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Steel prices remain pressured
„ Asia steel prices continue to soften, but lower PCI price to help marginally
Baosteel cut July prices by US$15-30/t, mostly for high-quality products with HRC at
US$772 (-3.9%). This follows Korea mills giving US$45-55/t discounts (HRC
US$860-870/t). Exports are no better with Korea mills quoting HRC at US$720-730
FOB for Asia, while China Steel (CSC) is offering CRC at US$830/t as demand from
China and Japan weaken. Nevertheless, the July-September contract for PCI is down
US$45/t or 16% to US$230/t FOB, more than hard coking coal (-US$15/t), which
should marginally help mills’ profits.
„ China May trade softens: Crude output also slightly down but still high
China net steel export slowed -4.2% YoY/-0.9% MoM days adjusted to 3.45mt in May.
YTD net export is at 13mt, in line with our expectation. CISA reported the May crude
output is down 1% MoM but still high at 1.95mt/day or c712mt annualised. We expect
the output to slow given maintenance and power shortage. We raised our China
2011/12 crude steel output forecast from 661/690mt to 686/716mt on 26 May.
„ Key issues to watch: More price cuts but will input cost also fall?
We expect Angang and Wuhan to follow Baosteel's lead and cut some of their July
prices. However, according to TEX Report, the semi soft coal price is also likely to drop
similar to PCI given a softer demand-supply balance. We believe steel-making cost
could drop by US$15-25/t for July-September contracts if: 1) iron ore prices stay near
flat; 2) hard coking coal falls US$15/t to US$315/t; and 3) semi declines similar to PCI.
„ Value emerging but lacks catalysts. Stick to defensives
We prefer Baosteel, China Metal Recycling (CMR), Sanyo Special, Dongkuk Steel
(DSM), Tata Steel and CSC. We see limited downside to POSCO at current value. Our
least preferred names are Angang, SAIL, and Kobe Steel.
India
Q What happened and what it means:
Most mills raised HRC prices by US$11/t or 1% MoM to US$806/t given higher
input costs. However, we will have to see whether the price hikes can stick. The
slowdown in auto demand and weaker construction demand from the start of
monsoon could be a hindrance for the steel price hike to be maintained. Other
flat steel, such as CRC and galvanized steel were kept unchanged at US$948 and
US$988/t, respectively
Q4 consolidated PAT of Rs41.8bn (+316% QoQ, +71.5% YoY) was largely
driven by Rs27.5bn in one-off gains (Rs25bn gain from sale of TCP, Rs6bn oneoff income in Corus, Rs1.3bn of wage provision in Indian business). Pre-ex PAT
at Rs16.7bn (+111% QoQ, -37% YoY) was lower than our estimate of Rs18bn
(consensus estimate Rs15.8bn) driven by lower-than-expected EBITDA at
Rs36bn (UBS-e Rs40bn). This was largely due to lower-than-expected EBITDA
in Indian operations at Rs31bn (UBS-e Rs34bn). Standalone steel business
EBITDA/t of US$402/t was lower than our estimate (US$440/t) due to higherthan-expected raw material costs and a lower-than-expected ASP increase (+8%
QoQ to US$986/t). Corus EBITDA/t at US$53/t (after adjusting US$133m in
one-offs) was in line with estimates. High cost coking coal contract (US$330/t)
will impact the September quarter earnings for Tata Steel and not those of the
April-June quarter. Net debt is cUS$10.5bn as at March 2011.
Q Our stock view:
Our top pick remains Tata Steel with limited downside to valuation as it is
trading at 5.1x FY13 EV/EBITDA and 6x PE. We also reiterate our Buy rating
on JSW and Neutral rating on SAIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steel prices remain pressured
„ Asia steel prices continue to soften, but lower PCI price to help marginally
Baosteel cut July prices by US$15-30/t, mostly for high-quality products with HRC at
US$772 (-3.9%). This follows Korea mills giving US$45-55/t discounts (HRC
US$860-870/t). Exports are no better with Korea mills quoting HRC at US$720-730
FOB for Asia, while China Steel (CSC) is offering CRC at US$830/t as demand from
China and Japan weaken. Nevertheless, the July-September contract for PCI is down
US$45/t or 16% to US$230/t FOB, more than hard coking coal (-US$15/t), which
should marginally help mills’ profits.
„ China May trade softens: Crude output also slightly down but still high
China net steel export slowed -4.2% YoY/-0.9% MoM days adjusted to 3.45mt in May.
YTD net export is at 13mt, in line with our expectation. CISA reported the May crude
output is down 1% MoM but still high at 1.95mt/day or c712mt annualised. We expect
the output to slow given maintenance and power shortage. We raised our China
2011/12 crude steel output forecast from 661/690mt to 686/716mt on 26 May.
„ Key issues to watch: More price cuts but will input cost also fall?
We expect Angang and Wuhan to follow Baosteel's lead and cut some of their July
prices. However, according to TEX Report, the semi soft coal price is also likely to drop
similar to PCI given a softer demand-supply balance. We believe steel-making cost
could drop by US$15-25/t for July-September contracts if: 1) iron ore prices stay near
flat; 2) hard coking coal falls US$15/t to US$315/t; and 3) semi declines similar to PCI.
„ Value emerging but lacks catalysts. Stick to defensives
We prefer Baosteel, China Metal Recycling (CMR), Sanyo Special, Dongkuk Steel
(DSM), Tata Steel and CSC. We see limited downside to POSCO at current value. Our
least preferred names are Angang, SAIL, and Kobe Steel.
India
Q What happened and what it means:
Most mills raised HRC prices by US$11/t or 1% MoM to US$806/t given higher
input costs. However, we will have to see whether the price hikes can stick. The
slowdown in auto demand and weaker construction demand from the start of
monsoon could be a hindrance for the steel price hike to be maintained. Other
flat steel, such as CRC and galvanized steel were kept unchanged at US$948 and
US$988/t, respectively
Q4 consolidated PAT of Rs41.8bn (+316% QoQ, +71.5% YoY) was largely
driven by Rs27.5bn in one-off gains (Rs25bn gain from sale of TCP, Rs6bn oneoff income in Corus, Rs1.3bn of wage provision in Indian business). Pre-ex PAT
at Rs16.7bn (+111% QoQ, -37% YoY) was lower than our estimate of Rs18bn
(consensus estimate Rs15.8bn) driven by lower-than-expected EBITDA at
Rs36bn (UBS-e Rs40bn). This was largely due to lower-than-expected EBITDA
in Indian operations at Rs31bn (UBS-e Rs34bn). Standalone steel business
EBITDA/t of US$402/t was lower than our estimate (US$440/t) due to higherthan-expected raw material costs and a lower-than-expected ASP increase (+8%
QoQ to US$986/t). Corus EBITDA/t at US$53/t (after adjusting US$133m in
one-offs) was in line with estimates. High cost coking coal contract (US$330/t)
will impact the September quarter earnings for Tata Steel and not those of the
April-June quarter. Net debt is cUS$10.5bn as at March 2011.
Q Our stock view:
Our top pick remains Tata Steel with limited downside to valuation as it is
trading at 5.1x FY13 EV/EBITDA and 6x PE. We also reiterate our Buy rating
on JSW and Neutral rating on SAIL.
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