Metal sector likely to remain volatile: Emkay

Emkay Global Financial Services has come out with its report on metal sector. According to the research firm metal sector as a whole to remain volatile with subdued sentiment likely to prevail in steel.

Steel prices continued to fall during the last fortnight (ending October 16th) despite some steps being taken by the governments to revive economic situation. Contrary to this, Iron ore prices however, have been improving since last few weeks. Base metals prices maintained their weakness, as sustainability in demand still remains doubtful. We expect the sector as a whole to remain volatile with subdued sentiment likely to prevail in steel.

Ferrous: Steel prices continue to fall while iron ore gained further:

• The CIS Black Sea (FoB) HRC export prices fell by another ~3% to US$520/ tonne. The World (average) HRC prices also declined by 1.6% to US$618/ tonne. North American HRC prices continued to fall by 5% over last fortnight to US$583/ tonne, North European HRC prices declined by further 4% to €476/ tonne.
• Iron ore prices after falling during the past fortnight rose again during last fortnight due to some revival in demand from China after the holidays. The 63%, 62% and 58% Fe grade ore (Indian origin and cfr China) rose 8.7%, 8.1% and 5.8% respectively to US$112.8, US$112.6 and $104/ tonne. Believe, any indication of further contraction in steel demand in China should pull down the iron ore prices again, though we may not see any sharp fall.
• The World Steel Association (WSA) in its short range outlook has cut the global apparent steel usage growth to 2.1% in 2012, against 3.6% in its April forecast and also vs. 6.2% growth achieved in 2011. In 2013, the world steel demand is likely to grow by 3.2%, against the earlier forecast of 4.5% to reach a record high of 1,455 Mt. For India, the WSA had cut the growth rates to 5.5% and 5% for CY12 and CY13 respectively. Chinese demand growth likely to be at 2.5% and 3.1%.

Non-ferrous: weakened further.

• Base metals prices continued their fall during the last fortnight as well despite 1% fall in USD index to 79.4. Believe this is due to weakness in the economic recovery.
• Copper, aluminium, zinc and lead on LME fell by 2%, 7%, 9% and 7% respectively to US$8142, UD$1931, UD$1876 and US$2128 per tonne.

Macroeconomics: a mixed bag-

Macro economic developments remained a mixed bag during the last fortnight. While industrial output in Euro zone (+0.6%) and US (+0.4%) came better than expectations for August and September months, UK continued to show weakness with a decline of 0.5% for August. Indian economic data did not provide any direction, as the IIP came better than expectations with a growth rate of 2.7% for August and the headline inflation for September rose by 7.81%. The Indian government has announced various measures to revive economic growth, however execution and implementation still remains a question. Meanwhile, recent announcements by ECB and BoE in their respective policy meets have indicated further liquidity push showing desperateness to revive economic situation.

Trend: Ferrous metals-

During the last fortnight, the global steel prices saw further correction. While, the benchmark CIS Black Sea (fob) Export prices declined 3.3% to US$520/tonne, World HRC prices declined 1.6% to US$618/tonne. North American domestic HRC prices lost 5% over the past fortnight to US$583/ tonne. On the raw material side, all the grades of iron ores (63%, 62% and 58%) reversed the trend and gained sharply during the fortnight. The 63% grade gained 9% to US$112.8/tonne catching up with 62% grade which gained 8% to end at US$112.6/tonne. The China domestic coking coal prices gained 5.6% during the fortnight to end at US$232/tonne. 

Trend: Non-ferrous metals-

After rising sharply for last one month, base metal LMEs remained subdued during the last fortnight. All the metals declined during the fortnight. While copper lost only 2% to end at US$8142/tonne, Aluminium, Zinc and lead lost 7%, 9% and 7% to end at US$1931/tonne, US$1876/tonne and US$2128/tonne respectively. Aluminium LME inventory levels remained stable at 5.05 mt but copper inventory dropped 6% to 0.21 mt. Lead and Zinc inventory levels rose sharply by 16% and 6% to 0.30 mt and 1.06 mt respectively.

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