Steel stocks rise on expectations for higher prices, production normalization

[Sources : POSCO, Hyundai Steel]

Shares of South Korean steelmakers have gained this year despite gloomy earnings outlook on rising expectations that production will normalize and steel prices will go up.

Shares of Hyundai Steel Co. rose 1.21 percent to finish at 33,350 won ($26.7) Tuesday. The stock surged 9.52 percent this month led by institutions’ strong buying. Shares of POSCO Holdings Inc. also gained 6.99 percent in January as foreign investors continued buying spree every day except for Jan. 9.

Brokerage industry estimated that steel manufacturers’ fourth-quarter operating income plunged about 70 percent from a year ago due to sluggish global economy that has led to a decline in demand for steel in key industries like automobile, home appliance, machinery, and construction.

According to brokerage consensus compiled by financial data tracker FnGuide, operating profit at POSCO Holdings is projected to reach 786.6 billion won in the October-December period, down 66.8 percent from the same period a year ago, and Hyundai Steel 185.4 billion won, down 76 percent.

Prices of hot-rolled steel sheets fell to 1 million won per ton as of Jan. 6 after reaching peak of 1.4 million on April 15 due to reduced demand.

Sluggish fourth-quarter earnings are also blamed on nationwide strike by truckers and disruptions in steel operations due to Typhoon Hinnamnor.

The earnings outlook for this year also remains gloomy.

According to FnGuide, the earnings outlook of companies in display, chips, and steel and nonferrous metal sectors have been revised down the most among 261 listed companies with a consensus from a week ago. Hyundai Steel’s operating income, in particular, is projected to plunge 18.49 percent this year from a year ago.

Steel stocks, nevertheless, are gaining momentum on rising expectations that production and sales will normalize this year.

“The unexpected labor union strike that began in September last year and shipment setback due to cargo truckers’ strike in November and December led to a 11 percent on-year fall in sales in the fourth quarter,” said Lee Jong-hyung, a researcher at Kiwoom Securities Co. “Production and sales, however, will normalize from the first quarter.”

Sales are expected to rise on higher prices of key steel products. POSCO Holdings is also expected to boost new businesses in lithium sector that will help make up for weak steel demand.