Steel & Tube has been downgraded by brokers on several fronts, with waning global steel prices and China's economic downturn both forecast to push into 2016.
Global steel prices have fallen 50% during the past three years, 35% of that decline occurring during the past 12 months.
Craigs Investment partners broker Peter McIntyre estimated Steel & Tube's (STU) profitability had been reduced by $14million during the past three years, $6million of that during the past 12 months.
''While STU remains in good shape and construction activity is still robust, we see further downsides to steel prices,'' he said.
He said Craigs' research predicted Chinese steel demand in 2016 could decline further, while ''meaningful capacity rationalisation'' in China was still absent.
Craigs had cut STU forecasts and target price and downgraded its stock recommendation to ''hold''.
''We expect the price weakness to constrain STU's near-term profitability,'' he said.
Craigs cut its forecast full-year after-tax profit for STU by 10% and full-year 2017 after-tax profit by 17%, and also downgraded long-term growth assumptions from 3.4% to 2.9%.
Mr McIntyre noted that on the positive side, the release of working capital from STU maintaining a lower steel inventory should result in strong operating cash flows to pay off debt.
He said Chinese steel production capacity was now almost 50% of the world's production.
''With reducing domestic demand and increasing Chinese exports, the net impact is a weaker steel price should remain longer,'' he said.
He reiterated STU had said increasing Chinese exports of low-priced steel products, combined with the low prices for the raw material, iron ore, was ''having a profound impact'' on prices of finished steel products.
With the lower selling prices, STU management expected profitability would be impacted, he said.
Mr McIntyre said for first-half 2016 trading, STU management gave guidance of a reduction in profitability compared with last year, albeit without disclosing to what level, following what had been a strong half at $10.8million profit.
