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China steel outlook: medium term
drivers of demand and margins
Feature article
A two speed market has developed in China’s steel industry with construction
steels enjoying solid margins while flat products suffer at break even levels.
Here we look at the medium term drivers for steel demand and compare to
our estimates of new capacity additions. We find that demand for flat products
should exceed new capacity additions over the next 2-3 years, leading to
improved utilisation rates and margins.
Latest news
Base metals held up reasonably well in Wednesday trading against the
backdrop of poor economic data from China and the US, a poor lead following
the FOMC late yesterday and the sharp moves in crude oil and currencies.
The HSBC Flash PMI for China for June showed a fall from 51.1 to 50.1. A
fall was expected in the month, although the decline by 1ppt is not overly
material. The flash Eurozone manufacturing PMI recorded a sharper fall,
albeit from a higher level, from 54.6 to 52, with both the German and French
indices falling to the lowest levels in ~18 months.
Platts has reported that the BHP Mitsubishi alliance has lifted its force
majeure on coking coal supplies, although this has yet to be confirmed by
either party. As reported in the commodities comment on 21 June, it still
appears that BMA are well below previous production rates given a slow
recovery in shipments from Hay point.
Sinosteel has announced it has put its 15mtpa Weld Range development on
hold, citing uncertainty about the Oakajee Port and Rail project. Weld Range
was to be a foundation customer for the Oakajee project supporting financing,
but this project is now unlikely to be developed on the current timeline.
US law firm Hagens Berman, which specialises in class-action lawsuits, has
announced that it is investigating potential claims against the owners of LME
warehouses, including Glencore (Pacorini), Goldman Sachs (Metro) and
JPMorgan Chase (Henry Bath), in response to reports that companies are
limiting the amount of metal released to customers and investors, with the
potential result of artificially inflating prices (including premiums). The LME's
board recently accepted recommendations that it should increase the
minimum load out rate from warehouse locations when the total stocks of
metal held rises above specified thresholds. The new load rates will take
effect from April 2012. However, as we have said in previously published
comments, these changes will in our opinion make very little practical
difference to the market; over two-thirds of all metal held in LME warehouse
locations around the world will be entirely unaffected and the "one size fits all"
load out rates. To be clear Hagens Berman has not said it intends to launch
any formal proceedings but in the event that load out rates from LME
warehouse locations were required to be raised substantially, physical
premiums (notably in the N. America market) and eventually exchange prices
would probably come under heavy downward pressure, especially for
aluminium and zinc.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China steel outlook: medium term
drivers of demand and margins
Feature article
A two speed market has developed in China’s steel industry with construction
steels enjoying solid margins while flat products suffer at break even levels.
Here we look at the medium term drivers for steel demand and compare to
our estimates of new capacity additions. We find that demand for flat products
should exceed new capacity additions over the next 2-3 years, leading to
improved utilisation rates and margins.
Latest news
Base metals held up reasonably well in Wednesday trading against the
backdrop of poor economic data from China and the US, a poor lead following
the FOMC late yesterday and the sharp moves in crude oil and currencies.
The HSBC Flash PMI for China for June showed a fall from 51.1 to 50.1. A
fall was expected in the month, although the decline by 1ppt is not overly
material. The flash Eurozone manufacturing PMI recorded a sharper fall,
albeit from a higher level, from 54.6 to 52, with both the German and French
indices falling to the lowest levels in ~18 months.
Platts has reported that the BHP Mitsubishi alliance has lifted its force
majeure on coking coal supplies, although this has yet to be confirmed by
either party. As reported in the commodities comment on 21 June, it still
appears that BMA are well below previous production rates given a slow
recovery in shipments from Hay point.
Sinosteel has announced it has put its 15mtpa Weld Range development on
hold, citing uncertainty about the Oakajee Port and Rail project. Weld Range
was to be a foundation customer for the Oakajee project supporting financing,
but this project is now unlikely to be developed on the current timeline.
US law firm Hagens Berman, which specialises in class-action lawsuits, has
announced that it is investigating potential claims against the owners of LME
warehouses, including Glencore (Pacorini), Goldman Sachs (Metro) and
JPMorgan Chase (Henry Bath), in response to reports that companies are
limiting the amount of metal released to customers and investors, with the
potential result of artificially inflating prices (including premiums). The LME's
board recently accepted recommendations that it should increase the
minimum load out rate from warehouse locations when the total stocks of
metal held rises above specified thresholds. The new load rates will take
effect from April 2012. However, as we have said in previously published
comments, these changes will in our opinion make very little practical
difference to the market; over two-thirds of all metal held in LME warehouse
locations around the world will be entirely unaffected and the "one size fits all"
load out rates. To be clear Hagens Berman has not said it intends to launch
any formal proceedings but in the event that load out rates from LME
warehouse locations were required to be raised substantially, physical
premiums (notably in the N. America market) and eventually exchange prices
would probably come under heavy downward pressure, especially for
aluminium and zinc.
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