International scrap and copper prices have increased by 11 percent and 11.1 percent respectively since October 2021 to currently hover around $488 and $9,932 per tonne compared to fiscal year-to-date (FYTD) average of $473 and $9,485 per tonne amid power shortage and supply concerns which caused smelters to go offline from Chile to China. According to a report issued by AKD Securities, concerns over future metal supply cuts may still linger where uncertainty on new recycling restrictions in Malaysia have caused the scrap market to tighten considerably, increasing dependence on refined metal as global demand started to pick up ahead of the blistering winter season. Furthermore, impressive Chinese export growth in October 2021 (+27.1% YoY) to $300.2 billion has counterbalanced some of the pressure mounting on Chinese local manufacturers from emergence of enormous power shortage, supply-side disruptions and reappearance of covid-19 cases in China. Moving forward, strong Chinese exports in October 2021 and booming global demand ahead of the winter holiday season could keep industrial metal prices upward in the short run. Additionally, the long awaited US $1trn infrastructural bill has been passed by Congress in November 2021 which is bound to keep copper and other metal prices on an upward trajectory in the medium term. According to the report, local rebar prices have increased by 9.7 percent MoM to Rs195,000 to Rs197,000 per tonne in October-November 2021. Strong retail demand in construction sector (both north and south), higher freight cost ($40-50 per tonne to $80-120 per ton vs historical average of $30-40 per tonne) and PKR devaluation (2% since Oct’21) have pushed local manufacturers to increase rebar prices briskly. Furthermore, lower price competition in local market (due to high retail demand) with graded and ungraded rebar price delta reduced to Rs6,000 to Rs10,000 per tonne versus historical average of Rs15,000 to Rs20,000 per tonne have also provided room for local rebar manufacturers to pass on cost swiftly. A sign of considerable pricing power local manufacturers exhibit which was fairly reflected in 1QFY22 results of long steel manufacturers (GMs: 17.5% in 1QFY22 vs 13.4% in 1QFY21, up 4.1ppt), where we see long steel players’ profitability to remain strong going forward in FY22, said the report. In light of robust earnings in 1QFY22 on the back of higher rebar prices, Mughal Steel (MUGHAL) and Amerli Steel (ASTL) have performed well, up 4.8 percent in November 2021 as compared to KSE-100 +0.6% in November 2021, an out-performance of 4.2 percent. “Likewise, we expect earnings to remain robust in the near term as, i) higher rebar prices (+26.7% in FYTD) and pricing power benefits local manufacturers in passing through the input cost, translating into better margins. We prefer ASTL (TP: PkR58/sh, 38.1% upside) and MUGHAL (TP: PkR140/sh, 49% upside) with stocks currently trading at FY22 P/E of 5.14x/5.0x while on PEG basis, ASTL and MUGHAL are trading at 0.19x and 0.16x, respectively, concluded the report.