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India Equity Research Reports, IPO and Stock News
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Rio's $5bn stock buyback a vote of confidence
particularly in the iron ore pricing environment
• Rio’s stock buyback, increased dividend, a vote on iron ore pricing
environment: Rio raised its final dividend by 20% and also instituted a stock
buyback program of $5bn. JPM UK mining analyst David Butler believes this
‘is a vote of confidence particularly in the iron ore pricing environment,
which accounts for 38% of EBIT and furthermore would be seen as a rerating
event for the broader sector’. The outlook on metals and mining by
Rio’s Chief Economist higlights likely inflation in production costs. In terms
of commodites, the report highlights that ‘the dynamics related to unwinding
of aluminun financing deals is a source of uncertainity for the aluminum
market going forward’, while iron ore and coking coal markets should remain
strong.
• Coking coal update- Xstrata confirms recent spot transactions at
+$300/MT levels: JPM UK mining analyst David Butler in his update on
Xstrata highlighted that the company confirmed it has realized over ‘$300/MT
coking coal in the spot markets and felt the price was indicative of where Q2
(April-June) pricing would settle’. Rio’s outlook report highlights that spot
coking coal price rose from $240/MT the week before the floods, hitting a
peak of $380/MT, and since than have come down to $340/MT levels. Our
most recent checks with Indian companies indicate no real buying in the spot
market on coking coal, and we think some of it is required for the June quarter
(unless companies decide to run down steel inventories and lower steel
production).
• MT conference call details- H2 profitability at risk from higher
utilizations: Among other things, MT in its conference call, highlighted the
potential risk to H2 profitability from excess capacity and lagged impact of
raw material price increases (increasing utilizations in H2CY10 had impacted
global steel prices). In an interesting comment, Mr. Mittal highlighted that,
‘another steel intensive segment that will grow positively in 2011 is energy,
alternative energy projects such as wind and solar’.
• European HRC price increases, the only ones moving up right now: Steel
prices remained flat across most regions, with only spot European HRC prices
moving up. They lagged the spot price rally in Dec/January and seem to be
more of a catch-up. While headline spot iron ore prices remained firm, we
believe the Chinese New Year holidays meant that no real trades took place.
Scrap prices continue to decline and traded prices are down $50-70/MT. Given
the sharp and swift up-move in scrap prices recently, further declines are
possible on possible de-stocking. Lower scrap prices have led to declines in
long product prices (rebars) in select markets. We believe Indian steel sales
for the month of January were not very strong and on the ground cumulative
price increases in HRC over Jan+Feb are lower than what was announced.
Some long product prices saw marginal correction over the past fortnight in
India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rio's $5bn stock buyback a vote of confidence
particularly in the iron ore pricing environment
• Rio’s stock buyback, increased dividend, a vote on iron ore pricing
environment: Rio raised its final dividend by 20% and also instituted a stock
buyback program of $5bn. JPM UK mining analyst David Butler believes this
‘is a vote of confidence particularly in the iron ore pricing environment,
which accounts for 38% of EBIT and furthermore would be seen as a rerating
event for the broader sector’. The outlook on metals and mining by
Rio’s Chief Economist higlights likely inflation in production costs. In terms
of commodites, the report highlights that ‘the dynamics related to unwinding
of aluminun financing deals is a source of uncertainity for the aluminum
market going forward’, while iron ore and coking coal markets should remain
strong.
• Coking coal update- Xstrata confirms recent spot transactions at
+$300/MT levels: JPM UK mining analyst David Butler in his update on
Xstrata highlighted that the company confirmed it has realized over ‘$300/MT
coking coal in the spot markets and felt the price was indicative of where Q2
(April-June) pricing would settle’. Rio’s outlook report highlights that spot
coking coal price rose from $240/MT the week before the floods, hitting a
peak of $380/MT, and since than have come down to $340/MT levels. Our
most recent checks with Indian companies indicate no real buying in the spot
market on coking coal, and we think some of it is required for the June quarter
(unless companies decide to run down steel inventories and lower steel
production).
• MT conference call details- H2 profitability at risk from higher
utilizations: Among other things, MT in its conference call, highlighted the
potential risk to H2 profitability from excess capacity and lagged impact of
raw material price increases (increasing utilizations in H2CY10 had impacted
global steel prices). In an interesting comment, Mr. Mittal highlighted that,
‘another steel intensive segment that will grow positively in 2011 is energy,
alternative energy projects such as wind and solar’.
• European HRC price increases, the only ones moving up right now: Steel
prices remained flat across most regions, with only spot European HRC prices
moving up. They lagged the spot price rally in Dec/January and seem to be
more of a catch-up. While headline spot iron ore prices remained firm, we
believe the Chinese New Year holidays meant that no real trades took place.
Scrap prices continue to decline and traded prices are down $50-70/MT. Given
the sharp and swift up-move in scrap prices recently, further declines are
possible on possible de-stocking. Lower scrap prices have led to declines in
long product prices (rebars) in select markets. We believe Indian steel sales
for the month of January were not very strong and on the ground cumulative
price increases in HRC over Jan+Feb are lower than what was announced.
Some long product prices saw marginal correction over the past fortnight in
India.
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