Karachi, March 16, 2022 (PPI-OT): Pakistan Steel: Further price increase key to sustaining margins

The rally in scrap prices has been upended by geopolitical tensions, with LME scrap prices currently trading around USD629/ton, increasing by 24% in last one month. Rebar prices have also joined the rally recently, increasing by 8% in last one week, as mills in Europe suspended operation due to high energy costs.

Even though scrap prices have lost a bit of steam (declining by 10% in last one week), we expect rebar prices to maintain their ground in short run, resulting in increased rebar-scrap spread after it has already increased by 80% in last one week.

Locally, rebar prices have increased by ~PkR15k/ton during the last month as manufacturers passed on the increasing cost of scrap while we expect them to increase further by PkR5-10k/ton after scrap prices move past USD600/ton.

We term the current dip in prices as an opportunity to accumulate with ASTL and MUGHAL as our top picks from the sector where MUGHAL will have additional support to earnings after copper prices are again trading around their all-time high.