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Update on auction of iron ore: The first e-auction of 0.4MT of iron ore
was conducted in Karnataka earlier this week. As per our chanhnel
checks, not the entire 0.4MT was sold through the e-auction, as the base
price for lower grade fines (<58%) was significantly higher. We
estimate that fines (which had a base price of Rs2700/MT) were
auctioned for as much as Rs3150/MT. Over and above this, the buyers
would need to pay 10% royalty and 12% FDT, which takes the total cost
to Rs3843/MT. We estimate this is around 25% higher than preproduction
ban costs for similar grade. However, media reports (ET,
Moneycontrol) have quoted companies as saying that the iron ore costs
post the auction have increased by as much as 40%. In our view, the
amount of ore being auctioned is not enough to meet demand. It is yet to
be seen if state owned miner NMDC increases iron ore prices given
global spot price increase and INR depreciation.
Another increase in export duty from 20% to 30%? Media reports
(BS) have reported that the steel ministry is likely to recommend
increase in export duty to 30% from current 20%. Given that the auction
base prices have been set on an export parity basis adjusted for export
duties, a higher export duty would effectively lower the base price for
auctions. As of now there are no official comments on the export duty
increase so far.
Currency depreciation- Why is it positive for Indian steel
companies: INR has depreciated ~8% against the USD since July.
Normally the only benefit from currency depreciation is a) increase in
domestic prices b) lower imports c) more competitive exports.
Admittedly globally many other currencies have also depreciated, but for
Indian steel makers, their main competitior in the export markets is
Chinese steel exports and over here the far sharper INR depreciation is
beneficial. However, demand/sentiment in most of the importing
destinations is very poor for any material increase in export volumes.
Baltic Index commentary: J.P. Morgan Shipping analyst Corrine Png in
her update highlights, “We are only in mid-Sep and the number of
Capesize vessels chartered to load cargo in Sep 2011 has already
reached 101, exceeding last year’s 100 vessels for the entire Sep10 and
highest level in history for Sep. This was mainly driven by stronger iron
ore shipping demand from Australia.” Demand is essentially driven by
Chinese iron ore demand. Spot iron ore prices have been firm at near
$188/MT levels. From here how much of India’s iron ore exports
rebound post monsoon needs to be seen given regulatory uncertainity. As
of now we expect normalised exports from Goa region post Oct.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Update on auction of iron ore: The first e-auction of 0.4MT of iron ore
was conducted in Karnataka earlier this week. As per our chanhnel
checks, not the entire 0.4MT was sold through the e-auction, as the base
price for lower grade fines (<58%) was significantly higher. We
estimate that fines (which had a base price of Rs2700/MT) were
auctioned for as much as Rs3150/MT. Over and above this, the buyers
would need to pay 10% royalty and 12% FDT, which takes the total cost
to Rs3843/MT. We estimate this is around 25% higher than preproduction
ban costs for similar grade. However, media reports (ET,
Moneycontrol) have quoted companies as saying that the iron ore costs
post the auction have increased by as much as 40%. In our view, the
amount of ore being auctioned is not enough to meet demand. It is yet to
be seen if state owned miner NMDC increases iron ore prices given
global spot price increase and INR depreciation.
Another increase in export duty from 20% to 30%? Media reports
(BS) have reported that the steel ministry is likely to recommend
increase in export duty to 30% from current 20%. Given that the auction
base prices have been set on an export parity basis adjusted for export
duties, a higher export duty would effectively lower the base price for
auctions. As of now there are no official comments on the export duty
increase so far.
Currency depreciation- Why is it positive for Indian steel
companies: INR has depreciated ~8% against the USD since July.
Normally the only benefit from currency depreciation is a) increase in
domestic prices b) lower imports c) more competitive exports.
Admittedly globally many other currencies have also depreciated, but for
Indian steel makers, their main competitior in the export markets is
Chinese steel exports and over here the far sharper INR depreciation is
beneficial. However, demand/sentiment in most of the importing
destinations is very poor for any material increase in export volumes.
Baltic Index commentary: J.P. Morgan Shipping analyst Corrine Png in
her update highlights, “We are only in mid-Sep and the number of
Capesize vessels chartered to load cargo in Sep 2011 has already
reached 101, exceeding last year’s 100 vessels for the entire Sep10 and
highest level in history for Sep. This was mainly driven by stronger iron
ore shipping demand from Australia.” Demand is essentially driven by
Chinese iron ore demand. Spot iron ore prices have been firm at near
$188/MT levels. From here how much of India’s iron ore exports
rebound post monsoon needs to be seen given regulatory uncertainity. As
of now we expect normalised exports from Goa region post Oct.
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