of imported steel products from all over the world, according to MISIF.

Total Malaysian iron and steel imports this year are expected to reach a record 8.6 million tonnes (7.92 million tonnes in 2015), with China alone contributing 40% or 3.45 million tonnes.

MISIF said the increase in natural gas price will continue to adversely affect the industry’s competitiveness in the international market and severely jeopardise its exports of steel products, which is also expected to continue with its declining trend.

MISIF also highlighted that over the last two years (May 2014 to July 2016), the natural gas tariff had increased five times, from RM16.07/MMBtu to RM27.05/MMBtu, a staggering increase of RM10.98/MMBtu or 68%.

"The new average base tariff as announced would effectively mean that come July 2019, the natural gas price would have increased by an astounding 104% over a five-year period," it said.

Meanwhile, the Federation of Malaysian Manufacturers (FMM) also voiced concern over the impact of possible cumulative gas price increase of 22.6% by end of 2019 amid the uncertainty in the world economy in the next few years.

In a statement last Friday, the association said it hopes the government will continue to consider industries competitiveness against regional competitors in the energy subsidy rationalisation and the proposed transition to market price and to continually assess the impact of price reviews against the prevalent economic and market conditions.

“FMM will continue to advocate for a fair pricing of natural gas, in particular for the locally sourced piped gas, and seek further engagement with the government to obtain further clarity on the basis of the average base tariff determination for the next three years,” it said.

The Energy Commission has approved the average base tariffs for the regulatory period beginning Jan1, 2017 to Dec 31, 2019 whereby the average base tariff is projected at RM32.74 per mmBtu by 2019 from RM26.71 per mmBtu this month.