INDUSTRY UPDATES ON 05.07.2013

Sugar companies gain after import duty hike

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Shares in sugar companies gain after the government decided to raise import duty on the sweetener to 15 per cent from 10 to discourage overseas buying as ample supplies have sparked a drop in local prices. 

The higher import duty and the depreciating rupee should curb imports from overseas, and thus improve profitability at mills that would benefit from higher local sugar prices, dealers say. 

Bajaj Hindusthan Ltd gained 3 per cent, Shree Renuka Sugars Ltd is up 4 per cent, whileBalrampur Chini Mills LtdBSE -0.25 % climbed 2.35 per cent at 0544 GMT.

Rice seen tumbling on ample stocks

The rice market may continue to witness a downtrend in the coming days, said market sources.
After witnessing a steady trend over the
last few days, aromatic and sharbati varieties dropped on lack of buying and ample availability of stocks on Thursday.
Lack of buying at all levels pulled rice prices down, said Amit Chandna, proprietor of Hanuman Rice Trading Company. Only need-based buying is taking place in the market and situation of the market was anticipated, he said.
Domestic demand hasn’t picked up but the availability of stocks has improved and it may pick up further in the coming days, he said.
He further told Business Line that market sentiments are low and any recovery from here is unlikely.
Traders expect that rice prices may continue to tumble even in the coming days.
In the physical market, Pusa-1121 (steam) dropped by Rs 200 and sold at Rs 7,500-7,550 a quintal, while Pusa-1121 (sela) quoted at Rs 7,000 , Rs 150 down from previous levels.
Pure basmati (raw) quoted at Rs 8,800-8,820 . Duplicate basmati (steam) eased by Rs 100 and settled at Rs 6,700 .
For the brokens of Pusa-1121, Dubar quoted at Rs 3,900, Tibar sold at Rs 4,400 while Mongra was at Rs 3,050 a quintal.
In the non-basmati section, Sharbati rice dropped by Rs 50-100 a quintal while PR varieties managed to maintain their previous levels on moderate buying. Sharbati (Steam) sold at Rs 4,750-4,770 while Sharbati (Sela) quoted at Rs 4,400.
Permal (raw) sold at Rs 2,300-2,350 while Permal (sela) went for Rs 2,300. PR-11 (sela) sold at Rs 3,000 while PR-11 (Raw) quoted at Rs 2,750. PR14 (steam) sold at Rs 3,300.

Coal ministry nod for CIL’s fuel supply agreements

The coal ministry has agreed to Coal India Ltd (CIL) signing fuel-supply pacts with 11 power plants with a combined capacity to produce 10,000 megawatts (MW) of electricity at the behest of the project monitoring group established by Prime Minister Manmohan Singh less than a month ago to hasten stalled investment projects.

The cabinet committee on economic affairs (CCEA) said on 21 June that state-owned CIL could sign such agreements for a total capacity of 78,000MW. It had also decided that the higher cost of imported coal could be passed on to consumers.At a 3 July meeting, 18 power projects were considered for assured fuel supplies.

“The CCEA decision has triggered the signing of these agreements. Companies were concerned that the promise to provide fuel may not be met in time,” a government official said on condition of anonymity. “So a timeframe for signing these agreements was set. The coal ministry has given a commitment to sign fuel supply agreements not later than August.”The state-owned coal miner has not signed such a pact since 2009.

The power projects with which the firm will sign the supply pacts include Talwandi Sabo Power Ltd, Prayagraj Power Generation Co. Ltd, GMR Kamalanga Energy Ltd, DB Power Ltd, Lanco Babandh Power Ltd, Adani Power Maharashtra Ltd, Haldia Energy Ltd, Maruti Clean Coal and Power Ltd, TRN Energy Ltd, Jhabua Power Ltd and Korba West Power Co. Ltd. These projects are worth overRs.52,000 crore.
The project monitoring group, headed by Anil Swarup, additional secretary, cabinet committee on investments, has so far held two meetings. “The next meeting will be with the ministry of environment and the cell will take up seven road projects that have been stuck,” said the official cited earlier.

The special cell aims to clear obstacles that have stalled 215 projects to which banks have already loaned more than Rs.7 trillion. Kuljit Singh, partner, Ernst and Young Llp, a leading consultancy said, “It is a good initial step taken by the government. It is clear however that the coal supply shortfall in the country needs to be met through imports. So steps need to be taken to ensure this import genuinely happens. For this Coal India should come out with tenders to import coal at the earliest as it takes time to process and also work out logistics with the railways to transport this coal.”

NTPC seeks states as allies against Coal India


The heat over the poor quality of coal supplied by Coal India Ltd (CIL) continues to increase, with NTPC Ltd trying to solicit the support of the states in its fight against the government-owned monopoly coal miner.

