[MarketING] Steel Stocks Heat Up on Expectations of Demand from China

Steel Stocks Stand Out in Box Range Market
Expectations of Demand Recovery in China Drive Steel Stock Strength

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Recently, as the index has been moving within a box range and a stock-specific market continues, steel stocks have been showing strong performance day after day due to expectations of demand recovery in China.

KOSPI Slightly Up... Steel and Metal Sectors Up 3%

On the 20th, the KOSPI closed at 2,455.12, up 3.91 points (0.16%) from the previous session. The KOSDAQ ended the day at 788.89, rising 13.27 points (1.71%).

The KOSPI started the day lower but turned to gains, closing with a slight upward trend without expanding the gains. Kim Seokhwan, a researcher at Mirae Asset Securities, analyzed, "This week, the KOSPI experienced a stock-specific market influenced by cautious sentiment ahead of the U.S. Personal Consumption Expenditures (PCE) inflation data and the Bank of Korea's Monetary Policy Committee meeting," adding, "Steel, pharmaceuticals, and food and beverage sectors showed upward trends."

Recently, steel stocks have continued their strong performance. On this day, the KOSPI steel and metal sector index rose 3.27%, marking the largest increase among KOSPI sector indices. POSCO Holdings rose 3.59%, Dongkuk Steel 5.92%, Hyundai Steel 2.58%, Korea Steel 4.88%, SeAH Besteel Holdings 5.62%, SeAH Steel 1.09%, KG Steel 9.18%, and NI Steel 6.27%. Hyundai Steel has been rising for 9 consecutive trading days, while POSCO Holdings and Dongkuk Steel have each maintained gains for 6 consecutive trading days.

The recovery of demand in China is cited as the background for the steel stocks' strength. Lee Yujin, a researcher at Eugene Investment & Securities, explained, "The Chinese market is gradually rebounding," adding, "Thanks to the Chinese government's favorable policies and continuous demand recovery, construction and heavy equipment companies have shown a rebound." China's new housing prices in January rose 0.1% month-on-month, marking the first increase in a year. The researcher added, "As housing transactions increased, domestic rebar prices in China rose 4.1% as of the 15th, showing expectations that the real estate market has bottomed out."

Expectations for the Chinese government's economic stimulus measures ahead of the Two Sessions (National People's Congress and Chinese People's Political Consultative Conference) are also playing a role. Ahn Hoesu, a researcher at eBest Investment & Securities, said, "Real estate stimulus is an essential choice for the Chinese government to boost domestic demand," adding, "January's Chinese loan data (new yuan loans and bank corporate loans) recorded a surprise, and additional moves to stimulate household loans and improve the real estate market are expected."

While the environment is favorable for steel stocks, there is an opinion that confirmation of related indicators after March is necessary. Researcher Ahn said, "The flow of the three factors?economy, inflation, and exchange rates?can be interpreted as a favorable environment for steel stocks," adding, "Compared to global steel stocks, domestic steel stocks' valuation attractiveness may stand out." He continued, "Due to the cyclical nature of the sector, stock prices tend to move in trends even before real demand and earnings recovery are confirmed, so a buying strategy is appropriate, but it is necessary to observe housing and economic data from China that will be confirmed after March."

Chinese Consumer-Related Stocks Also Strong

Chinese consumer-related stocks also showed strength due to expectations of China's economic recovery and the Chinese government's economic stimulus measures.

On this day, Amorepacific rose 2.32%, LG Household & Health Care 1.32%, and Hotel Shilla 1.99%.

Choi Jinyoung, a researcher at eBest Investment & Securities, said, "Amid mixed expectations and doubts about China's reopening (resumption of economic activities), the importance of policy is greater than ever," explaining, "At the end of last month, the Two Sessions of 31 provincial governments in China concluded, and the core of the meeting was a change in policy mechanisms for revenge consumption. They prepared employment packages to induce offline consumption, real estate market revitalization, and high savings rates into consumption and investment." He added, "Under these measures, the timing of revenge consumption is expected to fully unfold in line with the seasonality of employment (March to June)."

China's reopening and economic stimulus measures are expected to continuously impact the domestic stock market. Lee Jaeseon, a researcher at Hyundai Motor Securities, said, "Expectations for the resumption of investment and production activities linked to China's reopening are acting as momentum that sustains foreign capital inflows into export-leading countries such as Taiwan and Korea," adding, "China's fiscal stimulus policies are factors that strengthen Korea's export momentum with a time lag."