Steel shares hit after commodity prices fall

Brokerage houses suggest investors avoid these stocks, saying the industry is expected to slow down in the second half because of shrinking demand, mainly due to political uncertainty.

G Steel's share price dipped 9.92 per cent to close at Bt1.09 per share. Sahaviriya Steel Industry closed at Bt0.95, down from Bt0.99 the previous day, and GJ Steel closed at Bt0.36, a drop of 10 per cent. Tata Steel (Thailand) closed at Bt2.18 yesterday, down from Bt2.40 a day earlier.

An analyst at KimEng Securities (Thailand) said steel companies' share prices fell as the price of billets - raw material for the production of steel rod - in the forward market for the next three months had dropped by US$300 (Bt10,100) a tonne to between $840 and $850.

Steel prices in the second half are also expected to fall by a further $200 to $300 a tonne, due to the global slowdown.

Chusak Yongvongphaiboon, managing director of Asia Metal, told Krungthep Turakij that the industry could suffer in the third quarter as demand drops in line with the recent price increases.

However, if political turbulence ends and megaprojects are started, the industry could recover in the final quarter of the year. Asia Metal targets revenue growth of 10 to 20 per cent, from Bt4.89 billion last year, from an annual production capacity of 180,000 tonnes.

"Oil prices have had less of a negative impact on the company's finances than political instability," he said.

Chukiat Yongvongpaibul, managing director of Permsin Steel Works, said the growth of the steel industry was likely to stay flat in the second half in line with the slowing economy and unstable political situation, coupled with high interest rates - all of which dent consumer purchasing power.

He said the company was unlikely to feel the pinch of the difficult situation as it could rely on its main customers in various sectors from automotive to electronic products, which still have high demand for steel.

He added that Permsin Steel Works was expected to post revenue growth of between 10 and 15 per cent from over Bt1.93 billion last year.

Somkiat Vongsarojana, managing director of Rich Asia Steel, said the steel industry was expected to continue to expand in the second half due to substantial demand.

"The domestic demand for steel has continued to soar and is estimated to reach 18 million tonnes per year in the next two years from the estimated 14.8 million tonnes per year this year," he said.

He is confident that his company's secondquarter financial results will be better than the first quarter, when it recorded revenue of Bt1.654 billion and net profit of Bt64.22 million. The company is expected to meet this year's revenue target of Bt10 billion.