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Steel/Metal Industry: Baosteel to Raise Flat Product Prices in February

Baosteel has raised its February domestic distribution prices for HR, CR, and plate products by RMB350/ton, RMB400/ton, and RMB300/ton, respectively. Driving the price hikes are iron ore price expansion and solid demand. Product price hikes in reflection of rising costs should help domestic steel players to enjoy profitability improvement.

Baosteel raises February distribution prices due to surge in iron ore prices

China’s Baosteel (600019.SH) has decided to raise its February domestic distribution prices for HR, CR, and plate products by RMB350/ton, RMB400/ ton, and RMB300/ton, respectively. While these levels represent a slight drop from last month’s hikes (HR RMB400/ton, CR RMB500/ton, plate RMB300/ ton), they do mark a second consecutive month of upward adjustment. The February price increases are aimed at greater reflecting soaring iron ore prices in steel product prices. They also reflect solid downstream industry demand.

Crude steel production is likely to accelerate this year. We note that Baosteel’s 2020 crude steel production is estimated to come in similar to the 2019 level (46.87mn tons). In 2021, Baosteel’s crude steel production capacity is to be expanded by 2mn tons from 47mn tons pa in 2020 to 49mn tons pa. In other words, Baosteel’s steel production is predicted to continue rising this year despite the Chinese government’s recent announcement of targeting a y-y decline in China’s crude steel production to curb carbon emissions.

Rising steel prices to result in cost push and profit improvements

Baosteel expects iron ore prices to remain high through 1H21. On Dec 21, the price of Australian iron ore (61% Fe, CFR) imported to China rose to US$175.2/ ton, the highest level since Sep 2011. The price later fell to US$158.5/ton at end-December, before rebounding to US$167.6/ton on Jan 6. Although the ‘product price-input cost’ spread may narrow temporarily due to the time lag between product sales and raw material purchases, we believe that this will be temporary, given robust steel product demand in China and aggressive price hike efforts.

It is also anticipated that Korean steel players will continue to see profit growth. Consolidated 4Q20 OP at POSCO (005490.KS) and Hyundai Steel (004020.KS) likely jumped 32.5% q-q and 136.5% q-q, respectively, thanks to price hikes at home and abroad. We expect consolidated OP at POSCO and Hyundai to reach a respective W3.53tn (+45.6% y-y) and W452.8bn (+368.7% y-y) this year.
Source: Business Korea

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