Diverging Outlooks for Steel Stocks: "Trend Broken" VS "Temporary Adjustment"

After Over a Year of Rally, More Than 10% Drop Since Last Month
KOSPI Steel and Metal Sector Index Also Plummets

Panoramic view of Pohang Steelworks (Provided by POSCO) [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Steel stocks, which had been on an upward trajectory for about a year, have been declining for a month. This is due to ongoing price adjustments in steel products following warnings from the Chinese government. Opinions are divided between views that the upward trend has peaked and is now declining, and analyses that see this as a temporary correction.

As of 11:16 a.m. on the 14th, domestic steel industry leader POSCO's stock price fell 1.43% from the previous trading day to 344,500 KRW. On the closing price of the 11th of last month, it surpassed 400,000 KRW for the first time in over nine years since March 20, 2012, reaching 409,500 KRW, but it has dropped about 16% in one month. Hyundai Steel's stock price, which had steadily risen from March last year when the impact of COVID-19 peaked until early last month, reversed downward starting early last month. The KOSPI steel and metal sector index also recorded its highest level since March 2012 at 6,352.87 on the 12th of last month, but then plunged about 900 points within a month.

The Chinese government's warning about rising steel prices acted as a negative factor. On the 12th of last month, Chinese Premier Li Keqiang chaired a commerce meeting and emphasized, "We must implement market regulation policies to prevent the sharp rise in raw material prices from affecting other sectors." This was a response to concerns after domestic steel product prices in China, which had been steadily rising this year, surged following the Labor Day holiday last month. After this statement, adjustments in Chinese steel product prices and domestic steel stock prices began.

Interpretations differ on this matter. Premier Li Keqiang's remarks are seen as a warning against speculative capital inflows into the steel product market, but analyses suggest that the Chinese government's steel policy direction (reducing steel production to lower carbon emissions) remains unchanged. Hyunsoo Lee, a researcher at Yuanta Securities, stated, "Speculative capital inflows have rather decreased, reducing the risk of increased volatility in steel product prices," adding, "Although iron ore prices will rise, increasing manufacturing costs in the second and third quarters, the increase in selling prices will be greater, leading to continued profitability improvement through the second half of the year."

On the other hand, some analyses argue that the upward trend has been broken due to a slowdown in demand itself. Kyungwon Moon, a researcher at Meritz Securities, said, "The rise over the past year was due to increased consumer goods demand from Chinese infrastructure investment, but the pace of infrastructure investment is now slowing, and demand is weakening due to rising consumer goods prices," expressing concern that "the decrease in demand and normalization of supply, along with high inventory levels, will weigh on the industry, leading to a slowdown compared to the first half of the year."

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