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The price of stainless steel saw sharp jumps, due to nickel. Used for top covers, this will hurt Brilliant and Seksun. Fortunately for Seksun, it has hedged its stainless steel supply until Nov. This is a boon as its competitors have not done so. Hence, Seksun stands to benefit from the Seagate-Maxtor merger. As for Brilliant, this is less relevant now as its top cover orders have declined saubstantially with the departure of Maxtor. The impact on Unisteel, which makes fasteners, is small as its material content is low.
In contrast, aluminium prices have been falling. This is positive for base plate producers such as MMI and, to a lesser extent, Brilliant.
CSFB believes MMI has negotiated its pricing with Seagate based on US$2400/mt; hence, the recent pullback in aluminium to US$2300 should help to alleviate margin concerns. The faster growth of 2.5" base plates (which use only 1/8 the aluminium of 3.5") has also help margins. MMI is CSFB's top pick, but avoid Brilliant until it can show a return to profitability. The drop in aluminium is also a relief for Norelco, which fabricates equipment parts.
CSFB's price targets for Briiliant, MMI and Unisteel are $0.25, $1.04 and $2.18 respectively.
Charts of the prices of the commodities are shown below.
