OneSteel (OST) News Update

Submitted by Jim Thesiger on 29 May, 2008 - 17:49

OneSteel (OST) has an Outperform recommendation and a suggested upside of over 10% in the stock from Australian stock analyst Macquarie Research Equities.

OneSteel (OST) : Demand for Steel - Demand for OneSteel

Steel makers have seen significant growth in recent months, driven primarily by the increasing demand from emerging markets. In order to develop infrastructure, steel is an essential ingredient for progress, and demand is unlikely to subside in the near or medium term. One of Australia’s major players in the steel sector, One Steel (OST), has rallied 13% in the past 3 weeks. Macquarie Research Equities (MRE) rates the stock an outperform due to three key drivers :

Positive Demand Drivers. The fact that OST is widely diversified across a number of sectors that are all in or heading to high demand levels is key to the expected performance. These sectors include mining, engineering and non residential construction. Further to this, strong demand has helped grow volumes in manufacturing and distribution.

Iron Ore Price Strength and Volume Upside. Iron ore prices are increasing with the trend predicted to continue, with earnings expected to remain above $200m per year.

Trading Environment Set to Improve. Imported product from Asia is expected to slow, which in turn provides a platform for OST to pass through higher input costs and recover margin compression.

These three drivers will combine to drive not only company earnings but the stock value of One Steel. MRE believes there is over 10% upside in the stock with possible upgrades to come pending on market conditions and iron ore prices. With global steel prices expected to maintain their current levels or higher the true crux will be the ability of the company to pass these higher prices through to domestic customers.