The states are involved because they buy power from NTPC, India’s largest power producer, which passes on the price of the fuel to them. And some of them also own power generating utilities that buy coal from CIL.

“We have written to the states. While it may seem like we are garnering support, one must understand that even they are facing the same difficulty,” said an NTPC executive who did not want to be identified.

Malay Kumar De, principal secretary, department of power and non-conventional energy sources in the West Bengal government, confirmed receiving NTPC’s communication. Both De and Orissa’s energy secretary Pradeep Jena said they supported the power generator’s position.

An NTPC spokesperson said the company is yet to receive an official response from the states. “I fail to understand why have the quality issues cropped up now after we increased supply to NTPC,” S. Narsing Rao, chairman of CIL, said. It is “indeed a concern” if NTPC joins hands with other coal consumers against the miner, he said.

NTPC has been sparring with CIL over the poor calorific value of coal being supplied. Calorific value refers to the amount of heat that can be generated by burning a certain amount of fuel. Typically, the calorific value falls when the fuel is of poor quality or has impurities (which means more of it will need to be burned to generate heat, and, consequently, electricity).

NTPC claims that while it is being charged for coal with a calorific value of 5,000 kcal/kg it is getting that with a calorific value of 3,500 kcal/kg. It has held back payment of Rs.2,000 crore to CIL on this account and denies owing any money to the miner. Mint couldn’t independently verify NTPC’s claim on the quality of coal.CIL has denied NTPC’s charge on the quality of coal, although it has refused to accede to the power generator’s request for quality checks at the point of delivery. Such checks are currently performed at the point of loading and involve the participation of a team from NTPC. Most coal is transported by rail.
After NTPC held back its payments, CIL temporarily suspended supply to the power generator, but restarted it after coal minister Sriprakash Jaiswal’s intervention. Still, a further disruption can’t be ruled out.

The genesis of the fight between NTPC and CIL goes back to the beginning of the 2012 calendar year when the miner moved to pricing based on gross calorific value (GCV). In the year ended 31 March, CIL missed its production target of 468 million tonnes (mt) by 12 mt although output increased 5.8% year-on-year. It failed to meet production targets in the preceding two fiscal years as well, although output did increase.If NTPC’s claim is true, it would mean that at least some of this increase has come at the cost of quality.

The quality of Rajmahal coal under CIL’s subsidiary Eastern Coalfields Ltd has not changed in decades while its price fell from Rs.870 to Rs.640 a tonne after the transition of the grading system to GCV, CIL’s Rao said. “Then why is the quality issue raised now?” he said.NTPC wrote to the states last week that they had been charged for electricity as per GCV of the coal received by NTPC at its stations.
Also, the utility has said that due to the curtailment of coal supplies, power generation may get impacted, which in turn will affect the electricity supply allocated to the states. In its communication, NTPC has also said that the state-owned utilities may also be receiving the same quality of coal and has advised them to have it checked and take appropriate action.

Nomura sees steel reversing back to USD 600 per tonne

Steel strategists at Nomura see a reversal of supply side conditions by the Q4 driving HRC steel back to USD 600 per tonnes, versus the current level of around USD 630 per tonnes. 

Mr Curt Woodworth analyst said that "US steel and scrap prices recently reached a 3 year low in May and have since recovered sharply, driven by supply outages and a lull in import flows from the negative arbitrage condition in 2Q. While various supply side disruptions have arrested the YTD price decline, the key question is whether these prices will last and, more importantly, what is fair value for US HRC in the context of quickly shifting global cost curves as seaborne iron ore and met coal prices correct lower.”

Mr Woodworth said that “We believe sharply contracting margins globally is a function of increased Chinese supply impacting margins in Asia and a much flatter cost curve leveling the playing field as bulk material prices contract. We believe that the recent negative inflection point in the non-residential construction market is likely to represent a cyclical pause before the next leg of growth ensues, which is likely to occur in early 2014 in our view.”

He said that “We believe global steel prices are driven by marginal cost dynamics with iron ore the key input. We continue to like Buy-rated STLD/NUE; however, we do see some risks in the short run if non-residential data and long product metal margins remain weak."
JSW auto grade steel mill to go on stream by December
According to CMD Mr Sajjan Jindal, JSW Steel's auto grade steel plant, which is coming up at Torangallu in Bellary district of Karnataka, will be commissioned by the end of this December.

He told media persons that "The 2.3 million tonne a year capacity plant, once commissioned, will substitute the auto grade steel imports. We are in talks with all the auto majors and most of them have already approved the product quality also. We expect the unit to generate revenues of USD 2 billion and an EBIDTA of USD 500 million once it attains full capacity utilization.”

The downstream, value added product manufacturing plant, specifically designed to cater to the requirement of the Indian automotive industry, is being set up with an investment of USD 1 billion.

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