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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Iron ore- Physical demand moving up: While commodity linked equities
continue to fall, physical demand from China for iron ore has again picked
up pushing spot iron ore prices above $185/MT. JPM Shipping analyst
Corring Png, in her weekly update, highlights 30 Capesize were chartered in
the spot market (+30% w/w), while average daily earnings for Capesize rose
36% w/w, with Chinese demand for iron ore driving 77% of the Capesizes
chartered. JPM Global metals analyst Michael Jansen highlights that 'while
there is normally a solid seasonal stock build in the LME in many metals in
H2 we could be seeing a flatter build this year or no build at all given that
physical demand is going to be unseasonably strong in Q3 courtesy of the
dump in LME prices over the past few weeks’. Additionally on support for
LME metal prices, Michael highlights-‘In copper for instance the price
action shows clearly that the $8500 area is very good medium term support
and dips towards this level have led to both an open import window into
China and additional spot tonnage $2300 provides good support for
aluminum, $2200 in lead and $2000-$2050 in zinc’.
Steel prices- List prices see marginal move up: China Steel announced
modest price increases (1%) for Oct and Nov. JPM UK Steel analyst
Alessandro Abate highlights that ex China steel prices are back on the
upward trend after the announcement by US companies ( +$60/t, even
though +$30-40/t are more likely to stick, in our view), supported by low
inventory and recent increase of Chinese HRC steel prices’. Metals media
(SBB) have indicated Hard Coking coal contracts at $285/MT for the OctDec quarter, down from $315/MT for the Sept quarter. These prices are
lower than JPM forecast of $300/MT for the Dec quarter. JPM BHP analyst
Amos Fletcher in his results update highlighted that Met Coal volumes are
still impaired and guidance remains for that to continue until the calendar
year ends. Continued elevated spot iron ore and coking coal prices
indicates that at least in the next three months, steel prices have very
little downside from current levels.
India- Domestic steel price discount to imports widens on INR
depreciation: As per our estimates domestic HRC prices at Rs34.5K/t are at
6% discount to landed import prices. While import FOB prices have not
moved up, INR depreciation has helped. Post today’s Supreme Court ruling
on Karnataka iron ore mining issue, which would give some clarity on
availability and cost structure for ~20% of India's steel production, we
expect some more modest steel price movement up (1-2%).
India Iron ore: Important ruling today: The Supreme Court is to hear the
issue of whether mining needs to be banned in the Chitradurga and Tumkur
areas of Karnataka (which in our view is ~20% to 45MT annual production
out of Karnataka). Mining is already shut down in the biggest belt of Bellary
(other than NMDC mines). While exports out of Karnataka have been
banned for more than a year now and hence any further stopping of mining
activities would not have any direct impact on iron ore exports, the cost
curve for JSW Steel could materially increase if the company has to source
iron ore from other states (though the CEC report mentions that 25MT of
inventory should be supplied to steel companies).
India Regulatory risk update: Now it is the state pollution control boards:
India’s mining sector has seen a spate of regulatory intervention across multiple
levels. Recently the Jharkhand State Pollution Control Board ordered the closure of
some of Coal India's mines. The company has confirmed that as of now the mines are
still operational. Recently the Goa State Pollution Control Board had asked some
iron ore mines to shut down. The regulatory uncertainty has hit multi billion dollar
capex programs, including some projects which are already on their way of
commissioning.
BHP Update: Mining inflation: JPM UK mining analyst Amos Fletcher in his
update on BHP highlights -the company estimated total cost inflation ex-CPI and FX
of 4.9% and highlighted that ‘further increases are coming’. Inflation rates on the
same basis peaked at 9% in FY09. Of the total controllable cost variance seen YoY,
BHP estimates c.55% is structural, the bulk of which was in labour costs. Hence, the
recent move to acquire its iron ore contractors (who moved c.80% of volumes in the
Pilbara) to insulate itself against further inflation’.
Commodity Global views, Bull and Bear Portfolios: JPM Global commodity
analyst Colin Fenton in his update (Commodity Phase Shift: Surfing the seas of
commodity volatility) highlights- Investment seas characterized by strong cross
currents on growth and inflation, and uncertain economic and policy oriented winds,
are difficult waters to navigate. To manage the stomach churning volatility through
what we believe will be tempestuous but short-lived (4-to-6 months) squalls, on
August 8 we introduced the idea of structuring commodity investment risk across two
commodity portfolios. The first portfolio is comprised of long or overweight
commodity positions geared toward Asia, capex, and inflation. The component
commodities of “Bull” are ICE Brent crude oil, ICE gasoil, CMX gold, ICE RAW
sugar, LME copper, CBT corn, and MGE wheat (Cover exhibit). The second book
is comprised of short or underweight commodity positions geared toward the US,
consumption, and disinflation. The component commodities of “Bear” are NYM
WTI crude oil, NYM RBOB gasoline, LME aluminum, LME zinc, and NYM
natural gas. Each of the books is equal weighted on a dollar basis at inception, as
are the two books against each other. So far, results have been favorable.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Iron ore- Physical demand moving up: While commodity linked equities
continue to fall, physical demand from China for iron ore has again picked
up pushing spot iron ore prices above $185/MT. JPM Shipping analyst
Corring Png, in her weekly update, highlights 30 Capesize were chartered in
the spot market (+30% w/w), while average daily earnings for Capesize rose
36% w/w, with Chinese demand for iron ore driving 77% of the Capesizes
chartered. JPM Global metals analyst Michael Jansen highlights that 'while
there is normally a solid seasonal stock build in the LME in many metals in
H2 we could be seeing a flatter build this year or no build at all given that
physical demand is going to be unseasonably strong in Q3 courtesy of the
dump in LME prices over the past few weeks’. Additionally on support for
LME metal prices, Michael highlights-‘In copper for instance the price
action shows clearly that the $8500 area is very good medium term support
and dips towards this level have led to both an open import window into
China and additional spot tonnage $2300 provides good support for
aluminum, $2200 in lead and $2000-$2050 in zinc’.
