Shanghai Baosteel Group Corporation, usually known as Baosteel is a state-owned steel company which is one of the biggest steel producers in the world, based on output. Its 2000 initial public offering in Shanghai was the largest in China at the time even though it was restricted to domestic investors.

Steelmakers soar on talk of fresh stimulus package

PUBLISHED : Tuesday, 17 February, 2009, 12:00am
UPDATED : Tuesday, 17 February, 2009, 12:00am

Shares of mainland steelmakers surged in Shanghai yesterday as news reports stoked speculation that the government may roll out fresh stimulus measures to encourage strategic mergers within the industry.

Baoshan Iron & Steel jumped 9.93 per cent after the Securities Times said a stimulus plan could help the steelmaker buy three affiliates. Angang Steel and Maanshan Iron & Steel rose 9.09 and 10.10 per cent respectively.

'It's certainly a good move for the government to once again encourage consolidation in the industry,' said Michelle Leung, an analyst at CIMB-GK. 'Obviously, the larger players, such as Baoshan, Angang or Maanshan, would benefit more.'

Mainland steelmakers have rebounded as steel prices recovered since bottoming out at the end of last year. But with the global economy mired in a historic slump, demand for the building material is still under threat.

'There could be a problem of overcapacity coming in, so there should be some room for steel prices to decline again,' Ms Leung said. 'And especially during the earnings season, there could be more bad news coming out.'

Baoshan and Angang have climbed 38.36 and 38.13 per cent respectively so far this year as a rebound in the Shanghai Composite Index rekindled investors' buying interest. The benchmark has gained 31.23 per cent over the same period.

But analysts said the recovery in the steelmaking sector could be cut down by profit-taking in the near term as a fragile demand structure for steel could lead to oversupply.

'These recent rallies come from the strong sentiment in the A-share market,' said Wayne Fung, an analyst at Everbright Securities. '[And] the recent rally has already priced in the benefit from the proposed stimulus package from the central government.'

Steelmakers could get a boost in the second half, however, as demand for their products might increase once more government-sponsored infrastructure projects gained traction, Ms Leung said.

Meanwhile, mainland authorities could bring back a 5 per cent tax on primary aluminium imports starting March 1, according to Reuters.

Aluminum Corp of China fell in mainland trading for the first time in 10 sessions yesterday as investors sold the shares to take profits. The country's largest producer of aluminium is up 60.78 per cent this month.


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