Malaysian steel stocks turn red hot on China factor

Companies in the steel industry recorded big gains on the back of rising prices of the product in China that has hit multi-year highs.

Steel counters dominated Bursa Malaysia gainers’ list yesterday, with companies such as Ann Joo Resources Bhd rising 5.59% or 17 sen to close at RM3.21 and Southern Steel Bhd gaining 7.6% or 13 sen to close at RM1.84.

Ann Joo Resources has risen 5.2% in the past month, with yesterday’s gains being its biggest move since April this year.

The rise in Southern Steel shares reflected its largest gain in three months, having risen 11% in the past month.

Other gainers were Lion Industries Corp Bhd, which rose 9.82% to RM1.23, while Malaysia Steel Works (KL) Bhd (Masteel) was up 8.4% or nine sen to RM1.16.

Masteel has gained 12% in the past month.

Apart from the steel counters, other metal-based counters also surged yesterday, such as Press Metal Aluminium Holdings Bhd jumping 33 sen, or 11.22%, to RM3.27, while Aluminium Company of Malaysia Bhd gained nine sen or 5.33% to close at RM1.78.

Chinese rebar steel futures surged to their highest level in over four years this week on expectations of lower supply as a result of China’s move to cut output.

The country ordered steel and aluminium producers in 28 cities to slash output earlier this year in a move to fight pollution and make the industry more efficient.

This has led to steel rebar futures prices soaring by two-thirds so far this year, according to a Reuters report.

As a result of the output cuts, the Chinese government yesterday reportedly summoned regulators and major exchange and steel company executives to discuss the surging steel prices.

China’s booming infrastructure segment has also led to construction steel producers in the country seeing surging profits.

According to data from brokerage CLSA, the profit margin on construction steel product rebars, also known as long steel, rose by over 800% this year to about 1,100 yuan (US$162) per tonne in early June.

Over the past five years, Malaysian steel counters have suffered due to an oversupply situation caused by Chinese manufacturers dumping steel here below market prices and a global slump in prices.

Some steel players were forced to close down, while others shut down some factories as they were unable to cope with the weak demand.

The country’s largest hot-rolled-coil steel plant, Megasteel Sdn Bhd, ceased operations last year, while another major steel player Perwaja Steel also shut down.

However, the rising steel prices, coupled with upcoming mega construction projects in Malaysia, point to a brighter future for the industry.

The Malaysian government also recently decided to extend safeguard duties on several steel products by between 11.9% and 13.4% for three years.