PETALING JAYA: Steel stocks on Bursa Malaysia continued their steady climb yesterday on improving prospects, following China’s stringent move to slash its output and clamp down on more illegal steel mills.

Steel companies in focus include Southern Steel Bhd, which gained six sen to close at RM2.43; Malaysia Steel Works (KL) Bhd, which firmed up five sen to RM1.61; and Ann Joo Resources Bhd, which remained unchanged at RM3.68.

Ann Joo, for example, saw its share price tripling over the past two years, said analysts.

According to Malaysian Iron and Steel Industry Federation president Datuk Soh Thian Lai, the current uptrend in steel prices was mainly triggered by the China factor.

Last year, China was focusing on clamping down on its steel “zombie” plants, but it is expected to target the operational capacity this year, explained Soh.

The domestic price of long steel products to date has surged to about RM2,600 per tonne compared with RM2,200-RM2,400 per tonne in January this year.

Even the imported flat hot-rolled coils are trading higher at US$600 per tonne, while imported cold-rolled coils are at US$630-US$650 per tonne.

UOB KayHian Research steel analyst Abdul Hadi Manaf said traders should remember that steel stocks had risen from the ashes from the oversupply situation in China, which had badly affected many local steel players.

It was in 2014 that steel companies felt that the situation had turned bad, which warranted them to seek the Government’s help to curb the dumping of below-cost steel products from China into Malaysia.

As a temporary measure, the Government then imposed anti-dumping duties to curb the influx of cheaper imports from China.

“The situation today has improved and I feel that it should be sustainable,” Abdul Hadi said.

“The oversupply situation from China is no longer an issue now. The government there is serious on the supply controls and supply there is presently tight with stricter environmental controls.

“Many millers have been closed down to curb sub-standard steel producers who are not environmentally friendly, and this has caused China steel billet prices to continuously go up while local prices are also stable now,” he added.

Furthermore, there has been a gradual improvement in earnings across all steel sectors since the second quarter of last year.

Abdul Hadi said: “The recent quarter that was just announced was weak due to a weaker steel price on a quarter-on-quarter basis and soft demand.

“But we can possibly look forward to an improvement in the third and fourth quarters of this year.”

In addition, local steel demand is expected to pick up, especially in the fourth quarter of this year, as infrastructure and mega projects move up a notch.

Abdul Hadi also highlighted some risks to the steel rally, especially if the input costs such as electrode, scrap and coal prices are not controlled.

“If players fail to manage this prudently, we may not see any margin expansion, so this can be a risk as well,” he added.

Abdul Hadi said most steel stocks under his coverage had already hit their target prices.

He is also maintaining a “buy” call on the sector on the premise that the average steel price is trading at RM2,350 per tonne.

“If steel prices strengthen more than the forecast, then there will be room for price upgrades on some of the stocks under my coverage,” he added.

Meanwhile, Reuters reported that China produced a record amount of steel in August, data showed on Thursday, as mills in the world’s top producer boosted production to take advantage of rising prices despite rigorous environmental inspections across the country.

Mills in the world’s largest steelmaker churned out 74.59 million tonnes of the construction material in August, up 8.7% from a year earlier and just beating July’s previous monthly record of 74.02 million tonnes.

In the first eight months of the year, steel output totalled 566.41 million tonnes, up 5.6% from the same period in 2016, the National Statistics Bureau data showed.

Chinese steel mills have been running at full tilt, with some even postponing proposed maintenance schedules to ramp up output in an effort to cash in on strong margins.

The most active steel rebar futures rose 8.5% last month, and had the biggest one-day hike in seven months in early August.

Higher prices have also been fuelled by concerns of capacity curbs during the coming winter after the Ministry of Environmental Protection (MEP) pledged to reduce hazardous pollutants in the country’s north, including key producing province Hebei, by halving steel output by up to 50%.

Some inspection teams have already been sent to eight provinces in August, according to the MEP.

China’s stockpiles of rebar, a construction steel product, rose to 3.88 million tonnes by the end of August.