Steel Stocks with Growing Earnings Expectations, Will They Heat Up Further?

Expectations for Economic Recovery Centered on China Revive
POSCO and Hyundai Steel Surge 21-22% Since Last Month

[Asia Economy Reporter Minji Lee] As expectations for economic recovery centered on China rise, investment sentiment toward steel companies is also increasing. In the new year stock market, POSCO and Hyundai Steel are rallying to new highs, and securities firms are raising their price targets, fueling expectations for stock price increases.

According to the Korea Exchange on the 6th, POSCO's stock price surged about 21% from early last month to the day before. Hyundai Steel also rose about 22% during the same period, showing a significant upward trend. Although both stocks showed a slight decline due to profit-taking sales on the day, POSCO and Hyundai Steel showed gains of about 2% and 1%, respectively, in early trading.

With renewed expectations for economic recovery, investment funds are flowing into the steel industry as a whole, rather than individual company issues. As of the previous day, the steel industry index has risen about 7% this year, surpassing the KOSPI return (4%) and standing out among sectors in terms of growth.

The improved investment sentiment toward steel stocks is due to the rising steel sales prices. Since the fourth quarter of last year, steel distribution prices in China, the world's largest consumer, have shown a sharp increase. The market expects price hikes to continue in the first quarter of this year. Although prices slightly declined at the end of last year, experts say this was a temporary factor caused by seasonal demand decreases due to colder winter temperatures and inventory adjustments by distributors. Byun Jong-man, a researcher at NH Investment & Securities, explained, "Although expectations for benefits from the Chinese government's plan announced last month to reduce crude steel production in 2021 are rising, this is a long-term issue. The seasonal demand increase from March to May and the significant rise in distributor inventory stocking will support the strong steel prices."

In line with this trend, securities firms are simultaneously raising their target prices for the two steel companies. Cape Investment & Securities set the highest target price for POSCO at 360,000 KRW, a 13% increase from the previous target. Yuanta Securities raised Hyundai Steel's target price by a whopping 39% to 53,000 KRW compared to the previous target.

POSCO is expected to continue benefiting from steel price increases. Kim Mi-song, a researcher at Cape Investment & Securities, said, "Although the price of raw material iron ore is soaring, product prices are rising even more. The price increase negotiations with customers in the first quarter of this year are not unfavorable, so it is reasonable to raise performance expectations."

Hyundai Steel is benefiting from price increases in automotive steel sheets supplied to its affiliates. Since the automotive steel sheet price increase in 2017, changes in raw material prices such as iron ore or coking coal have not significantly affected steel sheet prices, resulting in limited profits. However, due to raw material price increases, conditions for price hikes have been created starting this year. Lee Hyun-soo, a researcher at Yuanta Securities, explained, "The first quarter is the period when factors affecting automotive steel sheet price changes occur most significantly in the past four years. The price increase in automotive steel sheets will alleviate concerns about the internal market among affiliates, which had acted as a discount factor for stock prices as well as performance."

This content was produced with the assistance of AI translation services.