Chinese steel shares outdazzle rivals, but Russians not far behind
GRAPHIC: Chinese, Russian steelmakers soar: link.reuters.com/kuk24w By Manolo Serapio Jr SINGAPORE, Feb 27 (Reuters) - Shares in China's steelmarkers outshone long-time international rivals in 2014 as Chinese mills overwhelmed buyers with cheap prices. But investors are starting to look elsewhere now, particularly as Russian rivals come to the fore.
Shares of Hebei Iron and Steel, the listed unit of top Chinese producer Hebei Steel Group, soared more than 90 percent last year. Baoshan Iron and Steel climbed over 70 percent while Wuhan Iron and Steel gained 63 percent. In contrast, the world's No.1 ArcelorMittal slid 30 percent. Shares of some South Korean and Indian steel firms also declined.
While those gains mirrored the broader rally in Chinese equities, investors couldn't ignore China's steel exports, which rose to a record last year. Last month, steel shipments hit a historic high, despite the removal of export tax rebates on products alloyed with boron, which makes them tougher. Faced with a weakening domestic market, Chinese steelmakers have no choice but to push more products overseas. They have so far outwitted global competitors with low prices. They are also finding substitutes for boron to continue enjoying rebates on alloy steel.
But cheap prices have come at the expense of margins and shares have come off their 2014 peaks. Environmental compliance costs have risen as the government cracks the whip on polluting industries. In particular, the weaker rouble means Russian rivals will be more of a challenge to Chinese exporters in the months ahead. Indeed, shares of Russian producers have already ticked higher. Severstal jumped 57 percent last year and has added a further 36 percent so far in 2015. Evraz is up 25 percent after gaining 43 percent in 2014. Top Russian steelmaker NLMK is 22 percent higher after rallying 21 percent last year.
"Clearly there is demand for cheap steel and steel buyers around the world are benefiting," said Jeremy Platt, analyst at UK steel consultancy MEPS. "China is likely to continue to remain the most price-competitive exporter but margins will be tight." (Editing by Ryan Woo)
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