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India Equity Research Reports, IPO and Stock News
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11% INR depreciation v/s 11% Aluminum/15% zinc price decline and 1%
USD steel price increase since July: While commodity prices remain under
pressure (and would likely be so given macro uncertainity), the equally sharp
INR depreciation has on paper minimized the impact for Indian commodity
companies so far. The INR depreciation would have a translation and balance
sheet impact given that many Indian metal companies (TATA, HNDL) have
USD P&Ls given their overseas subsidiaries as well as USD debt (mostly at the
overseas subs). However, INR impact is more on paper as of now, as
domestic demand remains very weak. Indian steel prices are at 10%
discount to imported prices, but demand is so weak that mills are not able
to raise prices. Indian DRI prices are down 8% over the last two weeks. The
INR depreciation so far is more positive for base metal companies as the pass
through is relatively easier (in their case it limits the price cuts they need to
implement given the base metal price correction). The advantage in terms of
exporting steel is limited as the Euro has also declined against the USD (Europe
is a key export destination for the Indian steel companies currently).
Base metals - how low they can trade: JPM global metals analyst Michael
Jansen highlights that ‘For metals, and industrial commodities broadly, the
evolution of further negativity will likely encourage prices lower still, even
though prices for most of the base are already at YTD lows. We do believe that
the bottom isn’t far away but further negative macro news is still likely to
pressure prices’. Michael expects copper could test $7000-7500/MT levels but
is unlikely to go below $6500/MT, while aluminum should remain in the $2200-
2500/MT range on cost support and continued ability of global financial
institutions to enage in cash-and-carry trades. Zinc should trade in the $1800-
2300/MT range, near term over-supply versus long term under-supply being the
two opposing themes.
Sept steel production highlights: JPM European steel analyst Alessandro
Abate highlights (European Steel 360 - flash #28 : August global steel
production) HMS#1 scrap prices slightly moving up on combined effect of good
demand from China and Turkey and long product price traction in Russia.
Stonger USD is positive for EU steel prices.
Thermal coal prices- near term strength: Spot thermal coal prices have been
the most resilient across commodities. The recent accident in China could lead
to continued high spot thermal coal prices.
Iron ore- The noise in India increases- Now it is Goa: While spot iron ore
prices have retreated marginally from $190/MT levels (now down to $186/MT),
negative news flow has increased on Goa iron ore mining. Currently this is the
largest iron ore exporting state out of India, and in our view, the probability has
increased of the state not being able to fully ramp up production post the rains
given possible regulatory issues. On the other hand, domestic iron ore
availability for the smaller mills continues to be a problem. Media reports
(Steelguru) highlight some of the smaller DRI/steel mills are planning to lay off
employees due to expensive iron ore. We expect domestic iron ore to remain in
the limelight, though no near term solutions are in sight.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
11% INR depreciation v/s 11% Aluminum/15% zinc price decline and 1%
USD steel price increase since July: While commodity prices remain under
pressure (and would likely be so given macro uncertainity), the equally sharp
INR depreciation has on paper minimized the impact for Indian commodity
companies so far. The INR depreciation would have a translation and balance
sheet impact given that many Indian metal companies (TATA, HNDL) have
USD P&Ls given their overseas subsidiaries as well as USD debt (mostly at the
overseas subs). However, INR impact is more on paper as of now, as
domestic demand remains very weak. Indian steel prices are at 10%
discount to imported prices, but demand is so weak that mills are not able
to raise prices. Indian DRI prices are down 8% over the last two weeks. The
INR depreciation so far is more positive for base metal companies as the pass
through is relatively easier (in their case it limits the price cuts they need to
implement given the base metal price correction). The advantage in terms of
exporting steel is limited as the Euro has also declined against the USD (Europe
is a key export destination for the Indian steel companies currently).
Base metals - how low they can trade: JPM global metals analyst Michael
Jansen highlights that ‘For metals, and industrial commodities broadly, the
evolution of further negativity will likely encourage prices lower still, even
though prices for most of the base are already at YTD lows. We do believe that
the bottom isn’t far away but further negative macro news is still likely to
pressure prices’. Michael expects copper could test $7000-7500/MT levels but
is unlikely to go below $6500/MT, while aluminum should remain in the $2200-
2500/MT range on cost support and continued ability of global financial
institutions to enage in cash-and-carry trades. Zinc should trade in the $1800-
2300/MT range, near term over-supply versus long term under-supply being the
two opposing themes.
Sept steel production highlights: JPM European steel analyst Alessandro
Abate highlights (European Steel 360 - flash #28 : August global steel
production) HMS#1 scrap prices slightly moving up on combined effect of good
demand from China and Turkey and long product price traction in Russia.
Stonger USD is positive for EU steel prices.
Thermal coal prices- near term strength: Spot thermal coal prices have been
the most resilient across commodities. The recent accident in China could lead
to continued high spot thermal coal prices.
Iron ore- The noise in India increases- Now it is Goa: While spot iron ore
prices have retreated marginally from $190/MT levels (now down to $186/MT),
negative news flow has increased on Goa iron ore mining. Currently this is the
largest iron ore exporting state out of India, and in our view, the probability has
increased of the state not being able to fully ramp up production post the rains
given possible regulatory issues. On the other hand, domestic iron ore
availability for the smaller mills continues to be a problem. Media reports
(Steelguru) highlight some of the smaller DRI/steel mills are planning to lay off
employees due to expensive iron ore. We expect domestic iron ore to remain in
the limelight, though no near term solutions are in sight.
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