CHINA ABOUT TO SPOIL BLUESCOPE’S PARTY?
www.aireview.com issue 82 27Oct05
Industry watchers at Steel Business Briefi ng (SBB) are not the most optimistic fellows around, especially when it comes to gauging China’s impact on Asian steel prices.
UBS analysts report the broker hosted a recent briefi ng by SBB Shanghai’s chief representative who took the opportunity to present a rather gloomy outlook for the industry caused by expectations of cheap Chinese exports fl ooding other markets.
SBB believes Chinese authorities will not be able to stop the current steel dynamics in the country, which will keep a lid on the price of steel products in China, and thus increase exports, and thus incumbents elsewhere will be forced to lower their prices to keep the Chinese exporters from their home markets. SBB is especially worried for producers of so-called fl at steel products.
UBS analysts tend to agree with SBB’s pessimism, at least as far as the production side of things is concerned - it is diffi cult to tame the steel dragon - but the analysts also believe Chinese demand will absorb more than SBB’s estimates and that should make the overall picture a less sombre one.
Nevertheless, UBS analysts also note that given there is evidence of continued weakening prices in China, and declining Korean domestic and Japanese export prices, it may well be that the negative picture painted by SBB may already be playing out currently.
The broker believes this increases the near term risk for BlueScope Steel’s (BSL) export earnings and thus its share price. Reason enough for the broker to keep a preference for the long product producers, OneSteel (OST) and Smorgon Steel (SSX), as they have little exposure to volatile global markets and greater exposure to strong domestic construction cycles. On a 12 month view, however, the analysts remain comfortable with a Neutral 2 rating for BlueScope.