Steel prices- List prices see marginal move up: China Steel announced
modest price increases (1%) for Oct and Nov. JPM UK Steel analyst
Alessandro Abate highlights that ex China steel prices are back on the
upward trend after the announcement by US companies ( +$60/t, even
though +$30-40/t are more likely to stick, in our view), supported by low
inventory and recent increase of Chinese HRC steel prices’. Metals media
(SBB) have indicated Hard Coking coal contracts at $285/MT for the OctDec quarter, down from $315/MT for the Sept quarter. These prices are
lower than JPM forecast of $300/MT for the Dec quarter. JPM BHP analyst
Amos Fletcher in his results update highlighted that Met Coal volumes are
still impaired and guidance remains for that to continue until the calendar
year ends. Continued elevated spot iron ore and coking coal prices
indicates that at least in the next three months, steel prices have very
little downside from current levels.
India- Domestic steel price discount to imports widens on INR
depreciation: As per our estimates domestic HRC prices at Rs34.5K/t are at
6% discount to landed import prices. While import FOB prices have not
moved up, INR depreciation has helped. Post today’s Supreme Court ruling
on Karnataka iron ore mining issue, which would give some clarity on
availability and cost structure for ~20% of India's steel production, we
expect some more modest steel price movement up (1-2%).
India Iron ore: Important ruling today: The Supreme Court is to hear the
issue of whether mining needs to be banned in the Chitradurga and Tumkur
areas of Karnataka (which in our view is ~20% to 45MT annual production
out of Karnataka). Mining is already shut down in the biggest belt of Bellary
(other than NMDC mines). While exports out of Karnataka have been
banned for more than a year now and hence any further stopping of mining
activities would not have any direct impact on iron ore exports, the cost
curve for JSW Steel could materially increase if the company has to source
iron ore from other states (though the CEC report mentions that 25MT of
inventory should be supplied to steel companies).
India Regulatory risk update: Now it is the state pollution control boards:
India’s mining sector has seen a spate of regulatory intervention across multiple
levels. Recently the Jharkhand State Pollution Control Board ordered the closure of
some of Coal India's mines. The company has confirmed that as of now the mines are
still operational. Recently the Goa State Pollution Control Board had asked some
iron ore mines to shut down. The regulatory uncertainty has hit multi billion dollar
capex programs, including some projects which are already on their way of
commissioning.
BHP Update: Mining inflation: JPM UK mining analyst Amos Fletcher in his
update on BHP highlights -the company estimated total cost inflation ex-CPI and FX
of 4.9% and highlighted that ‘further increases are coming’. Inflation rates on the
same basis peaked at 9% in FY09. Of the total controllable cost variance seen YoY,
BHP estimates c.55% is structural, the bulk of which was in labour costs. Hence, the
recent move to acquire its iron ore contractors (who moved c.80% of volumes in the
Pilbara) to insulate itself against further inflation’.
Commodity Global views, Bull and Bear Portfolios: JPM Global commodity
analyst Colin Fenton in his update (Commodity Phase Shift: Surfing the seas of
commodity volatility) highlights- Investment seas characterized by strong cross
currents on growth and inflation, and uncertain economic and policy oriented winds,
are difficult waters to navigate. To manage the stomach churning volatility through
what we believe will be tempestuous but short-lived (4-to-6 months) squalls, on
August 8 we introduced the idea of structuring commodity investment risk across two
commodity portfolios. The first portfolio is comprised of long or overweight
commodity positions geared toward Asia, capex, and inflation. The component
commodities of “Bull” are ICE Brent crude oil, ICE gasoil, CMX gold, ICE RAW
sugar, LME copper, CBT corn, and MGE wheat (Cover exhibit). The second book
is comprised of short or underweight commodity positions geared toward the US,
consumption, and disinflation. The component commodities of “Bear” are NYM
WTI crude oil, NYM RBOB gasoline, LME aluminum, LME zinc, and NYM
natural gas. Each of the books is equal weighted on a dollar basis at inception, as
are the two books against each other. So far, results have been favorable.
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