According to Beijing based Shihua Financial Information report diving steel prices, waning demand and hovering high social stocks have forced steel mills to cut output, which has pared their profitability in the third quarter. And market insiders expect net profit of the industry will fall 40% QoQ with gloomier outlook in the fourth quarter.

 

Statistics show that price for commercial wire rod has fallen CNY 1,130 per tonne or 19% in September from the peak in the year; price for rebar also dived CNY 830 per tonne or 14.4%; price for HRC down by CNY 880 per tonne or 14.3%. By the end of September wire rod price fall has amounted to 30% the most.

 

Mr Zhengdong chief analyst from Guosen Securities said that steel stocks have fallen notably in recent days, reflecting the downtrend of the physical economy. Calculated on stocks price on September 26th PB for steel stocks posts at 1.35 with PE at 5. He said that overall listing, high rate of dividend and margin requirement etc might lend some positive effect on steel stocks. Therefore, Mr Zheng keeps his rating of the industry at overweight.

 

Mr Sun analyst from Galaxy Securities is not so upbeat, who lowered the investment rating from overweight to neutral. He said that PE and PB of steel stocks will fall from the current 9 and 1.2 to 8 and 1 respectively impacted by the slumping steel prices and high costs.

 

He added that domestic mills' gross profit margin will fall below 10% in Q3, and to fall further 5% in Q4 with a likelihood of profit loss. And major mills' output cutback will reach 10% to 20% QoQ in Q4 with profit falling 55% to 60%. The figures still have downward scope.

 

 

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