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Regional Materials Summary

Core Content

This document provides an overview of recent developments in the materials sector across various regions, with a focus on metals, coal, steel, and related industries. It includes market analysis, key news, share recommendations, and insights into the broader economic implications of these developments.

Key News Highlights

• China's Manufacturing Gauge: While the gauge hit a four-month high, it fell just below consensus, leading to a cautious market view. However, signs of recovery are noted, particularly in copper and steel sectors.
• Newmont Copper Output at Batu Hijau: Newmont has temporarily halted copper production due to full storage facilities, and a closure at Grasberg could potentially lift copper prices.
• China's Railway Spending: China increased railway spending to USD129b for the third time in 2014, the second-highest budget ever, aimed at supporting infrastructure development amid a cooling housing sector.
• Qingdao Port Restrictions: The port has blocked materials shipments to investigate alleged fraud involving multiple warehouse receipts for financing. This may lead to further downside for iron ore prices.
• Russia-China Strategic Partnership: Russia and China have formed a strategic partnership in energy, oil, natural gas, coal, power, and transportation. This partnership could impact global markets and regional stability.
• Coal-to-Gas Conversion Plants: These plants are struggling due to high costs and immature technology. The Shanxi government continues to support the coal industry, with potential for moderate price upside.
• Steel Demand and Supply: Steel prices have stabilized, with specific focus on Maanshan Steel. The overall steel demand is influenced by infrastructure and automotive sectors, with limited impact from railway spending.

Main Points and Recommendations

• Copper:
  • Market sentiment is mixed, with some signs of recovery.
  • Top recommendations include MMG (1208 HK; HKD1.93; BUY; TP HKD2.45) and Jiangxi Copper (358 HK; HKD12.80; BUY; TP HKD15).
• Steel:
  • Steel prices have stabilized, with a focus on Maanshan Steel (323 HK; HKD1.60; Not Rated).
  • Flat steelmaker Angang (347 HK; HKD4.59; SELL; TPHKD4.00) is recommended as a seller.
• Nickel:
  • Prices have fallen 8% since mid-May but are up 40% year-to-date.
  • Recommend buying before potential price increases due to deficit.
  • Suggest buying VALE Indonesia (INCO IJ; IDR3,900; BUY; TP IDR4,600).
• India:
  • Market sentiment is rising due to pro-reform agenda of the BJP-led NDA.
  • Recommend Sesa Sterlite (SSLT IN; INR295.30; BUY; TP INR252).
• Coal:
  • Coal prices are expected to remain volatile, with moderate upside.
  • Prefer Shenhua (1088 HK; HKD21.50; BUY) over China Coal (1898 HK; HKD4.37; SELL).
  • Coal inventory is at 21 days supply at power plants, up from 18 days in March.

Economic Implications

• The Russia-China partnership is seen as a strategic move to counter Western influence, potentially leading to regional instability in the long term.
• The finance trade in China, particularly involving warehouse receipts, has raised concerns about overstated demand and inventory issues.
• The shift of heavy industry to the east could impact Europe's energy considerations and US environmental policies.
• The coal-to-gas conversion plants are not viable long-term due to high costs and resource constraints, but the government continues to support the coal industry.

Share Recommendations

Market Analysis and Trends

• Copper Consumption: Historically volatile, with a sustainable growth rate of 5-6% per year.
• Steel Consumption: The transportation sector accounts for only 11% of total steel consumption, with railway being a niche part.
• Coal Inventory: Down from high levels in 2012 but remains ample at 21 days supply.
• Railway Spending: Increased to USD129b in 2014, with a focus on central and western regions.

Supporting Data and Figures

• Figure 1: Copper consumption in China historically volatile.
• Figure 2: Global copper supply/demand and price forecast.
• Figure 3: China's spending on railways (CNY billions).
• Figure 4: China coal inventory and prices.
• Figure 5: Thermal coal prices in China and Australia.
• Figure 6: China crude steel production and YoY growth.
• Figure 7: Copper exchange prices and inventories.
• Figure 8: Aluminium exchange prices and inventories.
• Figure 9: Nickel exchange prices and inventories.
• Figure 10: Zinc exchange prices and inventories.
• Figure 12: Gold exchange prices.
• Figure 32: Silver exchange prices.
• Figure 43: Platinum exchange prices.
• Figure 54: Palladium exchange prices.

