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Metals & Mining - Sector
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All the three scripts of facor group i.e. facor alloys, feroalloys and facor stell are worth investing at currunt prices as they r expected to explode shortly as soon as market sentiment starts improving...
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in spite having good fundamentals, 20ML is suffering from bulk deals and may come out within week time even though market conditions are adverse.
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India`s steel sector is due for a boom phase that will lead to prices falling, said a key member of Prime Minister Manmohan Singh`s cabinet here on Sunday.
“Steel prices in India will go down,” Steel Minister Ram Vilas Paswan told reporters on the sidelines of a function here, and attributed it to the India-US civil nuclear co-operation agreement.
"The domestic steel sector will benefit immensely from the nuclear deal, as the availability of energy in adequate amount would lead to a boom in the infrastructure sector," he said, and explained: “A boom in the infrastructure sector will benefit India`s steel sector immensely, which is doing extremely well.”
The minister also said there has been no increase in steel prices since May, and that prices would moderate now.
Paswan, who earlier chaired a meeting of the fertiliser advisory forum as the country`s chemicals and fertiliser minister, did not specify any time frame for the steel prices coming down.
A month ago, Paswan had spoken about steps to maintain the steel prices if needed.
His observation Sunday once again showed the government`s unwillingness to allow the steel firms to go for an upward price revision after their three-month voluntary moratorium on price revision ended Aug 7.
Though in India, the government does not fix prices, the major steel producers normally do not go against the state`s wishes, given the say of public sector firms like Steel Authority of India Ltd (SAIL) in the market.
Steel secretary P.K. Rastogi Aug 22 had told reporters here that there was no scope for an upward revision in the prices of steel products, and had instead called for a reduction following softening of global prices.
“Since global prices of steel are softening, we do not see any immediate reason to go for any upward revision. Instead, the companies should think in terms of further reduction in the prices of steel,” Rastogi had said.
The steel manufacturers at a meeting with Prime Minister Manmohan Singh here May 7 agreed to reduce prices of flat steel products by Rs.4,000 a tonne and that of structural steel by Rs.2,000 per tonne.
They also agreed not to revise prices for the next three months. ...
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The deterioration in global macro-economic conditions suggests a weakening demand environment for metals through the remainder of 2008.
Hit, in particular, would be steel, whose consumption is slowing in China, the world’s largest producer and consumer of the industrial metal. Construction activity in China has turned sluggish and this is likely to hit the steel market.
Because construction accounts for about half of steel end-use demand, a slowdown in construction activity (housing, infrastructure) is expected to exert negative pressure on steel demand and, in turn, steel prices.
In the first half of 2008, prices were driven to unprecedented levels by steel shortage and speculative buying by traders and end-users. “The recent weakening of the Chinese demand and a surge in Chinese exports, combined with weaker EU and US orders, has led to a major price correction,” commented an industry analyst.
Drop in price
No wonder, steel prices in China have been dropping and continued to drop in the last few days. Hot rolled coil, cold rolled coil, rebar and galvanised steel have shed anything between 4 and 10 per cent in price.
The prospects of a boost to real estate development in China are being debated. As most of the consumers are currently de-stocking, experts expect steel market correction to continue into the fourth quarter of 2008.
Stability hope
But there is a silver lining. Some stability in pricing may emerge as consumer de-stocking ends and production cuts are undertaken by Chinese, European and US producers.
The fortunes of nickel are linked to the stainless steel industry.
Weak stainless steel demand is seen hurting nickel market. Nickel stocks are at record levels. Currently, the metal is trading below $16,000 a tonne, which is considerably below the marginal cost.
This can spur production cuts. In the last quarter of the year, there is little chance of a recovery and prices are likely to show sideway movement.
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The deterioration in global macro-economic conditions suggests a weakening demand environment for metals through the remainder of 2008.
