But 1 rocking truth that led my attention to iron/steel company is due to a major global event that is sparking steel prices upwards. The untoward disaster at Minas Gerais at 25th January 2019, send iron ore future leaping 20% upwards due to cut of supply in iron ore. The company involved in the disaster, Vale, which accounted for the largest iron ore output in the world had to shut down a further 10 iron mine that will estimate to pull out 40 million tonnes of iron ore supply in the market.
Analyst are continue to be bullish on iron ore, and is certain that iron ore will be hitting 3 figure next week when Chinese restart iron ore purchasing after Chinese New Year celebration.
Currently, Iron Ore Futures are at 3 years high.
So is this actually good or bad for iron/steel manufacturer in Malaysia?
Technically, when the price of iron ore is higher, it is not good for manufacturer as raw material prices will be higher, that will erode margin. But if demand continue to outstrip supply, then iron/steel product will eventually have a better margin.
China play an important role as it is the biggest consumer for steel, and any increase of steel demand will pull a great demand in influencing global steel prices.
The latest expert view is China's steel sector to remain resilient in 2019, boosted by infrastructure investment. This can translate that China will most probably be able to absorb most of the steel products manufactured for their own consumption.
Analyst believe that steel rebar price had hit bottom up. And demand will be picking up soon. However, this disaster in Brazil could be pushing purchaser to buy more with anticipation that steel price will be going higher.
The disaster at Brazil is not going to resolve so soon, and global supply of iron ore will continue to see a vacuum which could potentially take up 6 months to 1 year.
This will in turn push purchaser to purchase more in order to lock in cheaper prices before prices become higher in the next coming few months.
This will in turn push purchaser to purchase more in order to lock in cheaper prices before prices become higher in the next coming few months.
The push effect will then create better margin for steel manufacturer.
As such, local steel manufacturer should be able to see a better margin in the coming days.
So for local pick, I will choose Masteel.
Masteel had fallen from a high of RM 1.80 before bonus issue.
Now at RM 0.51, Masteel is trading at huge discount to NTA of RM 1.60, and 3 cumulative quarter earning of 7.44 cents. Coming quarter if can hit 3 cents will make 10 cents, which means Masteel is trading at PER x 5 only.
Now with better margin coming, and customer likely to buy in more to lock in prices, that will give Masteel a good boost in profit for next 6 to 9 months.
Other steel counter include Lionind and Annjoo.
So I am not asking you to buy or sell. Just writing this to inform you that steel industry is taking a better turn. If you don't like Masteel, you can look for Lionind, Annjoo, Lsteel, CSCSteel, SSteel. Any investment decision, please do your own due diligence and study.
