Sector Preview Q3FY15 - Metal :: HDFC Securities

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Non Ferrous companies to outperform in Q3FY15
Aluminium companies are expected to report strong volume growth due to ramp up of new capacity at BALCO and higher aluminium volumes on the back of higher
utililisation at Mahan and Aditya in Hindalco. Domestic zinc volumes would increase due to higher mining volumes. Realisations for most of the companies would be
lower on a QoQ level due to the sharp decline in global prices.
Non ferrous metal prices remained subdued QoQ
Non ferrous metal prices during the quarter under review were subdued wherein decline was witnessed in prices of all the four major non ferrous metals namely lead,
zinc, copper and aluminium. During the quarter average price of copper was US$6634/tonne, down 5.2% QoQ and 7.3% YoY; lead was US$2001/tonne, down by 8.2%
QoQ and 5.3% YoY; Zinc was US$ 2236/tonne, down by 3.2% QoQ however up by 17.3% YoY whereas aluminium was US$ 1968/tonne, down by 1.0% QoQ however up
by 11.2% YoY. Depreciating rupee partially negated the fall witnessed in LME prices.
Steel volumes were under pressure
Steel volumes were under pressure due to dumping of material in India and subdued domestic demand. Steel companies are expected to report an increase in finished
steel inventories during the quarter. On the pricing front, most of the steel companies are expected to report a 3‐4% decline in average blended realizations.
Steel demand continues to remain subdued
On the ferrous metal front, steel demand remained subdued with steel consumption growing by merely by 1.3% to 48.62 million tonnes (MT) during the period Apr’14-
Nov’14. Imports increased by 49% to 5.5 MT whereas exports decreased by 5.3% to 3.5 MT, making India net importer of total finished steel in April-November period.
Recent rate cut from RBI will have positive impact on metal companies
The Reserve Bank of India's rate cut by 25 basis points (bps) on 15-Jan-2015 is certainly a positive for India Inc, indicating the direction over the coming months. Metal
companies like Hindalco, Tatasteel will be benefited from low interest rate scenario due to high debt in balance sheet.
Outlook
We expect subdued performance for ferrous companies in Q3FY15.We expect 3-4% softening in realizations especially for long products due to cheap imports. We
expect overall increase in RM costs especially iron ore costs. We expect all major steel players TATA steel, JSW, SAIL, JSPL to report higher iron ore costs due to issues in
local procurement or closure of captive mines. Captive ore mines of SAIL and TATA were closed at Jharkhand/Odisha and they had resort to buying from local players like
NMDC and imports during Q3FY15.
On Non Ferrous front, we expect Hindalco to report better set of numbers given higher rupee denominated aluminum realizations. NALCO is also benefited from the
higher alumina realizations and may post better quarterly result.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010854