Hit, in particular, would be steel, whose consumption is slowing in China, the world’s largest producer and consumer of the industrial metal. Construction activity in China has turned sluggish and this is likely to hit the steel market.
Because construction accounts for about half of steel end-use demand, a slowdown in construction activity (housing, infrastructure) is expected to exert negative pressure on steel demand and, in turn, steel prices.
In the first half of 2008, prices were driven to unprecedented levels by steel shortage and speculative buying by traders and end-users. “The recent weakening of the Chinese demand and a surge in Chinese exports, combined with weaker EU and US orders, has led to a major price correction,” commented an industry analyst.
Drop in price
No wonder, steel prices in China have been dropping and continued to drop in the last few days. Hot rolled coil, cold rolled coil, rebar and galvanised steel have shed anything between 4 and 10 per cent in price.
The prospects of a boost to real estate development in China are being debated. As most of the consumers are currently de-stocking, experts expect steel market correction to continue into the fourth quarter of 2008.
Stability hope
But there is a silver lining. Some stability in pricing may emerge as consumer de-stocking ends and production cuts are undertaken by Chinese, European and US producers.
The fortunes of nickel are linked to the stainless steel industry.
Weak stainless steel demand is seen hurting nickel market. Nickel stocks are at record levels. Currently, the metal is trading below $16,000 a tonne, which is considerably below the marginal cost.
This can spur production cuts. In the last quarter of the year, there is little chance of a recovery and prices are likely to show sideway movement.
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Metal shares mixed; NALCO gains; Tata Steel falls...
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The government’s effort to contain inflation, as it crossed the 7 per cent mark in April 2008, brought metal sector into focus during the first quarter of fiscal year 2008. Taking note of the contribution of steel prices to the rising inflation, the government slapped an export duty of 15 per cent on various steel products to increase its availability in domestic market and, hence, reduce the price. For steel companies, who were already reeling under the pressure of rising input costs, this was an added burden. However, they were mostly successful in passing the cost to their customers. This was a positive signal for the stockmarket and the metal index outperformed the benchmark Sensex by around 6 per cent.
Apart from ferrous metal companies (iron and steel), the outlook is different for non-ferrous metal companies. There seems to be a downward pressure on prices of metals like aluminium and copper. Their demand may be affected as consumption goes down due to hardening of interest rates. Going ahead, companies may also find it difficult to fund expansion, as the cost of funds has increased. To discuss these issues, we bring in experts.
Slow Going Ahead
Dipesh Dipu Principal Consultant, Mining , PricewaterhouseCoopers
Sector outlook. The growth of metals sector in India depends on domestic as well as global demand and supply and availability of raw material. Growth in steel sector may continue, albeit at a relatively slower pace, due to expected growth in infrastructure and construction sectors.
In the base metals sector, global markets are rife with expectations of a cool off. Some mining and smelting companies have curbed production and delayed expansion plans. In India, industrial growth has shown signs of stagnating due to the monetary squeeze. This may impact growth in the sector. Aluminium and alumina prices have also indicated a downward tilt. Whether or not it is an inflection point, is yet to be seen. This is due to slackening demand from construction, commercial vehicles and aerospace industries.
Cost pressure. The steel sector thus far has been successful in passing the rise in input costs to consumers. But going forward, their ability to do so will determine their profitability. There has been substantial rise in costs of iron ore, metallurgical coal and energy. Strength in these commodities is here to stay in short to medium terms, which may impact the steel sector. Some Indian steel manufacturers have captive mines and have, therefore, better control on costs. The steel industry, in general, has been on a look out for securing raw material supplies and some of the players have acquired mineral resources abroad, including in Australia and Latin America.
Concern On Cost
Sanjay Dongre Fund Manager, UTI AMC
Sector outlook. Indian metal sector has witnessed very healthy growth in the last couple of years. Both ferrous and non-ferrous sectors have shown strong demand growth as well as capacity addition during that period. Ferrous metals have, in particular, witnessed robust demand growth, high realisation, higher profitability and rapid capacity expansion. Non-ferrous metals such as zinc, aluminium and copper have shown major price correction in the recent past and the price of ferrous metals are also softening globally.
