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July-11 consumption growth of 2%, YTD FY12 at 1.6%: July-11
consumption growth as reported by JPC stood at 2%, with YTD FY12
consumption growth standing at 1.6%. On a m/m basis, consumption
was flat in July over June. As has been the trend over the last few
months, production growth continues to outstrip consumption with July-
11 at 7%, and YTD FY12 at 8%. Export/Import data was worrying in
July. Over the last few months, India’s exports have increased sharply,
while imports have come down. However, in July imports increased 43%
m/m to 0.6MT while exports declined 16% m/m. In recent months Indian
steel mills have focused on export markets as well as domestic import
substitution for volumes (domestic HRC prices have been at a discount
to imported prices, in order to limit imports). To that extent, we would
focus on the import numbers to see if July momentum is carried forward.
8% m/m production decline positive: Admittedly, while JPC data is
prone to revisions, we are encouraged by the 8% m/m decline in steel
production in July (still up m/m). July is a soft month (both in terms of
demand, due to rains, and production as mills take maintenance
shutdowns). July-11 production of 5.5MT is the second lowest so far
YTDFY12. While company-wise production data is not available, we
would not be surprised if the production impact has been due to iron ore
availability issues in Karnataka and gas availability issues in Western
India. From here, given that there is only a partial solution to the
Iron ore issue (Supreme Court has only allowed NMDC to start
mines), we believe India’s steel production, in the near term (next 2-
4 months) may not see the sharp spike up we had feared from recent
capacity commissioning. Lower domestic production over the next
few months would also coincide with sequential demand recovery
post rains, which in our view could allow mills to raise prices, or at
least reduce discounts to import parity prices. Risk remains a sharp
decline in import HRC prices from China/CIS, where prices as of now
have been broadly stuck in the $10-20/MT band.
Benign base-effect ahead: Similar to cement, steel consumption has a
benign base effect ahead, with the next few months likely to see decent
y/y growth given the low base. Indian steel equities have come off
sharply over the last two weeks, given the global volatility. Domestically
we believe the production impact combined with some demand
improvement, is positive for Indian steel mills for the Sept/March
quarters as cost of production is likely to be positively impacted on lower
coking coal costs. We continue to prefer TATA which benefits from long
product exposure and higher iron ore prices, which flow through
domestic earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
July-11 consumption growth of 2%, YTD FY12 at 1.6%: July-11
consumption growth as reported by JPC stood at 2%, with YTD FY12
consumption growth standing at 1.6%. On a m/m basis, consumption
was flat in July over June. As has been the trend over the last few
months, production growth continues to outstrip consumption with July-
11 at 7%, and YTD FY12 at 8%. Export/Import data was worrying in
July. Over the last few months, India’s exports have increased sharply,
while imports have come down. However, in July imports increased 43%
m/m to 0.6MT while exports declined 16% m/m. In recent months Indian
steel mills have focused on export markets as well as domestic import
substitution for volumes (domestic HRC prices have been at a discount
to imported prices, in order to limit imports). To that extent, we would
focus on the import numbers to see if July momentum is carried forward.
8% m/m production decline positive: Admittedly, while JPC data is
prone to revisions, we are encouraged by the 8% m/m decline in steel
production in July (still up m/m). July is a soft month (both in terms of
demand, due to rains, and production as mills take maintenance
shutdowns). July-11 production of 5.5MT is the second lowest so far
YTDFY12. While company-wise production data is not available, we
would not be surprised if the production impact has been due to iron ore
availability issues in Karnataka and gas availability issues in Western
India. From here, given that there is only a partial solution to the
Iron ore issue (Supreme Court has only allowed NMDC to start
mines), we believe India’s steel production, in the near term (next 2-
4 months) may not see the sharp spike up we had feared from recent
capacity commissioning. Lower domestic production over the next
few months would also coincide with sequential demand recovery
post rains, which in our view could allow mills to raise prices, or at
least reduce discounts to import parity prices. Risk remains a sharp
decline in import HRC prices from China/CIS, where prices as of now
have been broadly stuck in the $10-20/MT band.
Benign base-effect ahead: Similar to cement, steel consumption has a
benign base effect ahead, with the next few months likely to see decent
y/y growth given the low base. Indian steel equities have come off
sharply over the last two weeks, given the global volatility. Domestically
we believe the production impact combined with some demand
improvement, is positive for Indian steel mills for the Sept/March
quarters as cost of production is likely to be positively impacted on lower
coking coal costs. We continue to prefer TATA which benefits from long
product exposure and higher iron ore prices, which flow through
domestic earnings.
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