• We maintain UNDERWEIGHT for the steel sector and Ann Joo (FV: RM0.65) on the double whammy of the weak property and construction sectors locally and excess supply arising largely from a new foreign-owned plant in Kuantan. On the global front, China plans to raise steel production in 2020 despite slowing domestic demand.

• The Ministry of International Trade and Industry (MITI) yesterday formalised antidumping duties (from January 2020 to January 2025) of 3.62%-20.09% on steel concrete reinforcing bar (rebar) from Singapore and Turkey. This represents an extension to provisional safeguard duties of 20.09% imposed from Sept 2019 to curb the influx of underpriced rebar in the local market.

• We believe the latest development is mildly positive to the local long steel players such as Ann Joo, Southern Steel, Masteel and Lion Industries as it should help to alleviate unfair competition from foreign players. However, we opine that the local long steel players are capable of competing with the international steel players. This is manifested in rebar imports only making up of about 10% of total rebar consumption in Malaysia in 2019 based on our estimates.

• Meanwhile, we maintain our forecast for average steel bar price of RM2,000/tonne in 2020F. Industry experts forecast steel surplus in China to rise to 196mil tonnes in 2020F (+13% from 174mil tonnes estimated in 2019) as production is projected to grow by 1-2% (on hope of increased spending in infrastructure projects in China) while consumption is projected to contract by 1.4% (as in reality, investments are slowing amidst the US-China trade war). China’s steel surplus normally ends up as exports to the rest of the world. China is the world’s largest producer and consumer of steel, making up about 55% of the global market.

Source: AmInvest Research - 23 Jan 2020