Steel prices in India are currently ruling firm but at a discount to international prices. Indian steel sector is expected to grow at 8-11 per cent for the next three years based on a GDP growth rate of 7-9 per cent for that period.
Cost pressures. The Indian steel industry is experiencing an input cost rise in a big way. Recent rise in the price of coking coal, coke and iron ore, the essential ingredients of steel making, will negatively impact the margins of Indian steel manufacturers in coming days. Steel producers are not able to pass on the cost-push by raising steel price due to the government’s initiative for inflation control. Input cost pressures are offsetting the effect of volume growth.
Integrated players will be able to retain or improve their margins compared to non-integrated players. Raw material insecurity has led many players to scout abroad for mining assets. However, these would take 2-3 years to become operational.
Speculation Scare
Pankaj Tibrewal Equity Fund Manager, Principal Mutual Fund
Sector outlook. Growth of the metal sector depends on various fundamental dynamics. Over the last five years, China has been the main driver of most base metals (low priced metals like copper and aluminum) in terms of incremental demand. Of late there has been a crisis of confidence of growth rates in China and other emerging markets.
Along with concerns of slowing global demand, the recent dollar rally has lead to decline in some of the base metal prices.
Also, we can’t escape the fact that over the last few years a lot of money has been poured into commodity funds that have also added to rise in prices. The main risk remains if large unwinding of speculative position happens which may lead to sharp fall in prices.
Cost pressures. Rising inputs prices are impacting the profitability of the steel industry, especially those companies that have little or no raw material linkages. Coking coal contracts for 2008-09 have been done at prices that are 200 per cent higher year-on-year (y-o-y), iron ore contract prices are higher by 70-90 per cent y-o-y, spot iron ore prices for steel manufacturers who don’t have iron ore mines are currently higher by 100 per cent y-o-y and prices of met coke have more than doubled in the last 12 months. The price increase that the domestic manufacturers have been able to take for their products, don’t fully cover the input price increases. The government has not allowed most steel companies to raise prices in order to keep inflation in check.
The OLM Take
In the last quarter, the companies in the BSE metal index registered a combined topline and bottomline growth of 28 per cent and 25 per cent, respectively. But profit margins are under pressure as raw material prices have gone up. Their ability to hike prices will be limited by government measures to control inflation. Also, the demand for some metals will be affected by a slowdown in global economy. Any steep fall, however, will be limited by the demand from emerging economies. Overall, investing in the sector needs a cautious approach.
outlook..............
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The fall in prices of industrial metals such as copper, zinc, aluminium, lead and nickel is likely to benefit steel, construction, electrical equipment, cable and battery manufacturers, besides transportation and packaging industry.
Mr N.C. Mathur, Director, Jindal Stainless, said nickel, a major input for stainless steel manufacturing, has dropped to $18,500 a tonne in the second quarter of this fiscal from $51,800 a tonne in May 2007.
Similarly, steel manufacturers have recently agreed to reduce prices as the input cost dropped considerably. JSW Steel, Essar Steel and Ispat Industries recently reduced the steel prices by Rs 2,000 a tonne.
LOW DEMAND
Base metals have been under pressure in the last few months on waning demand on the back of global economic slowdown, rising inventories and expectation of new capacities going on stream. In India, the rupee depreciation against dollar has partially offset the dip in prices.
LEHMAN IMPACT
On Tuesday, base metals were hammered after Lehman Brothers was suspended from trading on its electronic platform “Select” and declared it a defaulter under LME rules.
The US investment bank, which filed for bankruptcy on Monday, will still be able to trade in base metals on the LME via the telephone market. The LME felt trading on electronic platform would be anonymous and it was appropriate for its members to make a conscious decision to trade with Lehman Brothers, analyst said.
