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India Coal situation update: Recent results reported so far highlight the
increasingly stressed situation regarding coal. JPM Utilities analyst Shilpa
Krishnan in her update on JSW Energy highlights ‘The cash cow Vijaynagar
plants are facing back-downs due to high tariffs’ and recently downgraded
the company to UW given the problem of India’s financially weak distcoms
restricting purchases from expensive generator (click here for the report).
Sterlite Industries (STLT) in its conference call update also mentioned the
‘challenging power sales environment' and reported significant CoP
increase in both aluminum and power driven by higher coal costs. Given
that we have not really seen any material increase in coal production from
COAL so far, and with Distcoms restricting purchases, increasing imports is not
a profitable solution, in our view, and while H1CY11 total coal imports have
increased by 40% y/y, we struggle to see imported thermal coal imports
continuing to increase in an environment where the end buyer is backing down.
The situation also raises the question as to whether COAL India would be
allowed to increase prices post the wage hike (Bloomberg quoted the Chairman
as saying they would possibly look at price hikes after the wage hikes have been
decided).
Steel earnings update: JSW Steel in its results confirmed our thesis that long
product profitability and prices have been better than flat products. Given that a
large part of long steel production in India is DRI based, the sharp increase in
iron ore and thermal coal has created pressure on DRI prices, which have flowed
through higher long product prices. Admittedly long product prices in India
are more volatile than flat products, however, we see long product prices on
average faring better than flat product prices over the next few quarters in
India even as demand across both segments remains weak given a) overcapacity
in flats; b) higher thermal coal prices; c) globally scrap prices
should start moving up over the next few months given that scrap trade
could likely change (Click here for the report). MT in its conference call
commented that ‘Steel prices supported by low inventory, shrinking global steel
price differentials and raw material cost; 2) steel demand from construction
stabilizing at low level with signs of improvement in Northern Europe (Click
here for the report).
Coking coal update: The metals press (SBB, MB, Bloomberg) has reported that
New World Resources (Europe based coking coal producer) has signed Q3
coking coal contracts a $275/MT, which implies a discount of 9% from Q2
(June quarter) levels. JPM Q3CY11E forecast is $260/MT. JPM Mining analyst
Amos Fletcher in his production update on Xstrata highlights ‘coal production
fell 13% YoY and 18% QoQ which is surprising in light of BHP and RIO’s
performance (+19% and 9% QoQ respectively) and was explained by longwall
moves at all the principal coking mines during Q2. Australian thermal
production continued to rise, albeit at a slower rate than in Q1, up 2% YoY and
1% QoQ’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Coal situation update: Recent results reported so far highlight the
increasingly stressed situation regarding coal. JPM Utilities analyst Shilpa
Krishnan in her update on JSW Energy highlights ‘The cash cow Vijaynagar
plants are facing back-downs due to high tariffs’ and recently downgraded
the company to UW given the problem of India’s financially weak distcoms
restricting purchases from expensive generator (click here for the report).
Sterlite Industries (STLT) in its conference call update also mentioned the
‘challenging power sales environment' and reported significant CoP
increase in both aluminum and power driven by higher coal costs. Given
that we have not really seen any material increase in coal production from
COAL so far, and with Distcoms restricting purchases, increasing imports is not
a profitable solution, in our view, and while H1CY11 total coal imports have
increased by 40% y/y, we struggle to see imported thermal coal imports
continuing to increase in an environment where the end buyer is backing down.
The situation also raises the question as to whether COAL India would be
allowed to increase prices post the wage hike (Bloomberg quoted the Chairman
as saying they would possibly look at price hikes after the wage hikes have been
decided).
Steel earnings update: JSW Steel in its results confirmed our thesis that long
product profitability and prices have been better than flat products. Given that a
large part of long steel production in India is DRI based, the sharp increase in
iron ore and thermal coal has created pressure on DRI prices, which have flowed
through higher long product prices. Admittedly long product prices in India
are more volatile than flat products, however, we see long product prices on
average faring better than flat product prices over the next few quarters in
India even as demand across both segments remains weak given a) overcapacity
in flats; b) higher thermal coal prices; c) globally scrap prices
should start moving up over the next few months given that scrap trade
could likely change (Click here for the report). MT in its conference call
commented that ‘Steel prices supported by low inventory, shrinking global steel
price differentials and raw material cost; 2) steel demand from construction
stabilizing at low level with signs of improvement in Northern Europe (Click
here for the report).
Coking coal update: The metals press (SBB, MB, Bloomberg) has reported that
New World Resources (Europe based coking coal producer) has signed Q3
coking coal contracts a $275/MT, which implies a discount of 9% from Q2
(June quarter) levels. JPM Q3CY11E forecast is $260/MT. JPM Mining analyst
Amos Fletcher in his production update on Xstrata highlights ‘coal production
fell 13% YoY and 18% QoQ which is surprising in light of BHP and RIO’s
performance (+19% and 9% QoQ respectively) and was explained by longwall
moves at all the principal coking mines during Q2. Australian thermal
production continued to rise, albeit at a slower rate than in Q1, up 2% YoY and
1% QoQ’.
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