IT seems that avid steel stock promoter Koon Yew Yin a.k.a Uncle Koon could not believe his eyes when his favourite steel stock Hiap Teck Venture Bhd took a beating yesterday (Oct 27), retreating 8 sen to close at its intraday low with a hefty 135.92 million shares traded.
“I have not seen any stock traded with such a big volume before,” he remarked in his latest blog. “I cannot find reasons why Hiap Teck should plunge 8 sen yesterday.”
Uncle Koon further contended that Hiap Teck has 35% share of Eastern Steel Sdn Bhd whose controlling shareholder is Beijing Jianlong Heavy Industry Group Co Ltd which is one of the largest steel producers in China.
“Despite the recent steel price correction, steel price in Malaysia is much cheaper than that in China and in the US,” justified Uncle Koon.
“Iron ore price in Malaysia is RM5,200 or US$124 per metric tonne. Iron ore price in China was US$220 per metric tonne before the recent crash. Iron ore price is US$222 per metric tonne in the US.”
In fact, Hiap Teck is not alone in its share price retreat. Ann Joo Resources Bhd tumbled 14 sen or 5.36% at the close of yesterday’s trading to RM2.47 while Melewar Industrial Group Bhd shed three sen or 6.67% to 42 sen.
Meanwhile, Lion Industries Corp Bhd edged down 10.5 sen or 11.8% to end at 78.5 sen while Leon Fuat Bhd – another of Uncle Koon’s favourite steel stock – shed 2.5 sen or 2.62% to 93 sen.
Elsewhere, Tong Herr Resources Bhd shaved seven sen or 2.33% to RM2.93, Southern Steel Bhd closed two sen or 2.34% lower at 83.5 sen while Leader Steel Holdings Bhd and CSC Steel Holdings Bhd inched down one sen each to 67.5 sen and RM1.35 respectively.
Although Uncle Koon is bullish about prospects of steel counters for reasons best known to him, IHS Markit foresees that steel prices are on the extreme and should decline from late 2Q 2021 through to 4Q 2021.
“Locking now will mean over-paying over the second half of the year,” noted the market intelligence provider in its steel price forecast for 2021.
“Either buy on spot or be sure your contract has an escalator clause because in coming months it would act as a de-escalator. Supply chain disruptions have delayed expected declines but fundamentals of supply and demand still point toward a turning point in coming months.”
Although IHS Markit expects sheet prices to continue to strengthen, the pace of the increases has started to decelerate.
“Extremely cold weather disrupted the collection of scrap and delivery of ore and scrap in Europe and North America over 1Q 2021, tightening supply and boosting raw material prices,” it opined.
“Increases in input costs have added approximately US$200–US$250 per tonne to steelmaking costs. Aside from sheet, price increases in Mainland China and Europe have largely mirrored the rise in input costs while US prices have increased more.”
At the same time, Mainland China has also started enforcing emissions restrictions in key northern steel-producing provinces, further tightening global steel supply and unintentionally stoking psychological momentum.
“As the weather improves, these pollution controls will ease but will not be completely lifted,” projected IHS Markit.
“Prices will fall later in the second quarter and decline noticeably in the third and fourth quarters. The risk depends on the extent that restrictions on steel production are retained or relaxed.”
One wonders if the steel market will ever weigh in Uncle Koon’s logic or continue to chart its natural course. – Oct 28, 2021
