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India Equity Research Reports, IPO and Stock News
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Mismatch in direction of spot steel and raw material
prices continues
• Update on Glencore and Xstrata: JPM UK Mining analyst David Butler in
his update on Xstrata (XTA) has focused on Glencore given the latter’s IPO
plans (Xstrata- Update with Focus on Glencore, upgrading to OW, dated 20th
April 2011). Given Glencore’s 34% stake in XTS, what eventually happens
with the stake remains a key question. David believes that the two obvious
solutions are 1) sale of XTA stake by Glencore which could get the latter
c.$20bn. David highlights that this is highly unlikely given that Glencore has
supported every capital raising of XTA since the latter’s listing. Second
option is for a merger with XTA which is more likely strategically but
harder to execute. As per David –‘The reach of the business would be
unmatched and we would expect it to consider other potential targets’.
• China- list steel prices cut, but higher production and higher raw material
prices- Mis-match continues: The latest steel mill to cut list prices in China is
Heibei Steel. This comes in the context of increasing steel production and
continued strong spot iron ore prices (though prices were down ~2% last
week). There has been a decline in inventories at the trade level driven by
tightening credit in China. The question is how long does the mismatch last
and which part changes—Do spot raw material prices including iron ore
come off, or do spot steel prices go up? JPM Korea steel analyst Jinmook
Kim in his latest update on Posco highlights that Posco management expects
'tightening policy in China may not last forever’. JPM Global Metals analyst
Michael Jansen believes that while re-stocking in steel is being impacted
by credit, actual down stream demand for steel (and other industrial
metals) may be growing less than 10%.
• Q1 production update across miners: Summarizing from JPM analyst
reports, the key highlights from production results of miners for coal are as
follows: Anglo—Thermal coal -1% y/y and 24% q/q realized prices of
$117/MT for SA. Met coal prod down 44% q/q and 37% y/y. Ramp up to
full prod expected in Q2. Manganese ore prod down 26% q/q, while iron
ore was down 16% q/q and 19% y/y due to excessive rainfall. BHP—
Thermal coal up 7% y/y and 6% q/q realized prices of $117/MT for SA.
Met coal prod down 18% y/y and 14% q/q. Ramp up to full prod expected
by year end and force majeure remains in place across most met coal.
Manganese ore prod down 26% q/q, while iron ore was down 1% q/q.
Rio—Met coal prodn. down 12% y/y and 29% q/q (sales were down 45%
q/q though up 8% y/y). Force Majeure in most met coal lifted in 3 mines and
remains in place for only 1 mine.
• Steel- WSA outlook: The outlook was prepared before the earthquake in
Japan. China’s 2011 growth was increased to 5% from earlier 3.5% and
for 2012 growth is expected at 5%. NAFTA demand is now estimated at
+10.9% against earlier estimate of 8.7% in 2011, but EU demand growth
has been revised down to 4.9% from 5.7% earlier for 2011. MENA is
expected to remain flat in 2011, but recover in 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mismatch in direction of spot steel and raw material
prices continues
• Update on Glencore and Xstrata: JPM UK Mining analyst David Butler in
his update on Xstrata (XTA) has focused on Glencore given the latter’s IPO
plans (Xstrata- Update with Focus on Glencore, upgrading to OW, dated 20th
April 2011). Given Glencore’s 34% stake in XTS, what eventually happens
with the stake remains a key question. David believes that the two obvious
solutions are 1) sale of XTA stake by Glencore which could get the latter
c.$20bn. David highlights that this is highly unlikely given that Glencore has
supported every capital raising of XTA since the latter’s listing. Second
option is for a merger with XTA which is more likely strategically but
harder to execute. As per David –‘The reach of the business would be
unmatched and we would expect it to consider other potential targets’.
• China- list steel prices cut, but higher production and higher raw material
prices- Mis-match continues: The latest steel mill to cut list prices in China is
Heibei Steel. This comes in the context of increasing steel production and
continued strong spot iron ore prices (though prices were down ~2% last
week). There has been a decline in inventories at the trade level driven by
tightening credit in China. The question is how long does the mismatch last
and which part changes—Do spot raw material prices including iron ore
come off, or do spot steel prices go up? JPM Korea steel analyst Jinmook
Kim in his latest update on Posco highlights that Posco management expects
'tightening policy in China may not last forever’. JPM Global Metals analyst
Michael Jansen believes that while re-stocking in steel is being impacted
by credit, actual down stream demand for steel (and other industrial
metals) may be growing less than 10%.
• Q1 production update across miners: Summarizing from JPM analyst
reports, the key highlights from production results of miners for coal are as
follows: Anglo—Thermal coal -1% y/y and 24% q/q realized prices of
$117/MT for SA. Met coal prod down 44% q/q and 37% y/y. Ramp up to
full prod expected in Q2. Manganese ore prod down 26% q/q, while iron
ore was down 16% q/q and 19% y/y due to excessive rainfall. BHP—
Thermal coal up 7% y/y and 6% q/q realized prices of $117/MT for SA.
Met coal prod down 18% y/y and 14% q/q. Ramp up to full prod expected
by year end and force majeure remains in place across most met coal.
Manganese ore prod down 26% q/q, while iron ore was down 1% q/q.
Rio—Met coal prodn. down 12% y/y and 29% q/q (sales were down 45%
q/q though up 8% y/y). Force Majeure in most met coal lifted in 3 mines and
remains in place for only 1 mine.
• Steel- WSA outlook: The outlook was prepared before the earthquake in
Japan. China’s 2011 growth was increased to 5% from earlier 3.5% and
for 2012 growth is expected at 5%. NAFTA demand is now estimated at
+10.9% against earlier estimate of 8.7% in 2011, but EU demand growth
has been revised down to 4.9% from 5.7% earlier for 2011. MENA is
expected to remain flat in 2011, but recover in 2012.
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