raw materials prices, including iron ore and coke. These have in turn boosted sentiment in the sector. Our optimism on Sino Hua-An’s prospects prompts us to maintain our Buy call at RM0.87. In addition, the strong correlation of 0.67x between its share price and coke price offers some form of comfort on the quantitative front.

Things looking up for 1H. While China’s steel production dropped to 47.3m tonnes in November 2009 from above 50m tonnes in the past months, the numbers remained robust and were still 0.7% higher than the peak recorded in 2008. As many have been projecting for China steel production to exceed 600m tonnes - about half the world's total output in 2010 – it would not surprise us if there is a 20%-30% increase in benchmark iron ore price for 2010/11. The buoyant sentiment has also led to Baosteel Group, China’s largest steelmaker, raising its selling prices, with the latest being a 5% increase for February 2010. As such, China domestic steel prices should continue to show an uptrend, at least for 1HCY10. From a quick statistical test, we derived a strong 0.73x correlation between coke and local rebar prices. As rebars are currently at RMB3865 per tonne, or approximately 12.5% higher than the recent low in October 2009, we believe coke steel is well on track to ride on the strong upswing (see Figure 2).