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UBS Investment Research
Asian Steel
I mpact from Australia carbon tax negligible
Event: Australia introduces A$23/t carbon tax from 01 July 2012
The Australian Government on 10 July 2011 announced its intention to introduce a
A$23/t carbon tax from 01 July 2012. The rate inflates at 2.5% pa for the first three
years, after which it reverts to the market price. Impacted sectors pertinent to steel
would include the miners and railways.
Impact: negligible for Asian steel mills
We believe the impact on Asian steel mills would be marginal as: 1) Australian
miners are unlikely to be able to pass through the higher cost from carbon tax as
Australian miners are low-cost producers, whereas the long-term price is largely
driven by marginal-cost producers; and 2) only a c1% hike in railway fares is
needed to offset the impact from carbon tax.
Action: selective opportunities; expect market to recover in end-Q3
We expect the Asian steel market to recover in end-Q3/Q4 as demand picks up on
normalisation of Japan auto production and ramp-up of China social housing
construction. We prefer POSCO, Baosteel, CMR, Tata Steel and Dongkuk Steel in
the region.
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