Macro and Micro - Dual hit for Indian MM equities; Spot steel seeing some movement up ::JPMorgan,

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Everything that can go wrong seems to be going wrong for Indian MM
equities: While the global Macro environment has weakened significantly over
the last two weeks, with worries about economic growth returning (MT down
10% yesterday), Indian MM equities have been hit by a host of issues over the
last month. Demand has been weak for close to a year now across commodities
and has impacted the ability to pass on cost increases (particularly in coal,
which is imported). The MMDR (Mining) bill, which was approved by the
Group of Ministers, has talked about doubling royalty rates across the
board. While the bill is still a long way from becoming law, sentiment has
taken a hit. Then has come the Mining Ban in the Southern India state of
Karnataka, which has hit steel production at JSW (N). The latest regulatory
issue was the Western India State of Goa shutting down some mines due to
pollution issues. Coal production from Coal India remains anemic, pushing
aluminum companies to look at more imports. As a result of all the above
(Micro + Macro), Indian MM equities have declined between 11-25% since the
beginning of July. Until yesterday, they had under performed global peers,
but after yesterday's sell off in Western markets, Indian MM declines are
now in line with the global price correction, though still sharply ahead of
Asian peers (for example POSCO is down 4%, and BAOSTEEL is down 7%
while TATA is down 11% since the beginning of July and STLT/HNDL are
down 15/17% respectively compared to a 11% decline for CHALCO).
Admittedly earnings for commodity equities have little relevance in these
uncertain times, but for a like-for-like comparison (as the JPM coverage
universe would be based on similar pricing and cost assumptions) Indian MM
equities are among the cheapest globally even after yesterday’s global sell-off.
 Steel prices moving up out of China; if Goa problem continues, spot iron
ore could spike up further from here: LME base metals prices have declined
in line with the equity sell-off. Interestingly, steel export prices out of China
have moved up marginally ($10-20/MT) in line with domestic steel price
increases. Spot iron ore has moved up to $188/MT. In our view, if the situation
in Goa worsens from here, in terms of mine closures, then post September, after
the rains, spot iron ore could move up further from here. On the domestic Indian
steel front, we could get more details today on whether the blanket ban imposed
in the Bellary region is likely to continue or some relief is possible. Some steel
production hit is a given as all the mines are unlikely to come back soon, and
domestic iron ore costs are likely to move up from here for the non integrated
steel companies. JSW has already confirmed shutting down two furnaces (one
corex and a BF with total capacity of 1.8MT). We expect domestic steel prices
to move up from current levels given a) domestic production is hit; b) non
integrated mills see cost increases and c) import prices move up slightly.
Seasonally, demand is weak currently, but sequentially should move up and
allow mills to increase prices modestly in our view (3-5%) over the next two
months. This should coincide with lower coking coal costs.
 Base Metals- Anglo highlights significant input cost pressure