Asian steel stocks, battered by sinking demand amid the global recession, are starting to look like a steal.

Even as prices of the metal begin to rebound, Pohang, South Korea-based Posco, and Shanghai-based Baoshan Iron & Steel Co. and the Asia Pacific’s other top 14 producers trade at an estimated average 6.2 times per-share earnings, the lowest since 2005.

Driving the nascent rally in steel is China’s plan to spend 4 trillion yuan ($586 billion) on housing, railroads and other infrastructure projects to stimulate its economy. Since the government announced the rescue package in November, steel prices in China, the world’s biggest consumer, have jumped 43 percent from a six-year low.

“Steel demand is likely to pick up after the first quarter, led by China,” said Park Chang Suk, who helps manage $6 billion at NH-CA Asset Management in Seoul, including Posco shares. “Prices are creeping up in China, and a large-scale stimulus package will help boost the economy.”

Steelmakers may also benefit from lower prices for iron ore and coking coal. Goldman Sachs JBWere Pty predicts annual contract prices of coal will fall 60 percent and iron ore 30 percent from April 1.

Tokyo-based JFE Holdings Inc. is also likely to benefit along with China’s Maanshan Iron & Steel Co. and Angang Steel Co., analysts from Citigroup Inc., BNP Paribas SA and Guosen Securities said. They all trade at valuations of less than 6.2 times earnings.

‘Best Time’

Posco and Seoul-based Dongkuk Steel Mill Co., which gets half of its sales from ship plates, may be bolstered by vessel orders, SK Securities Co. said. Hyundai Heavy Industries Co., the world’s largest ship maker, and two Korean rivals last week said they plan to raise steel purchases by about 11 percent to a record this year.

The best time to buy steel stocks could be in February and March, said Eun Sung Min, who helps oversee $10 billion at Samsung Investment Trust Management Co.

Before then, there likely will be another spate of bad news when Asian steelmakers report fourth-quarter results.

Posco, the world’s second-largest mill by value, goes first on Jan. 15. The company’s shares fell 34 percent in 2008, the worst drop in eight years. It has cut output for the first time in its 40-year history, and will probably say fourth-quarter profit fell 13 percent to 1.06 trillion won ($794 million) from the previous three months, according to analysts surveyed by Bloomberg.

Losses

Baoshan Iron may post its first quarterly loss when it reports in March, said JPMorgan Chase & Co. The steelmaker’s stock plunged 73 percent in 2008, the biggest drop since listing in 2000.

In Japan, Nippon Steel Corp., the world’s second-largest producer, will probably report a 16 percent drop in profit for the year ending March 31, Mitsubishi UFJ Securities Co. said in a Dec. 9 report. Income may slide 32 percent next year, the broker said. Tokyo-based Nippon Steel will report earnings for nine months on Jan. 29.

Some in the industry predict more losses to come, suggesting a bet on steel is no sure thing.

“I don’t have a recovery hope,” said Hironori Ondo, president of Osaka-based Toyo Iron Works Co., on Jan. 8. “It may take about one-and-a-half years to see a recovery, and at worst it may take three years.”

Outside the region, the situation is grimmer. Luxembourg based ArcelorMittal and U.S. Steel Corp., the two biggest non- Asian mills, may not benefit directly from Chinese spending. They trade at 2.55 and 1.94 times earnings.

Goldman Sachs Group Inc. is pessimistic, too. It cut Posco’s rating on Jan. 9 to “neutral,” saying the stimulus package in China -- as well as a pending U.S. economic rescue plan worth at least $775 billion -- may not immediately help, and recent orders by manufacturers to rebuild inventories may be short-lived.

‘Significantly Undervalued’

Current valuations make some analysts more sanguine. Output and price cuts and possible losses mean Asia’s 16 biggest mills are trading at less than half of last year’s average price- earning ratio of 15.3 times, and just above 2005’s 6 times. Steel stocks are also cheaper than the average 13.84 times of the 945 members on the MSCI Asia Pacific index.

JFE’s shares are “significantly undervalued,” said Citigroup’s Toshiyuki Johno in a Jan. 6 report. The “worst is over” for steel, BNP’s Lance He said in a Jan. 8 note.

“Steel demand will recover gradually on policy incentives and an improving market environment,” said Guosen Securities analysts led by Zheng Dong. Chinese mills, “whose profits are at 7 times earnings, are poised to post better earnings.”

Stimulus Packages

Elsewhere in Asia, economic stimulus programs will also help steelmakers. South Korea announced a 140 trillion won package for this year, accounting for 15 percent of gross domestic product. India will spend more than 400 billion rupees ($8.2 billion) through two stimulus plans. Taiwan will invest NT$500 billion ($15 billion) on infrastructure.

“We expect the steel industry to recover from the second half, buoyed by government spending plans and waning inventories” which will require new orders, said Huh Soon Mi, a spokeswoman for Incheon, South Korea-based Hyundai Steel Co., which gets 70 percent of sales from construction steel.

Maanshan Iron, China’s fourth-largest mill based in Anhui province, raised capacity usage at its iron plants to 88 percent, up from 82 percent in October, spokesman Hu Shunliang said Jan. 8. Liaoning province-based Angang Steel, the second-biggest Chinese mill, is raising prices for February delivery, said Helen Lau, a Daiwa Securities Group Inc. analyst.

“It’s most likely that steelmakers had their worst time in the fourth quarter and there’s an improvement in the first- quarter earnings,” said Lin Hai, a Shanghai-based analyst at Guotai Asset Management Co., which oversees $4.4 billion.