Sector Update
We believe the demand outlook for steel in the region will continue to strengthen into 2010. However, we expect volatility in steel prices and that 2008’s peak level is unlikely to be visited as: 1) Global steel consumption is unlikely to recover back to pre-crisis level any time soon; 2) Concerns on overcapacity remain; and 3) Dubai debt crisis may nip the return of the construction boom in the Gulf State in the bud.
We believe pricing power of metallurgical coke producers is likely to be capped given that metallurgical coke producers inherently have little bargaining power against its customers and suppliers. Also, the overcapacity in China’s steel sector will further suppress metallurgical coke producers’ pricing power as and when steel producers cut steel output.
We are keeping our Neutral stance on the steel sub-sector, as we believe further price recovery is likely to be capped by overcapacity and still-weak global steel consumption.
We are keeping our Underweight stance for the overall building materials sector given our Underperform calls on both Lafarge and YTL Cement.
No comments:
Post a Comment