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UBS Investment Research
Asia Steel Insights
Market expected to rise post LNY
Market taking a breather before Lunar New Year (LNY)
China steel prices remain firm with spot HRC at US$614/t (+US$2/t) as traders
continue to stock up and iron ore price rises (+4%WoW to US$188/t). But scrap
price stabilized in the region while coal prices retraced back from recent high given
pre-LNY lull and easing of flood fears. Fair weather helped resume mine and
logistic operations in Queensland (QLD) although far from being at normal levels.
Key takeaways from UBS Greater China Conference (GCC) and more
There was recognition that investment led growth is not sustainable and that China
needs to transform to a consumer and service economy. Inflation and policy were
the main concerns. We already glimpse this transition in China steel industry given
slowing China steel output growth and faster flat steel demand growth than long.
Key issues to watch
Result season is in full swing with Hyundai Steel (HSC), Nippon Steel, JFE
reporting on 28 Jan and more Japan mills reporting next week. Although fair now,
rain is forecasted in QLD next week and impact is to be seen. We expect steel
prices to pick up post LNY and forecast POSCO, China Steel to raise prices soon.
Initiated on Bayi Steel (Buy), U/G JSW to Buy, D/G SAIL to Neutral
Our top picks are Baosteel, HSC, Tata Steel and Sanyo Specialty Steel. Janet Sun,
UBS A-share analyst, initiated on Bayi Steel as Buy as it benefits from Xinjiang's
2x FAI in the 12th FYP, lower cost given captive raw material and enjoys volume
growth into 2012E. Navin Gupta raised JSW to Buy given underperformance but
lowered SAIL to Neutral due to muted earnings outlook.
India
What happened and what it means:
According to Steel Business Briefing, India’s JSW Steel plans to raise domestic
base prices for hot rolled coils for a third time this month by around US$16-22/t
(Rs750-1,000/t) given domestic prices lags international prices and continued
cost pressure. This will raise HRC price to US$771-773/t ex works (Rs35,200-
35,250/t).
What to look out for:
India Environment Minister to decide whether to approve POSCO's Orissa steel
mill construction. The Minister is expected to announce his decision in end
January, although we believe further delay possible. The Expert Appraisal
Committee (EAC) within the Ministry had provided the environmental clearance
to POSCO's project on 4 January.
Our stock call:
Tata Steel (Tata) remains our top pick. We raised our PT from Rs710 to Rs820
as we roll forward the target period (normalized EBITDA FY12-13).
We upgraded JSW Steel (JSW) from Neutral to Buy and raised our price target
from Rs1,200 to Rs1,300, factoring in the cash infusion by JFE. JSW has
underperformed the Sensex 23% in the past three months and we view current
share price attractive.
We downgraded SAIL from Buy to Neutral and lowered our PT from Rs240 to
Rs190 on our lower earnings forecasts. We value JSW on mid-cycle
EV/EBITDA of 6.7x and Tata Steel India/SAIL at a 10% premium (7.4x). We
value Corus at 6xEV/EBITDA.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Steel Insights
Market expected to rise post LNY
Market taking a breather before Lunar New Year (LNY)
China steel prices remain firm with spot HRC at US$614/t (+US$2/t) as traders
continue to stock up and iron ore price rises (+4%WoW to US$188/t). But scrap
price stabilized in the region while coal prices retraced back from recent high given
pre-LNY lull and easing of flood fears. Fair weather helped resume mine and
logistic operations in Queensland (QLD) although far from being at normal levels.
Key takeaways from UBS Greater China Conference (GCC) and more
There was recognition that investment led growth is not sustainable and that China
needs to transform to a consumer and service economy. Inflation and policy were
the main concerns. We already glimpse this transition in China steel industry given
slowing China steel output growth and faster flat steel demand growth than long.
Key issues to watch
Result season is in full swing with Hyundai Steel (HSC), Nippon Steel, JFE
reporting on 28 Jan and more Japan mills reporting next week. Although fair now,
rain is forecasted in QLD next week and impact is to be seen. We expect steel
prices to pick up post LNY and forecast POSCO, China Steel to raise prices soon.
Initiated on Bayi Steel (Buy), U/G JSW to Buy, D/G SAIL to Neutral
Our top picks are Baosteel, HSC, Tata Steel and Sanyo Specialty Steel. Janet Sun,
UBS A-share analyst, initiated on Bayi Steel as Buy as it benefits from Xinjiang's
2x FAI in the 12th FYP, lower cost given captive raw material and enjoys volume
growth into 2012E. Navin Gupta raised JSW to Buy given underperformance but
lowered SAIL to Neutral due to muted earnings outlook.
India
What happened and what it means:
According to Steel Business Briefing, India’s JSW Steel plans to raise domestic
base prices for hot rolled coils for a third time this month by around US$16-22/t
(Rs750-1,000/t) given domestic prices lags international prices and continued
cost pressure. This will raise HRC price to US$771-773/t ex works (Rs35,200-
35,250/t).
What to look out for:
India Environment Minister to decide whether to approve POSCO's Orissa steel
mill construction. The Minister is expected to announce his decision in end
January, although we believe further delay possible. The Expert Appraisal
Committee (EAC) within the Ministry had provided the environmental clearance
to POSCO's project on 4 January.
Our stock call:
Tata Steel (Tata) remains our top pick. We raised our PT from Rs710 to Rs820
as we roll forward the target period (normalized EBITDA FY12-13).
We upgraded JSW Steel (JSW) from Neutral to Buy and raised our price target
from Rs1,200 to Rs1,300, factoring in the cash infusion by JFE. JSW has
underperformed the Sensex 23% in the past three months and we view current
share price attractive.
We downgraded SAIL from Buy to Neutral and lowered our PT from Rs240 to
Rs190 on our lower earnings forecasts. We value JSW on mid-cycle
EV/EBITDA of 6.7x and Tata Steel India/SAIL at a 10% premium (7.4x). We
value Corus at 6xEV/EBITDA.
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