STEEL stockist HG Metal looks set to post stronger results in the second half of FY2006, thanks to rising steel prices.

Since March this year, prices of steel have risen from over US$400 per tonne to the current US$600 per tonne and the uptrend may continue, fuelled by strong demand for steel products.

Given that the company's second half started in April 2006, this suggests that its 2H06 performance may better the results of its first six months.

For the half-year ended March 31, the stockist reported a 57 per cent plunge in net earnings to $4.5 million due to weaker steel prices in the first half of FY06.

HG Metal had also said that it was upbeat about the outlook in the second half due to the 'strong demand for our steel products and stabilised prices driven by the Chinese authorities' encouragement of the merger of small plants and shutting down of unprofitable plants'.

When asked about the improved margins in the current half-year, however, the company declined to comment.

Nevertheless, CIMB-GK Research analyst Jacky Lee told BT that 'we expect HG Metal's 2H06 gross margin to be better than 1H06 due to strong demand from the shipbuilding, offshore and marine industries'.

'The firm steel prices and continued weakness in the US dollar against the Singapore dollar also bode well for the company,' he added.

In an earlier report, CIMB-GK says the cut in China's tax rebate for steel exports from 11 per cent to 5 per cent 'should reduce the outflow of steel from China'. It adds: 'As such, we believe that steel prices will remain firm in the near term.'

Across the region, HG Metal sees healthy demand for steel products coming from sectors such as the shipbuilding industry. In addition, a boom in the local construction industry is also expected to be fuelled by work orders from the integrated resorts and the rejuvenation of the Orchard Road shopping belt.

The company has also set up a plant for the sandblasting of steel plates. Commencing operations next month, it is expected to contribute some $2 million in sales during the first year.

Going forward, there are also plans to grow its manufacturing business to eventually contribute half of its total turnover from the current 10 per cent.