Stable increase forecasted for Chinese steel corporations' stocks

Current stock market in China is a bull market. Most stocks' prices kept increasing from early 2006. Due to various reasons, China's stock market had experienced bear market conditions for over 5 years. Overwhelming investors suffered losses on the stock market and lost their interests in it. But along with China's serial successes in stock reforms and huge amounts of hot money flowing into China for investment, China's stock market recovered amazingly. Among all listed companies, particularly steel corporations attract investors more. Main reasons are analyzed as below: 1- Favorable state policies Chinese central government has put forward its encouraging policies to develop the steel industry. With these policies, major steelmakers are encouraged to expand through mergers, and steel production will be concentrated on a few big companies in the future. Before 2010, top 10 steelmakers will begin producing 50% of the steel output in China. Due to huge demand for steel, their profits will be remarkable. 2- Foreign investors' great interests in steel corporations Among the entire capital invested in China, a certain sum has been or will be invested on listed steel corporations. Besides world famous steel giants and some large-scale investment institutes such as Goldman are also investing more money on the stocks of steelmakers. 3- Banks' active attitudes towards steelmakers' consolidations China's banks have remained in embarrassing situations for a long time. On one side, banks mastered huge amounts of civil deposits waiting for good loan projects. On the other side, due to over heated investment and high market risks, banks' capitals were restricted with the loans for government. Now, good opportunities are appearing. Steelmakers' consolidations both need huge amounts of money and are encouraged by state. Recently, Industrial and Commercial Bank of China (ICBC) signed a strategic cooperation agreement with Baosteel to support its mergers with steel mills. Undoubtedly, banks' active attitudes will contribute to accelerating the process of steelmakers' consolidations. 4- Steel stocks' prices are lower than their real values in general This is caused by two major reasons: First, almost all stock prices of listed companies have dropped during the long bear market in China. Second, the large amounts of uncirculated stocks, owned by the state, have been released during the stock reforms. With more new shares issued, steel stocks' prices dropped in early 2006. Currently, listed steelmakers need to invest about RMB 4,000 ($501) to produce 1 ton steel. But due to low level of stock prices, this value is underestimated extremely, and shown as even lower than RMB 1,000 ($125).