· Even with the winter season beginning to settle (seasonal construction slowdown), scrap has rallied 22% from lows of US$340/ton in Nov’22, to currently hover around ~US$418/ton compared to FYTD/ CYTD avg. of US$377/402/ton.

· Although, the said bull-run may be short lived as routine virus controls, the ongoing property crisis, and the winter pollution curbs are expected to keep the construction/engineering on the back foot in the near term

· With depressed LSM activity, cuts in PSDP, ever rising inflation and supply chain problems (LC/raw material issues), it appears that both long/flat steel demand during the full year may remain suppressed

· Domestically, local rebar prices have also increased by some PkR15k/ton in the past month to stand at ~PkR220k/225k per ton for North/Southern markets, in response to shortage of raw material (scrap/billets) and currency depreciating by ~11% (unofficial open market).

· With the steel companies in a spot of bother amidst highly cyclical/leveraged situation of the sector, MUGHAL seems to be the best of the lot. Overall, MUGHAL remains our top pick in the sector with Dec’23 TP of PkR70/sh, providing an upside of 52%.

Courtesy- AKD Research