China’s record level of steel exports in July could actually be a positive catalyst for stocks such as Hyundai Steel, which would benefit from potential increased China export taxes, CLSA said.
China exported a record 7.2 mln tons of steel in July, up 38 pct from June and 21 pct higher than the same month last year.
"International prices rose so much in the first half, and are just too attractive, such that even with the export taxes, the incentive existed to export," CLSA said in a note.
The Chinese authorities will regard the high export volume as unacceptable, and they will probably hike export taxes as a result, the note said.
"The high export number may lead to increased China export taxes on steel and actually act as a catalyst to ex-China stocks as the next six weeks unfold … Hyundai Steel will be particularly attractive if China moves to raise export taxes again, as we suspect it will," CLSA said.
"But the market needs to see further action by Beijing to be convinced, and this may not happen during the Olympics," it added.
CLSA noted that export deals are typically signed two months in advance, so the July spike is likely to be based on deals made in May during the peak of concerns over steel supply. It added that transaction volumes for future deals appear light at the moment.
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