KUALA LUMPUR: Demand for steel and related products is expected to surge after the Chinese New Year celebration, driven by construction projects and stocking up activities, a research house says.
OSK Research said in a report yesterday that traders might begin to stock up on inventory in anticipation of higher raw materials which could boost buying sentiment for at least one to two quarters.
“We only expect a substantial pick-up towards end-February 2010 plus some delivery lag,” it said.
It said on-going projects could help sustain 70 per cent of regular annual long steel consumption and the balance might be compensated if most public projects were executed in a timely manner.
However, the rush to purchase stocks could push up the selling price, said OSK Research.
“We expect steel prices to go up another level, by 10 to 15 per cent at end-February on the return of private and public construction coupled with stocking up activities in anticipation of a potential price increase,” it said.
Malaysia which usually lag in reaction to the international market, might only see a marginal RM50 to RM100 increase for steel bars in January.
OSK Research said while the present market conditions prompted most independent rolling mill operations to temporarily halt production or wind up, which cooled the billets market, the local players could still enjoy relative huge markets in the Southeast Asian region.
By supplying to countries in that region in the absence of Chinese supplier, they could enjoy increased margin of five to eight per cent which could be incorporated into earnings.
The research house said it was bullish on the steel industry outlook for this year though it might experience a bumpy recovery as profitability was dependent on production discipline on the part of steel mills, which were mostly stuck at mid-cycle utilisation levels.
Other than China that had seen its monthly production surge above the historical peak since June 2009, steel mills in Asia, including Malaysian mills were operating at about 60 to 70 per cent of 2008 levels while European mills production at 70 per cent level.