Karachi, August 24, 2021 (PPI-OT): Pakistan Steel: Scrap price lose steam

International scrap prices have decreased by 11% since Jul’21 to currently stand at US$456/ton compared to last 3 months avg. of US$493/ton as global demand slows down with economic recovery stalling on the back of global floods and increasing Delta variant cases in major scrap trading regions.

Closure of steel manufacturing facilities, end product supply chain disruptions and policy shift in China with Chinese manufacturers cutting down production by 6% have resulted in lower demand for scrap (down 11% since Jul’21).

Local rebar prices have increased by 14.5% since Jul’21 vs a reduction of 11% in scrap prices since Jul’21. Soaring construction demand, higher freight cost (+US$40-50/ton to US$80-100/ton vs historical avg. of US$30-40/ton) and PkR devaluation (4% since Jul’21) have pushed local manufacturers to increase rebar prices rapidly.

ASTL has posted performance of 10.8% against 2.2% of KSE-100, an outperformance of 8.6% since last month while moving forward, with earnings growth of 19% for FY21-24 and PEG of 0.48x, we expect the stock to continue performing with our TP of PkR64/sh providing an upside of 37.6% from last close.