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Surge in European steel prices driven by restocking: European steel prices rose
by ~US$69/t (YTD CY12), attributed primarily to restocking, firm global prices
and unreasonable fall in prices during Q4CY11. However, real demand continues
to remain subdued. Based on Eurofer (European steel association), real steel
consumption fell by ~0.4% YoY in Q4CY11, while apparent consumption saw a
sharper fall at ~4% YoY, owing to accelerated destocking. The association
expects continued weakness in real consumption in the next 2-3 quarters, given
the dearth of new orders and tepid investment climate. The region also runs a
risk of peaked-out net exports of ~1.5m tonnes, highest in the past seven years.
We remain highly cautious on European steel prices, given the sluggish domestic
demand outlook and high dependence on volatile exports market.
China witnessing protracted demand slowdown: Demand environment
continues to remain challenging in China on the backdrop of 1) tight liquidity
gauged by lowest ever growth in money supply (MS) in the past 10 years during
the month of January @ 12% YoY 2) weak demand across the major consuming
sectors during December; vehicle sales (down 26% YoY), real estate (down 22-
23%) and machinery (down 8%) and 3) sharp deceleration in Fixed asset
investment (flat YoY in December), the major driver of China’s steel demand.
We expect short-term recovery in demand and prices from the current trough
levels on the back of liquidity easing. However, we don’t expect rally in prices to
sustain for long given elevated stock levels and weak demand outlook.
US, the only bright spot: Thanks to strong liquidity (MS↑10%), accelerated
expansion in investment (Gross private investment↑10%) and consumer
demand, US apparent consumption grew by 8% in January to 8.8m tonnes;
almost near its pre-crisis levels. We expect demand to remain firm in the coming
months as suggested by all leading indicators. However, the wide price
differential between US and other regional prices would pose a major or the
only risk to the domestic prices in the near term.
Reiterate Accumulate on Tata; downgrade JSPL to Reduce: We remain positive
on Tata given the underlying distress valuations of European operations
(EV/tonne of US$200), strong domestic operations and increased raw material
self-sufficiency. We downgrade JSPL from ‘BUY’ to ‘Reduce’ on account of
expensive valuations. JSTL remains our least preferred stock in the space,
backed by underlying risk associated with shortage of iron ore and expensive
valuations given the abnormal exposure to acceptances. Maintain ‘Reduce’ on
SAIL given the expensive valuations and below average project execution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Surge in European steel prices driven by restocking: European steel prices rose
by ~US$69/t (YTD CY12), attributed primarily to restocking, firm global prices
and unreasonable fall in prices during Q4CY11. However, real demand continues
to remain subdued. Based on Eurofer (European steel association), real steel
consumption fell by ~0.4% YoY in Q4CY11, while apparent consumption saw a
sharper fall at ~4% YoY, owing to accelerated destocking. The association
expects continued weakness in real consumption in the next 2-3 quarters, given
the dearth of new orders and tepid investment climate. The region also runs a
risk of peaked-out net exports of ~1.5m tonnes, highest in the past seven years.
We remain highly cautious on European steel prices, given the sluggish domestic
demand outlook and high dependence on volatile exports market.
China witnessing protracted demand slowdown: Demand environment
continues to remain challenging in China on the backdrop of 1) tight liquidity
gauged by lowest ever growth in money supply (MS) in the past 10 years during
the month of January @ 12% YoY 2) weak demand across the major consuming
sectors during December; vehicle sales (down 26% YoY), real estate (down 22-
23%) and machinery (down 8%) and 3) sharp deceleration in Fixed asset
investment (flat YoY in December), the major driver of China’s steel demand.
We expect short-term recovery in demand and prices from the current trough
levels on the back of liquidity easing. However, we don’t expect rally in prices to
sustain for long given elevated stock levels and weak demand outlook.
US, the only bright spot: Thanks to strong liquidity (MS↑10%), accelerated
expansion in investment (Gross private investment↑10%) and consumer
demand, US apparent consumption grew by 8% in January to 8.8m tonnes;
almost near its pre-crisis levels. We expect demand to remain firm in the coming
months as suggested by all leading indicators. However, the wide price
differential between US and other regional prices would pose a major or the
only risk to the domestic prices in the near term.
Reiterate Accumulate on Tata; downgrade JSPL to Reduce: We remain positive
on Tata given the underlying distress valuations of European operations
(EV/tonne of US$200), strong domestic operations and increased raw material
self-sufficiency. We downgrade JSPL from ‘BUY’ to ‘Reduce’ on account of
expensive valuations. JSTL remains our least preferred stock in the space,
backed by underlying risk associated with shortage of iron ore and expensive
valuations given the abnormal exposure to acceptances. Maintain ‘Reduce’ on
SAIL given the expensive valuations and below average project execution.
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