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India Equity Research Reports, IPO and Stock News
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Indian mills increase HRC/CRC prices by 3-4% for October: While the
Sept price increases were broadly not successful given weak demand and
inventory overhang, we believe some of the October steel price increases should
go through mainly on supply issues (both domestic and imports). While the
entire hike of Rs1500/MT is unlikely to go through, we believe some part of
it (at least half) should go through given the sharp discount to import prices
and more importantly domestic supply issues given iron ore availability/costs in
Karnataka has been impacted. We have no clarity as to when normalized
production can start in Karnataka, as the matter is in the courts.
Iron ore equities fall on fears of sharp decline in spot iron ore prices, which
have yet to take place: Pure play iron ore equities like FMG AU have fallen
17% in the last 5 days, while derived iron ore equities like the Indian steel
equities , TATA has fallen 8% on fears of spot iron ore correcting sharply from
here. So far spot iron ore have fallen to $179/MT level from peak level of
$190/MT a month back. While our conversations with investors indicate a fear
of collapse in Chinese iron ore demand , we would highlight the lowest traded
spot iron ore prices have fallen to $171/MT in 2011 and the lowest in the
last 12 months was $160/MT. Indian supply in the export market has come
off sharply, and from here the post monsoon ramp up from Goa remains
difficult to predict. Port inventories in China remained flat at ~94MT.
Base metals- Why it is not 2008: JPM Global metals analyst in his metals
update ('Deja vu, all over again? Definately not.' dated 2nd October, 2011)
highlights the key reason why the current situation seperates now from 2008 is
‘is that the level of excess inventory of raw materials, intermediate products
and finished products by the consumer sector is markedly lower now that
when the economy tipped off the cliff mid-2008’. Michael also highlights that
‘Capital allocated to the commodity markets and commodity infrastructure is
expected to remain flush, allowing (with negative real rates and generally
restrictive outflow requirements for metal on the LME) plenty of scope for
excess tonnage to be soaked up into the LME warehousing system. This –
especially for aluminium (and zinc in the future) – also helps to insulate stock
(and additions to stock) from the price’.
Coal price update: JPM Global coal team has tweaked coking coal prices
modestly down for 2012E and expect met coal prices to average $264/MT in
2012E and thermal coal prices to average $124/MT v/s $127 earlier. However,
with the global economy slowing down, the coal team highlights ‘met coal
prices need more Australian floods to avoid a bigger pullback’.
New Mines bill in India: costs to go up across the chain: While the timelines
are still not very clear as to the final law, we believe costs are likely to increase
across the chain. For base metal and steel companies under the proposed bill,
there is likely to be a straight doubling of royalty payments, whose pass through
is a function of global commodity prices (unless the import duties are also
increased marginally which can help these companies given the import parity
pricing model). For coal companies, any pass through would essentially mean an
increase in cost for aluminum and power companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian mills increase HRC/CRC prices by 3-4% for October: While the
Sept price increases were broadly not successful given weak demand and
inventory overhang, we believe some of the October steel price increases should
go through mainly on supply issues (both domestic and imports). While the
entire hike of Rs1500/MT is unlikely to go through, we believe some part of
it (at least half) should go through given the sharp discount to import prices
and more importantly domestic supply issues given iron ore availability/costs in
Karnataka has been impacted. We have no clarity as to when normalized
production can start in Karnataka, as the matter is in the courts.
Iron ore equities fall on fears of sharp decline in spot iron ore prices, which
have yet to take place: Pure play iron ore equities like FMG AU have fallen
17% in the last 5 days, while derived iron ore equities like the Indian steel
equities , TATA has fallen 8% on fears of spot iron ore correcting sharply from
here. So far spot iron ore have fallen to $179/MT level from peak level of
$190/MT a month back. While our conversations with investors indicate a fear
of collapse in Chinese iron ore demand , we would highlight the lowest traded
spot iron ore prices have fallen to $171/MT in 2011 and the lowest in the
last 12 months was $160/MT. Indian supply in the export market has come
off sharply, and from here the post monsoon ramp up from Goa remains
difficult to predict. Port inventories in China remained flat at ~94MT.
Base metals- Why it is not 2008: JPM Global metals analyst in his metals
update ('Deja vu, all over again? Definately not.' dated 2nd October, 2011)
highlights the key reason why the current situation seperates now from 2008 is
‘is that the level of excess inventory of raw materials, intermediate products
and finished products by the consumer sector is markedly lower now that
when the economy tipped off the cliff mid-2008’. Michael also highlights that
‘Capital allocated to the commodity markets and commodity infrastructure is
expected to remain flush, allowing (with negative real rates and generally
restrictive outflow requirements for metal on the LME) plenty of scope for
excess tonnage to be soaked up into the LME warehousing system. This –
especially for aluminium (and zinc in the future) – also helps to insulate stock
(and additions to stock) from the price’.
Coal price update: JPM Global coal team has tweaked coking coal prices
modestly down for 2012E and expect met coal prices to average $264/MT in
2012E and thermal coal prices to average $124/MT v/s $127 earlier. However,
with the global economy slowing down, the coal team highlights ‘met coal
prices need more Australian floods to avoid a bigger pullback’.
New Mines bill in India: costs to go up across the chain: While the timelines
are still not very clear as to the final law, we believe costs are likely to increase
across the chain. For base metal and steel companies under the proposed bill,
there is likely to be a straight doubling of royalty payments, whose pass through
is a function of global commodity prices (unless the import duties are also
increased marginally which can help these companies given the import parity
pricing model). For coal companies, any pass through would essentially mean an
increase in cost for aluminum and power companies.
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