Lehman Brothers was a category two member of the LME through its European operations, Lehman Brothers International (Europe).
“Lehman was declared defaulter and suspended from trading on the LME. It has big positions in base metals and unwinding them in the commodity and derivatives markets will cause problems,” said Mr Harish Galipalli, head of commodity, Karvy Commodities. Copper inventory on the LME rose 1,275 tonnes to 204,350 tonnes on Monday and pressured the red metal further.
ZINC SLIPS
Zinc prices were also pressured down as the global zinc market was reported to be in surplus by 77,000 tonnes in the first seven months of 2008. It was down by $15 at $1,750 a tonne. Copper was down $135 to $6,820 a tonne, nickel $421 to $17,829 a tonne, besides aluminium $41 to $2,533 a tonne and lead shed $54 a tonnes to $1,790 a tonne.
On MCX, while copper, lead and aluminium were trading down, nickel and zinc gained marginally. “One should understand that base metals are depressed last few months and any minor sign of global economic recovery will boost the demand,” Mr Galipalli said
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Shanghai copper at year's low despite AIG relief
Wed 17 Sep 2008, 5:23 GMT
[-] Text [+] By Nick Trevethan
SINGAPORE (Reuters) - Shanghai copper dropped to its lowest this year on Wednesday and London metal also fell, abandoning early gains as relief over the Federal Reserve's bailout of U.S. insurer AIG faded and trade volumes dwindled.
Commodity prices, including metals, rose early in the day with crude oil up more than 3 percent, recovering from Tuesday's seven-month low, as the Fed jumped in with $85 billion to rescue American International Group Inc, easing jitters about the financial system.
The Fed also held interest rates steady at 2 percent, opting for the time being to soothe rattled financial markets with central bank lending facilities rather than rate cuts.
But metals prices faded around midday as liquidity dried up given a drought in news on demand and supply.
"Liquidity in Asia is pretty thin and there is no real fundamental news," a dealer in Singapore said.
"Even if there was, it's unlikely it would be bigger than Lehman or AIG. This is just the usual intraday volatility."
Most active Shanghai December copper fell 0.2 percent to 53,060 yuan a tonne, its lowest so far this year, after sliding by its 4 percent daily limit in the previous session.
Earlier, prices rose by 1.6 percent before fizzling.
London Metal Exchange copper lost 0.6 percent, or $40, to $6,830, extending Tuesday's near-1 percent slide.
Some analysts feared the Fed's actions were a band-aid for the injured financial market, not a cure, and uncertainty over the outlook kept investors on the sidelines.
"'Don't just do something, stand there,' seems to be a good trading philosophy right now. There will be opportunities to make money, but get it wrong and it will cost you dear," an LME dealer in Hong Kong said.
"The bailouts and buyouts might stem the tide in the short term, but in the longer term, is this good for commodities? Probably not."
The euro pared gains against the dollar, which also weighed on sentiment.
The difference between Shanghai's third-month copper futures versus the London benchmark, including China's 17 percent value-added tax, reverted to a discount of 1,641 yuan from a premium of 121 yuan on Tuesday.
The difference had flipped into a premium on Sept 9, a factor that should help encourage more imports.
Shanghai zinc rose 1.7 percent to 14,005 yuan after coming close to its downside limit on Tuesday. LME zinc dipped $7 to $1,741, its third day of falls.
Aluminium rose 0.3 percent to $2,537, recovering from an eight-month low on Tuesday, despite a 55,000 tonne, or 4.6 percent, jump in LME stocks overnight.
Traders put the delivery, centred on warehouses in Baltimore, down to someone looking for quick cash to cover margin calls in other markets.
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Good time to buy Gallantt Metal it will give 100% return.....This Company has shown good increase in profit every Quater and is reputed company in Gujarat for TMT bars.......
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Udayan's Market Outlook
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| Udayan Mukherjee, Stocks Editor, TV18 | ||
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