MarketWatch reported that steel maker shares in Asia started to show some signs of life on market expectations for higher steel prices and stronger demand for the metal, but investors should remain wary of risks associated with overproduction and the soft footing of some global economies.
According to analysts at HSBC, Asian steel demand will likely reach 1 billion tonnes by 2013 as compared with 808 tonnes in 2009. They added that "This growth will shift Asia into a tightly balanced market over the next 4 years, from a net exporter position in the past."
So recent weakness in the steel market provides an opportunity for investors to re enter the sector, as they upgraded South Korea's POSCO, Australia's BlueScope Steel Limited and India's TATA Steel Limited to overweight from neutral and upped China's Angang Steel Co Limited and Japan's JFE Holdings Inc to neutral from underweight.
Still, HSBC analysts admitted that near term risks for the steel market remain, given China's high inventories and macroeconomic concerns.
Analysts at HSBC said that they believe China's high steel inventories and macroeconomic concerns are now factored into valuations. They added that stocks under the brokerage's coverage have corrected by 14% year to date on average and have underperformed the broader market by 8%.
Still, analysts at HSBC pointed out that "With the export markets opening up, we believe the inventory risks will soon abate and the sustained economic recovery in the region shall provide demand support."
They said that China's plans to shut older, inefficient capacity will impact long steel capacity more than the shift in stimulus spending away from infrastructure to public welfare projects.