Steelmakers expected to outperform

The stocks of steelmakers are expected to outperform this quarter, as the market is still open to a further rise in steel prices.

Several brokerage houses pick Tata Steel (Thailand) (TSTH) as the strongest stock in this group, due mainly to it having the lowest raw-material costs.

Ayudhya Securities said last week that it believed all steel firms' operating results would continue to grow in the current quarter, following on from expected good performances in the first three months of the year.

"We have no factors to worry about in the first half of this year," the Ayudhya Securities analyst said.

"But we have to keep an eye on the second half.

"It is forecast that global steel prices will decline in the third quarter because prices have been volatile for a long time, which is an abnormal situation."

In general, steel prices tend to be volatile for four to five months, but in this cycle they have been increasing since September.

Although people in the steel industry expect prices to drop in the second half of the year, there is no sign yet of any easing, the analyst added.

Recently, Sahaviriya Steel Industries (SSI) announced its first-quarter performance, in which net profit soared from Bt111.27 million in the same period last year to Bt877.31 million, an increase of 690 per cent.

TSTH posted a net profit of

Bt2.7 billion for its fiscal year ending on March 31, up by 589 per cent from the previous year's Bt392 million.

CSP Steel Centre's net profit in the first quarter rose from Bt13 million to Bt85 million, a 553-per-cent increase year on year.

The analyst said that if steel prices declined in the third quarter, producers such as SSI, who use billet and slab to make hot-rolled coil, would be at a disadvantage vis-a-vis those who use scrap iron.

Ayudhya Securities expects TSTH to be in the strongest position, as it uses scrap iron to produce hot-rolled coil, thus leaving a wide margin between its raw-material cost and the final steel price.

An analyst from Kim Eng Securities said high prices would be a major factor boosting the performance of steelmakers. TSTH, G Steel and Bangsaphan Barmill are likely to be strong stocks in this group.

However, there is a risk in the second half of the year when higher raw-material costs put pressure on prices. Net profit in the period will not, therefore, be as sustainable as in the first half, the analyst said.