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India domestic HRC price pressure increases; Allytechnicals
again driving prices/premiums
• Steel- Indian domestic HRC market likely to see pricing stress in May:
After the correction in the spot HRC prices seen in March, prices have held up
at nearly Rs35K/MT. However, the export prices out of CIS and China have
corrected sharply over the last 2 weeks, with both of them going below
$700/MT with Ukraine export HRC at near $650/MT (implying landed price
of Rs33K/MT). We believe Indian domestic HRC prices need to be cut by
at least 5% to Rs33.5K/MT in May to dissuade large imports from
coming through (even as q/q costs/MT should only move up given coking
coal prices). Demand on the margin remains weak, with last year's big driver,
Autos, seeing growth rates moderate. China customs data for steel exports to
India shows a sharp surge to 0.3MT from 0.14MT each in Jan and Feb (July-
10 through Feb-11 average monthly exports from China to India stood at
0.15MT). Domestic long product prices have held up relatively better than
flat product prices with DRI prices (a key input for IF/EAF based steel
production in India), moving up 5% m/m in April.
• Technicals over Fundamentals: Aluminum premiums surge: LME
aluminum prices have remained strong over the last month while aluminum
premiums have surged across both NA and Europe as availability in the spot
market have remained tight. Getting material out of warehouses has continued
to be difficult with material being locked in financing deals. LME Aluminum
m/m has moved up 6% against m/m declines of 1-7% across copper, lead and
zinc. JPM Global metals analyst Michael Jansen highlights that the current
tightness is driven by one of the regular ‘warrant sweeps’ ‘that tends to happen
time to time, aided and abetted by the market having been in a protracted
contango that sees metal locked up once again. As such cash metal dries up for
a while and the spreads get tight and, naturally, more metal will come
into the system over the month of May.
• Sept-10 power cuts to return in China?: JPM China Utility analyst
Chapman Deng highlights the risk of power supply tightening in China given
resilient demand, and lower power supply (hydro). We have got investor client
queries on the similarities to Sept-10. During Sept-10, LME aluminum and
aluminum equities like Hindalco benefited more than steel (and steel equities).
This time given excess steel production, possible power cut related steel
production cuts in China, would help stem the export price pressure seen
recently (though lower steel production should be negative for spot iron ore).
Also given lower hydro generation, means demand for thermal coal is likely to
remain elevated. We believe over the next 3 months, how large the power cuts
in China are, could likely impact Indian metal and Mining equities
• Silver- The ETP data: As per the Commodity Investment Fund Flow
Monitor (details on page 12) value of silver in the long side commodity ETP’s
stood at $26.9bn v/s $21bn a month ago and $14.4bn 3 mths ago. Surprisingly
YTD silver flows have stood at $1bn only while YTD silver spot prices are up
60%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India domestic HRC price pressure increases; Allytechnicals
again driving prices/premiums
• Steel- Indian domestic HRC market likely to see pricing stress in May:
After the correction in the spot HRC prices seen in March, prices have held up
at nearly Rs35K/MT. However, the export prices out of CIS and China have
corrected sharply over the last 2 weeks, with both of them going below
$700/MT with Ukraine export HRC at near $650/MT (implying landed price
of Rs33K/MT). We believe Indian domestic HRC prices need to be cut by
at least 5% to Rs33.5K/MT in May to dissuade large imports from
coming through (even as q/q costs/MT should only move up given coking
coal prices). Demand on the margin remains weak, with last year's big driver,
Autos, seeing growth rates moderate. China customs data for steel exports to
India shows a sharp surge to 0.3MT from 0.14MT each in Jan and Feb (July-
10 through Feb-11 average monthly exports from China to India stood at
0.15MT). Domestic long product prices have held up relatively better than
flat product prices with DRI prices (a key input for IF/EAF based steel
production in India), moving up 5% m/m in April.
• Technicals over Fundamentals: Aluminum premiums surge: LME
aluminum prices have remained strong over the last month while aluminum
premiums have surged across both NA and Europe as availability in the spot
market have remained tight. Getting material out of warehouses has continued
to be difficult with material being locked in financing deals. LME Aluminum
m/m has moved up 6% against m/m declines of 1-7% across copper, lead and
zinc. JPM Global metals analyst Michael Jansen highlights that the current
tightness is driven by one of the regular ‘warrant sweeps’ ‘that tends to happen
time to time, aided and abetted by the market having been in a protracted
contango that sees metal locked up once again. As such cash metal dries up for
a while and the spreads get tight and, naturally, more metal will come
into the system over the month of May.
• Sept-10 power cuts to return in China?: JPM China Utility analyst
Chapman Deng highlights the risk of power supply tightening in China given
resilient demand, and lower power supply (hydro). We have got investor client
queries on the similarities to Sept-10. During Sept-10, LME aluminum and
aluminum equities like Hindalco benefited more than steel (and steel equities).
This time given excess steel production, possible power cut related steel
production cuts in China, would help stem the export price pressure seen
recently (though lower steel production should be negative for spot iron ore).
Also given lower hydro generation, means demand for thermal coal is likely to
remain elevated. We believe over the next 3 months, how large the power cuts
in China are, could likely impact Indian metal and Mining equities
• Silver- The ETP data: As per the Commodity Investment Fund Flow
Monitor (details on page 12) value of silver in the long side commodity ETP’s
stood at $26.9bn v/s $21bn a month ago and $14.4bn 3 mths ago. Surprisingly
YTD silver flows have stood at $1bn only while YTD silver spot prices are up
60%.
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