Research Team and Contact Details

• HK/CHINA:

  • Alexander Latzer (metals, coal, steel)
  • Jacqueline Ko, CFA (metals & mining)
  • Karen Kwan (consumer)
  • Osbert TK Tang, CFA (property & REITs)
  • Ricky WK Ng, CFA (transport & industrials)
  • Simon Qian, CFA (utilities & renewable energy)
  • Steven ST Chan (telecom & internet)
  • Warren Lal (banking & financials)
  • William Yang (technology)

• INDIA:

  • Jigar Shah (oil & gas, automobile, cement)
  • Anubhav Gupta (metals, steel)
  • Urmil Shah (metal & mining capital goods, property)

• INDONESIA:

  • Isnaputra Iskandar, CFA (metals, coal, cement)
  • Pandu Anugrah (infrastructure construction, transport)
  • Janni Asman (cigarette, healthcare, retail)

• PHILIPPINES:

  • Ramon Adviento (metals, coal)
  • Lovell Sarreal (cement, consumer, media)
  • Katherine Tan (ports/logistics, banks, construction)

• SINGAPORE:

  • Yeast Chee Keong, CFA (oil/gas services, gem technology)
  • NG Wee Siang (head of research)
  • Gregory Yap (banking & finance)
  • Wilson Liew (consumer, property developers)
  • YEAK Chee Keong, CFA (S-REITs)
  • Derrick Heng (offshore & marine)
  • WEI Bin (transport, telcos)
  • John Cheong (commodity logistics, S-chips)
  • TRUONG Thanh Hang (healthcare, small & mid caps)

• THAILAND:

  • Maria Lapid (consumer / materials)
  • Jesada Techahusdin, CFA (financial services)
  • Kittisorn Pruittipat, CFA, FRM (real estate)
  • Sukit Udomsirikul (retail research)
  • Padon Vannarat (strategy)
  • Surachai Pramualcharoenkit (auto, conmat, contractor, steel)
  • Suttatip Peerasub (services sector)
  • Termporn Tantivivat (energy, petrochem)
  • Woraphon Wiroonsri (property)
  • Jaroonpan Wattanawong (transportation, small cap)

• VIETNAM:

  • LE Hong Lien, ACCA (head of institutional research)
  • THAI Quang Trung, CFA (deputy manager, institutional research)
  • Le Nguyen Nhat Chuyen (real estate, construction materials)
  • NGUYEN Thi Ngan Tuyen (head of retail research)
  • NGUYEN Trung Hoa (deputy head of retail research)
  • TRINH Thi Ngoc Diep (macro steel, real estate)
  • TRUONG Quang Binh (technology, utilities, construction)
  • PHAM Nhat Bich (rubber plantation, tyres and tubes, oil & gas)
  • NGUYEN Thi Sony Tra Mi (consumer, manufacturing, fishery)

Research Offices

• Regional Head of Institutional Research: WONG Chew Hann, CA (603) 2297 8686
• Regional Head of Retail Research: ONG Seng Yeow (65) 6432 1453
• Institutional Product Manager: Alexander GARTHOFF (852) 22680638
• Chief Economist (Singapore & Malaysia): Suhaimi ILIAS (603) 22978682
• Chief Economist (Indonesia): Juniman (62) 21 29228888 ext 29682
• Economist / Industry Analyst (Indonesia): JPardepe (62) 21 29228888 ext 29695
• Head of Research (Malaysia): WONG Chew Hann, CA (603) 2297 8686
• Strategy - Construction & Infrastructure: Desmond CH'NG, ACA (603) 2297 8680
• Banking & Finance: LIAW Thong Jung (603) 2297 8688
• Oil & Gas Regional: ONG Chee Ting, CA (603) 2297 8678
• Consumer: Wilson LIEW (65) 6432 1454
• Property Developers: ONG Kian Lin (65) 6432 1470
• Head of Institutional Research (Vietnam): LE Hong Lien, ACCA (84) 844 55 58 88 x 8181
• Deputy Manager, Institutional Research (Vietnam): THAI Quang Trung, CFA (84) 844 55 58 88 x 8180
• Real Estate Construction Materials: Le Nguyen Nhat Chuyen (84) 844 55 58 88 × 8082
• Head of Retail Research (Vietnam): NGUYEN Thi Ngan Tuyen (84) 844555888×8081
• Deputy Head of Retail Research (Vietnam): NGUYEN Trung Hoa (84) 844555 888 × 8088
• Macro Steel Real Estate: TRINH Thi Ngoc Diep (84) 4 44 555 888 × 8208
• Technology - Utilities - Construction: TRUONG Quang Binh (84) 444555 888 × 8087
• Rubber Plantation - Tyres and Tubes - Oil & Gas: PHAM Nhat Bich (84) 844555 888 × 8083
• Consumer - Manufacturing - Fishery: NGUYEN Thi Sony Tra Mi (84) 844555 888 x 8084
• Port Operation - Pharmaceutical: NGUYEN Thi Sony Tra Mi (84) 844555 888 x 8084

Disclaimer

The information provided in this report is for educational and informational purposes only. It does not constitute financial advice and should not be relied upon as such. Always consult with a licensed financial professional before making any investment decisions.