A few days ago, I posted my article “Megasteel closure will benefit other steel manufacturers” to encourage investors to buy CSC Steel which will benefit the most, in my opinion. Those who believed me, would have bought and now would be waiting for the price to go higher.
In the last few days, investors simply rush in to buy shares of steel companies indiscriminately without the clear understanding of the various kinds of steel products and their manufacturing process. As a result almost all the share prices of steel manufacturers including rebar (for concrete reinforcement in construction) players such as Masteel, Southern Steel, Annjoo; downstream players like Choo Bee, Leon Fuat, AYS, Leader Steel and etc went up indiscriminately.
However, one must realize that Megasteel only produces HRC (hot roll coil) and CRC (cold roll coil). HRC is the raw material used to manufacture CRC. Therefore, CRC players which use HRC as raw material will therefore benefit as they are now able to import cheaper HRC from China (due to Megasteel closure). Consequently, the main beneficiaries of Megasteel closure will be CRC players like CSC Steel, Mycron, Yong Kong and Eonmetal.
CRC has wide usage in various industries like construction (building facet, roofing, fencing, piping and etc), automotive, electrical appliances and many more. Currently CRC players in Malaysia are protected as government recently extended anti-dumping on imported CRC products from China, Vietnam and Korea ranging from 3.06% to 23.78% for period of 5 years starting from 24 May 2016.
Other downstream players that use CRC as raw material will only benefit if the CRC suppliers pass through part of the saving to them.
Rebar players like Masteel, Southern Steel and Annjoo mostly use scrap steel for production. Hence, closure of Megasteel does not benefit them.
However, global steel prices have been bottoming out since early 2016 due to closure of underutilized and inefficient factories in China. Steel prices have generally rallied more than 40% from the bottom in Dec 2015. This is the main reason why all steel players have started to show profit. Many steel players which were trading as if they were on the brink of bankruptcy are now performing better and able to generate decent profits. Previously all steel players have suffered as a result of cheap steel import from China which led to high impairment and unsold inventories.
In addition, in June 2016, the Edge reported that rebar players have lodged a complaint to MITI on steel dumping by China and are currently awaiting result pending investigation. If successful, they will be protected by the government imposing a safeguard tax on imported steel bars. This could potentially be good news to rebar players but one must note that high rise building uses the most rebar, unlike infrastructure projects like bridges and MRT.
Investors must realize that there is an oversupply of houses, offices and condominiums in every town and city in Malaysia. As a result the demand for rebars and water pipes will definitely be less and companies like Masteel, Ann Joo Southern Steel and Choo Bee will be affected.
I am not telling you to buy or sell any share. I am writing this piece to share what I know about this steel industry.
I am obliged to tell you that I am holding a lot of CSC Steel shares and if you buy it, you are doing it at your own risk.
Koon Yew Yin 官有缘 - Megasteel closure will only benefit CRC players and not other steel players
http://koonyewyin.com/2016/09/22/megasteel-closure-will-only-benefit-crc-players-and-not-other-steel-players/
