Soaring Steel Stocks, China's Economic Stimulus Measures Are Key

KRX Steel Index Up 6.25% This Month

▲Hyundai Steel Cold Rolled Steel Sheet

[Asia Economy Reporter Minji Lee] As expectations for steel price increases expand, more investors are looking to invest in steel stocks. However, securities experts believe that since the key to steel stock prices lies in changes in China's demand, it will be difficult to expect further rises until China announces economic stimulus measures.

According to the Korea Exchange on the 20th, the KRX Steel Index rose 6.52% from 1822.89 to 1941.74 as of the previous day this month. This is the highest increase rate among KRX indices. Most stocks rose, including Dongkuk Steel (12%), Korea Zinc (11%), Daehan Steel (7.5%), Hyundai Steel (4.6%), Poongsan (1.8%), and POSCO Holdings (0.17%).

The expansion of investment sentiment toward steel stocks is due to growing expectations of price increases. Since February, the Russia-Ukraine war has caused raw material costs (iron ore, electricity, etc.) to soar, supporting the outlook that steel companies' profits will increase through steel sales price hikes. As price negotiations with the automobile and shipbuilding industries, which consume the most steel, are nearing completion, and increases in the prices of steel sheets and plates have become a foregone conclusion, expectations for further price rises are also intensifying. Currently, iron ore is priced at $155.62 on the U.S. Chicago Mercantile Exchange (CME) futures market, up about 38.3% since the beginning of the year.

Although not included in the KRX Steel Index, steel companies manufacturing steel pipes are also seeing stock price increases. SeAH Steel rose sharply by 28% this month alone. This reflects expectations that pipe imports will increase to expand export infrastructure following the European Union's (EU) import of U.S. LNG instead of Russian LNG. Domestic companies account for the largest share (23%) among U.S. steel pipe importers.

However, despite the positive price factors, steel companies' stock prices are unlikely to show a long-term upward trend. Typically, steel stocks are heavy stocks that do not fluctuate lightly and gain upward momentum when the economic trend significantly improves. The recent rise in steel stocks is not supported by demand. This is because economic stimulus in China, the largest supplier and consumer, has not appeared. The World Steel Association (WSA) has already significantly lowered its demand forecast. The association releases steel outlook reports every April and October, and this year's steel demand forecast was sharply downgraded to 0.4%, much lower than the 2.2% growth estimated in October last year.

Byun Jong-man, a researcher at NH Investment & Securities, said, "It should be the peak season for steel demand, but the lockdown measures due to the spread of COVID-19 in China are weakening the price increase momentum," adding, "The easing of China's COVID-19 prevention policies and the swift implementation of economic stimulus measures will be important variables for steel demand."

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