20131202-Elara_capital-Domestic_steel_prices_to_remain_firm_Ferrous_15页_624kb

Summary of Document Content

Core Content

The document provides an analysis of the current state and outlook for steel and non-ferrous metal prices, focusing on the global and domestic markets, particularly in China and other key regions. It highlights the factors influencing price trends, including production, demand, inventory levels, and supply-side dynamics.

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Main Points

Domestic Steel Prices

• China: Domestic steel prices have softened in recent months, with HRC prices down by ~USD20/tonne. Despite this, the steel market is showing positive sentiment due to environmental measures and production levels.
• India: Domestic steel prices are firm due to reduced supply. Major producers like Essar Steel and JSW Steel are adjusting supply levels. The price hikes from September and October have been fully absorbed.
• Gross Margins: Chinese steel producers are operating at 3-year low gross margins, with most expected to be loss-making. This suggests producers may reduce supply to maintain prices.
• Global Outlook: Global steel prices are expected to have limited downside due to weak margins, but a sustainable uptick is unlikely due to overcapacity issues.

Iron Ore Prices

• India: NMDC is expected to raise iron ore prices by INR100/tonne in December, following an increase in October. Prices remain firm despite supply constraints.
• China: Iron ore prices have remained in a narrow range (~USD136/tonne), with inventory at ports increasing due to restocking demand.
• Supply Constraints: Continued mining bans in Karnataka and disruptions in Odisha are limiting supply, contributing to price stability.

Non-Ferrous Metals

• Aluminum:
  • Global production increased by 4.3% YoY in October 2013.
  • China's production rose by 10.5% YoY, leading to a global surplus in refined aluminum.
  • LME prices are under pressure due to high global inventories (10.4 mn tonnes), but regional premiums are expected to remain firm before falling after new LME rules in April 2014.
• Zinc:
  • Refined zinc production was slightly lower than demand in September 2013, but a surplus was recorded in January-September 2013.
  • Global refined zinc production is expected to increase by 3.4% YoY in CY13 and 4.9% YoY in CY14, with demand also rising.
  • Zinc inventories have continued to decline, reaching 1.2 mn tonnes in November.
• Lead:
  • Refined lead production was slightly higher than demand in September 2013, but a deficit was recorded in January-September 2013.
  • ILZSG forecasts a surplus in CY13 and a deficit in CY14, with China's production growth expected to drive this trend.
  • Lead inventories remain firm, at 232,000 tonnes, down 28% from CY12-end levels.
• Silver:
  • Prices have declined significantly, with a 36.6% YoY drop in November 2013.
  • Silver is expected to continue its downward trend, with prices at USD21/ounce.

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Key Information

Price Trends

• Steel:
  • Global steel prices fell marginally in November, with China down 1.3% MoM, CIS down 1.2% MoM, Europe flat, and the US down 2.2% MoM.
  • Domestic steel prices in India are firm due to reduced supply.
• Iron Ore:
  • Prices are firm in China and expected to rise further in December.
  • Prices remain stable in the global market, trading in a narrow range.
• Non-Ferrous:
  • Aluminum: Prices are under pressure due to high global inventories, but regional premiums are firm.
  • Zinc: Prices have declined, and inventories are down.
  • Lead: Prices are firm, with a surplus in CY13 and deficit in CY14.
  • Silver: Prices are at a 4-year low, with a significant YoY decline.

Market Outlook

• Steel: Limited downside in global prices due to low margins, but overcapacity remains a challenge.
• Iron Ore: Prices may fall as trader demand weakens.
• Aluminum: Oversupply continues, but prices are unlikely to fall from current levels due to the delay in supply-side discipline from LME rule changes.
• Zinc: Expected to remain in surplus, with inventory levels continuing to decline.
• Lead: Expected to shift from surplus to deficit in CY14.
• Silver: Prices are likely to continue declining.

Performance Highlights

• Ferrous: Tata Steel is highlighted as a top pick.
• Non-Ferrous: Hindustan Zinc is noted as a top pick.
• Mining: GMDC and Coal India are recommended.
• Market Indices:
  • SENSEX: -1% in 1M, +11% in 3M, +7% in 6M.
  • BSE Metal Index: +2% in 1M, +20% in 3M, +14% in 6M.
  • TR/J CRB Metal equity Index: -2% in 1M, +11% in 3M, +11% in 6M.
  • TR/J CRB commodities Index: 0% in 1M, -6% in 3M, -2% in 6M.
  • Dollar Index: 0% in 1M, -2% in 3M, -3% in 6M.
  • Baltic Dry Index: +17% in 1M, +60% in 3M, +123% in 6M.
  • USD-INR: -1% in 1M, +6% in 3M, +9% in 6M.
  • HRC prices (China): -1.3% MoM, down to USD571/tonne.
  • HRC prices (CIS): -1.2% MoM, down to USD525/tonne.
  • HRC prices (Europe): Firm at USD592/tonne.
  • HRC prices (US): -2.2% MoM, down to USD581/tonne.

Valuation and Performance

• Global Valuation Summary:
  • Aluminum: Alcoa, Norsk Hydro, Vedanta Resources.
  • Copper: Glencore Xstrata, Grupo Mexico, Jiangxi Copper.
  • Zinc: Nyrstar, US, Teck Cominco, OZ Minerals, Korea Zinc, Boliden AB.
  • Coal: Bumi Resources Tbk PT, Adaro Energy Tbk PT, China Shenhua Energy, China Coal Energy, Yanzhou Coal Mining, Peabody Energy Corp, CONSOL Energy, Arch Coal, New Hope Corp, Whitehaven Coal.
  • Silver: Fresnillo, Silver Wheaton, Pan American Silver, Coeur d'Alene Mines, Hochschild Mining.

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Conclusion

The steel and non-ferrous markets are characterized by a mix of firm and declining prices, influenced by production trends, demand, and supply-side constraints. While global steel prices are expected to have limited downside due to low margins, overcapacity remains a key challenge. Iron ore prices are firm in China and expected to rise further, but may fall as trader demand weakens. Non-ferrous metals like aluminum and zinc show signs of oversupply, with prices under pressure but not expected to fall significantly in the short term. Silver prices have dropped sharply, and the market remains in a surplus situation for most metals.