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China's steel shares, beset by poor performance, should improve in the second quarter, analysts said yesterday as industry stocks rose broadly.

 

"It's time for a bullish market in steel stocks," said Beijing-based China Galaxy Securities Co analyst Tian Shuhua, who is among those who believe the sector is undervalued. "Steel stocks haven risen 8.4 percent since March 1, only a third of the increase in the Shanghai Composite Index."

 

Most steel companies, including Shanghai-listed Wuhan Iron & Steel Co and Shenzhen-listed Hunan Valin Steel Tube & Wire Co, should lift earnings this quarter as the result of lower manufacturing costs and better product prices, Tian said.

 

The average price-to-book-value ratio of Chinese steel stocks is 1.13, with some less than 1. That compares with a global average of 2.58, according to Tian. The ratio is the relationship between the stock price and the company's net worth.

 

The market is apparently not discouraged that Chinese mills are facing a significant rise in iron ore costs. Global mining giants said last week that several mills in Europe and Asia accepted major price hikes in their annual ore contracts last week.

 

Among them, Companhia Vale do Rio Doce said it secured a 19 percent price increase with Mittal Steel Co, and Australian miner Rio Tinto Group announced the same markup with South Korea's Posco.

 

Negotiations with Chinese steelmakers are still under way.

 

Meanwhile, the State Administration of Taxation will begin cutting tax rebates on steel exports next month, according to media reports.

 

The value-added tax rebate for some steel products will be reduced to 5 percent from 11 percent.

 

"The market has digested the negative news," said Wang Zhixiang, a Xiangcai Securities Co analyst in Shanghai. Among the 32 mainland-listed steel stocks that traded yesterday, all rose except one.

 

(Shanghai Daily May 23, 2006)