Fortnightly metals and mining sector update: Emkay

Emkay Global Financial Services has come out with its report on metals and mining sector. According to the research firm, Global steel prices have slipped further during the fortnight.

Last fortnight (ending June 15) was a mixed bag as ferrous prices continue to soften while, non- ferrous metals prices recovered marginally. Uncertainty on global economic scenario continues to linger on primarily on account of Europe and as US Fed’s bond purchase programme is nearing to an end in June. In the raw material space, iron ore prices slipped further, while coking coal contract prices reported to have settled higher by 7% QoQ at US$225/ tonne for Q2FY13.

Ferrous on a slippery way

Global steel pries slipped further during the last fortnight on the back of bleak demand and still higher output. The CIS Black Sea (fob) export prices declined 3% further during the fortnight to US$578/ tonne. North America and European domestic HR coil prices also fell 2% and 1% respectively during the last fortnight to US$633/ tonne and €517/ tonne respectively. Weak INR helped Indian prices to remain steady

Iron ore prices drifted further down with 63% Fe grade ore dipped 3% during the fortnight to US$136/tonne. While 62% Fe remained stable, 58% Fe grade ore declined moderately by 1%

China’s daily steel output reportedly has been 1.98 mt for May (monthly output at 61.23 mt) compared to 2.02 mt recorded for April. This is indicating that steps have been taken by the industry to adjust with the slowing demand. For June the daily output is likely to come down to 1.9- 1.95 mt. Baosteel meanwhile, had cut its HRC and CRC prices by RMB200/ tonne (US$31.4) for July orders

Non-ferrous: marginal price recovery seen except in aluminium

Base metals prices continued to be volatile. After falling for more than six weeks in a row on a closing basis, copper recovered marginally and closed at US$7521/tonne, up 2% over last fortnight

Raising the worries of the aluminium producers, the aluminium LME softened further 1% over the past fortnight to US$1915/ tonne. Despite several announcement of production cuts by various producers and higher CoP, weakening prices seem to be a real concern

Zinc has been the highest gainer (3%) over past fortnight to settle at US$1908/ tonne, while lead also recovered 2% during the same period and settled at US$1915/ tonne

Macroeconomics: local concerns overtaking global issues

Revised Q1CY12 Eurozone GDP showed a contraction of 0.1% against initial estimation of no change. US industrial production for May also declined unexpectedly 0.1%. Back in India, fragility of economy became more visible with April IIP growth falling to just 0.1%, while headline inflation for May rose to 7.55%. RBI, as a result left all the key rates unchanged in its latest review. US Dollar index during the last fortnight meanwhile, fell 2% to close at 81.6 against major basket of currencies.

News / Events

Vedanta Aluminium (VAL) bought 24.5% stake in Raykal Aluminium, a subsidiary of L&T for Rs 2.1 bn and plans to buy 100% stake in the company for a Rs 18.11 bn in a milestone based payment to secure its bauxite sourcing

JSW Steel May crude steel production stood at 0.724 mt, up 9% MoM and 35% YoY. Rolled products however saw marginal dip in production on MoM basis.

Vedanta shareholders (99.96%) approved disposal of stake in VAL, Sterlite Ind Malco and Cairn India to the proposed new entity of Sesa Sterlite

In a move to consolidate group holdings in affiliates, Tata Steel announced its plans to buy 11.3% in Tata Sponge Iron and 14% in The Tinplate Company for a total consideration of Rs 1.53 bn

Global steel prices slipped further during the fortnight. While the benchmark Black Sea Export prices fell 8% in five months, the World HRC prices at US$664/tonne remained at lowest level since November 2011. The gap between 63% and 62% Fe grade prices narrowed sharply during the fortnight as the 63% Fe grade prices fell 3% along with an unchanged 62% Fe grade prices. The China domestic coking coal prices remained steady during the period, however contract prices saw a rise.

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