Hyundai Steel Co. stock recovered above 60,000 won ($53.1) for the first time in almost nine months last week on growing expectations that the world’s steel industry has hit the bottom and will return to growth this year. Investors and analysts believe the steel company’s performance will improve from the second quarter onwards based on the outlook that the overall steel price will rebound and demand from China will increase.

Hyundai Steel’s stock closed up 0.3 percent at 60,100 won in Seoul trading on Wednesday.

Last year, Hyundai Steel, the country’s second-largest steelmaker, had struggled from a 12 percent on-year drop in overall sales of steel plates that reached 9.5 trillion won. Sluggish sales were mainly due to a decline in the price of steel boards that went down from 860,000 won per ton to 760,000 won per ton over the period. Analysts forecast the company’s first-quarter earnings would come below the market consensus again after the previous quarter, citing the price fall in domestic automotive steel plates, which account for 30 percent of the company’s sales. The price has slipped to as low as 90,000 won per ton.

Analysts, however, have turned upbeat about Hyundai Steel’s performance, expecting the company’s earning to improve in the second quarter on the back of a strong rebound in steel prices since March and China’s official manufacturing purchasing managers’ index (PMI) for the steel industry rising for four consecutive months. The price of hot-rolled steel in China jumped 39 percent from $280 per ton in mid-December to $390 per ton in the end of March. Korea is also seeing a gradual increase in the retail price of hot-rolled steel. Recently, the price reached 530,000 won per ton after going down to as low as 500,000 won per ton earlier this year. There are also expectations that the price of steel bars would increase on the back of a rise in seasonal demand. The price of hot-rolled steel and thick steel plates have been on the rise since February.

With growing expectations that the steel industry is showing signs of bottoming out, Hyundai Steel stock recently recovered the 60,000 won range after staying low for nine months. Its shares were lifted by a fall in the price of iron ore, a key raw material needed in the steelmaking process. According to Shinhan Investment Corp., the input cost of iron ore is expected to fall by 10,000 won per ton in the second quarter compared to the previous three months while that of iron scraps by 20,000 won during the same period.

The latest upward momentum, meanwhile, has led a number of brokerage firms to revise up their outlook for the company’s second-quarter earnings while keeping cautious about its first-quarter earnings prospects. According to FnGuide, a Seoul-based market data provider, Hyundai Steel is projected to raise an operating profit of 327.8 billion won on sales of 3.96 trillion won in the first three months of the year. However, the company’s operating profit is expected to increase 30 percent to 425 billion won in the following quarter over quarter. Sales are also estimated to improve 11 percent to 4.4 trillion won.

Park Kwang-rae, an analyst at Shinhan Investment Corp., said that Hyundai Steel could take advantage of an overall drop in imports of China-made steel due to a rise in steel demand in the populous country amid the Chinese government’s efforts to boost the economy by expanding fiscal spending. Park said that shares of Hyundai Steel have been under-valued and that they are attractive for global investors. In fact, Hyundai Steel’s price to earnings ratio (PER), which compares the current share price to the company’s per-share earnings, is 9, which is considered significantly lower compared with those of its industry rivals, such as 43 of China’s Hebei Iron and Steel Group, 22 of Baoshan Iron & Steel Co. and 15.8 of Posco Co.

Meanwhile, prospect is also bright for Hyundai Steel’s business involving long steel that account for 26 percent of the company’s total sales. Demand for long steels, which are used as iron bars for construction work, is expected to increase steadily with many builders starting the construction of residential apartments that have been parceled out last year.

By Kim Je-lim

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]