Steel/Nonferrous Metals:Anemic 2018outlook offers chance to accumulate
A steel industry turnaround begun last year has been driven mostly by supply-siderestructuring, and while expectations of demand recovering could spur additionalrallies, such hopes are being offset by concerns for now.
World Steel Association (WSA) forecasts have China’s steel demand contracting in2018, but we note that the non-profit organization revised up its estimates both in2016and this year. Moreover, President Xi Jinping is asserting his authority aheadof this month’s 19th National Congress of the Communist Party of China, whichshould increase anticipation for economic stimuli during his second five-year term.We recommend accumulating steel and nonferrous metals players on expectationsof demand growth spurring earnings improvements and lifting shares.
Ongoing industry restructuring and solid real estate data could see Beijing furtherscale back production capacity and pursue industry consolidation via M&Aactivities. Ongoing share-price rallies ought to continue for some time, with Poscoour top sector pick followed by Korea Zinc.