re: buying opportunity?
Steel stocks tumble on company reports October 20, 2004 - 1:45PM
Page Tools Email to a friend Printer format Shares in Australian steel makers OneSteel and BlueScope tumbled as investors digested disappointing company news in a climate of global price concerns.
At 1235 AEST OneSteel dumped 20 cents or 6.7 per cent to $2.78 while BlueScope lost 40 cents or 4.7 per cent to $8.07.
Steel stocks softened in the US amid forecast increases in the price of hot rolled coil and falls in United States steel exports.
Meanwhile in Australia, OneSteel said that operating difficulties at its Whyalla Steelworks were expected to cost about $30 million in earnings before interest, tax, depreciation and amortisation in the 2004/05 period.
OneSteel said that the failure in a blast furnace air injection system and another problem earlier this month will cut output by 80,000 tonnes.
This is well above the 35,000 tonne cut forecast after the earlier failure.
"It will take approximately an additional two weeks to repair and return to normal operation levels," Australia's largest maker of long steel construction products said.
The company which is arranging to buy steel from other companies, said it would increase production in Sydney and cut back on export sales.
Macquarie Equity steel analyst Mark Cotton said the impact on the share price was probably in line with the company's forecast cuts to the bottom line.
But JP Morgan steel analysts said the slump was an overreaction wiping more than $100 million off OneSteel's market capitalisation.
The global investment bank has dropped its forecast 2004/05 interim net profit after tax to $120 million from $132 million.
However, JP Morgan analysts said their evaluation of OneSteel's share price remained unchanged at $3.21.
"It's now trading at a significant discount and that creates a buying opportunity," an analyst said.
JPMorgan said BlueScope Steel was also creating an opportunity for buying in weakness as investors moved out of the stock despite chairman Graham Kraehe flagging the possibility of another record year.
JPMorgan sid the falls were a response to reports that US steel prices had come off.
The reports saw US stocks tumble but should have little impact on Australian steel exports, the investment bank said.
Japanese export prices remained strong.
An analyst from the bank said the gap between the US and Japanese prices had been exceptionally high with steel prices in the US trading at about $US813 a tonne compared to $US550.
"Historically the difference is 10 per cent ... so this is not big news its just an arbitrary gap closing," he said.
Daiwa Securities analyst Mark Pervan said union pressure was also taking its toll on the company, with investors fearing industrial action in the future could impact on production.
"The AWU looks like its leaning pretty heavily on the company to put a cap on executives pays," Mr Pervan said.
"Steel assets are very sensitive to stoppages ... disruptions to production can hurt the bottom line very quickly."
He said that the problems were arising against a back drop of price concerns were adding to investor uncertainty.
