Steel fails to gain on ECRL revival

However, steelmakers are likely to increase in the near term despite the weaker close yesterday

By DASHVEENJIT KAUR / Pic By MUHD AMIN NAHARUL

The revival of the East Coast Rail Link (ECRL) project failed to provide a sustained lift to local steel companies with most sector stocks ending in the red yesterday.

Unlike project-related construction stocks that are back on the radar of investors after being beaten down when the project was put on hold last year, the steel counters failed to hold gains made last Friday on news reports of the revival of the approximately RM66 billion infrastructure project.

Ann Joo Resources Bhd, for example, fell 1.14% or eight sen lower at RM1.71 at market close yesterday.

The decrease in its share price yesterday was the most in more than 18 trading weeks.

Ann Joo peaked at RM1.80 before settling at RM1.79 last week on the momentum the ECRL provided.

In total, Ann Joo has declined 2.8% in the past five trading days and almost halved in value over the last 52 weeks.

Ann Joo was among the few major steelmakers that stood to gain from the revived project.

However, Hong Leong Investment Bank Bhd, in its traders brief yesterday, noted that the steelmakers are likely to increase in the near term despite the weaker close yesterday.

“Besides construction-related stocks, we see potential upside on building materials (steel and cement-related), at least for the near term on the back of this news flow,” it said.

Putrajaya last Friday announced that the ECRL project will restart and be completed at a reduced cost of RM44 billion compared to its original cost of RM65.5 billion.

The ECRL was given the green light after project owner Malaysia Rail Link Sdn Bhd and main contractor China Communications Construction Co Ltd signed a supplementary agreement after months of negotiations between the two companies, and between the Malaysian and Chinese governments.

The rail line was shortened by 40km to 648km, while cost per km was lowered to RM68 million against the previous average of RM98 million per km.

The stop at Gombak was eliminated and the train route will now run through Jelebu in Negri Sembilan as it connects Kelantan to Port Klang in Selangor.

Prime Minister Tun Dr Mahathir Mohamad said one of the adjustments to the contract following the 10-month negotiation was the increased participation of local companies on the project.

The percentage of local participation has now been increased to 40% of civil works from 30% in the original deal.

Another steelmaker that was expected to gain from the rail project is Lion Industries Corp Bhd.

Lion Industries also ended in the red yesterday, losing four sen or 6.4%, to close at 58.5 sen.

Southern Steel Bhd closed 3% or three sen lower at 97 sen yesterday, giving it a market capitalisation of RM420 million.

Press Metal Aluminium Holdings Bhd traded unchanged to close at RM4.53 yesterday.

The Asia’s largest aluminium smelter has only declined 4.6% year-to-date, and 0.7% in the past five days.

Analysts reckoned Press Metal have been affected by profit-taking activities as its valuations are near historical highs.