Daily analyst comments
Conditions on domestic steel products market continue to deteriorate
17.11.09 10:39
Increasingly more signs have recently emerged of slackening demand on the domestic steel products market. So far, we are inclined to link this trend with the impact of seasonal factors. However, we expect steel company shares to remain under pressure from unfavorable industry conditions, at least in the short term.
On November 17, the Metal-Courier agency reported, with reference to official sources, that Severstal planned cuts in domestic December prices in the range of 3-6% for flat-rolled steel. Magnitogorsk Iron & Steel Works (MMK) is moving to cut back galvanized steel production in the range of 20-25% in November in the face of weak domestic demand.
These trends are not the only signs of slackening demand on the domestic steel products market. So far, we are inclined to link this trend mainly to the impact of seasonal factors. However, growth in metallurgical raw material prices, with a simultaneous decrease in finished product prices, will undoubtedly exert pressure on 4Q profit margins in the steel sector.
We expect that steel company shares will remain under pressure from unfavorable industry conditions, at least in the short term. Our target prices for MMK and Severstal shares are under review.