INDUSTRY UPDATES on 24.08.2013

 
 
 
 
 
 
 
 
 



With the rupee plunging to record lows and import set to become costlier, prices of almost all pulses have increased.

In addition, fear of damage to kharif crops due to fresh spell of rain in Madhya Pradesh and neighbouring States has helped price rally.

Arrivals of pulses in mandis have declined owing to rain.

Masoor (bold) in Indore mandis on Friday ruled at Rs 4,500 a quintal, while masoor (medium) was quoted at Rs 4,100-4,200.

Prices in the past fortnight have gone up by almost Rs 250-300.

Dependency on imports may push masoor to as high as Rs 5,000, he added.

Uptrend in masoor has also lifted its dal with masoor dal (average) being quoted at Rs 5,150-75, masoor dal (medium) at Rs 5,250-75, while masoor dal (bold) ruled at Rs 5,350-75.

Uptrend also continued in urad amid report of damage to new crop due to fresh spell of heavy rains in the State.

Urad (bold) ruled at Rs 4,000-4,050, while urad (medium) ruled at Rs 3,500-3,800.

In the past fortnight, urad prices have almost gone up by Rs 650.

If the present spell of rains continued for some more days, urad prices are bound to go higher in the coming days, said another trader.

Uptrend in urad has also lifted its dal with urad dal (medium) being quoted at Rs 4,400-4,500, urad dal (bold) at Rs 4,500-4,700, while urad mongar ruled at Rs 5,200-5,400.

Moong (bold) ruled at Rs 5,000-5,200, while moong (medium) ruled at Rs 4,500-4,800.

With better crop prospect and rise in acerage, traders were expecting bumput crop output in both moong and urad this year.

Sugar extends gain on hopes of higher demand

Sugar prices ruled steady at national level on ease and need-based, month-end local demand on Friday while on futures market, it extended gain on hope of higher physical demand from next month.

Sources said that activities were subdued on ample supply and need-based local demand.

As market carries ample stocks of over 120 truckloads (each of 100 bags) stockists kept away from taking big risk. Their inventory buying was also low.

In domestic futures market, the bullish trend continued for October and November contracts continued on hopes of higher demand for festivals.

November futures on the NCDEX rose by Rs 8 taking total rise of Rs 65 in the last four days. Arrivals in the Vashi market were 62-63 truckloads (each 100 bags) while local dispatches were 61-62 trucks.

On Thursday, 18-20 mills offered tenders and sold 38,000-40,000 bags at steady level at Rs 2,910-3,000 (Rs 2,910-3,000) for S-grade and Rs 3,010-3,110 (Rs 3,010-3,110) for M-grade.

On the National Commodities and Derivatives Exchange, sugar September futures were up by Rs 8 to Rs 3,029 (Rs 3,021), October was higher by Rs 8 to Rs 3,055 (Rs 3,047) and November inched up to Rs 3,081 (Rs 3,073).

The Bombay Sugar Merchants Association’s spot rates were: S-grade Rs 3,042-3,142 (Rs 3,042-3,142) and M-grade Rs 3,162-3,372 (Rs 3,162-3,372).

Naka delivery rates were: S-grade Rs 3,005-3,060 (Rs 3,005-3,060) and M-grade Rs 3,120-3,210 (Rs 3,120-3,210).

As metal stocks scrape bottom, value buyers pick and choose

Majority of the metal stocks on the bourses on Thursday saw an uptick in prices on expectations that the worst is over. In fact, they have started gaining in the last few days.

According to metal analysts, metal sector stocks, which have been underperforming others, witnessed some recovery after several weeks. Stocks of top metals and mining companies across the ferrous and non-ferrous space gained 6 to 13 per cent on Thursday.

Bhavesh Chauhan, analyst with Angel Broking, said funds were moving into the battered metal stocks on the hope that realisation and earnings would be higher in the second half of the current fiscal.

Another metal analyst of an institutional broking firm said that prices were likely to go up next month by four to five per cent across steel product segments. “Two non-integrated steel producers seemed to have already suggested so,” she said.

“Others, who may not declare price hikes are likely to slash discounts they offer now,” felt Chauhan.

Nomura said, “We are changing our underweight stance and turning overweight on the Indian metals sector as we believe that rupee depreciation benefits for the sector can be substantial, going forward.” The improvement in the global economy, alongside a weak rupee, makes for a powerful tailwind for metal companies’ earnings, in our view, it added.

A base metal trader said LME-linked price realisation (in rupee term) gave 3-5 per cent benefits for the domestic producers on the recent fall in (dollar-rupee) exchange rate. Steel traders said the rupee fall widened the gap between the imported and domestic prices and guarded local producers’ interests.

Most Indian metal producers have an inherent advantage in terms of a reasonable degree of raw material integration in steel, aluminium and zinc sectors. This should naturally result in rising stock prices given the bottoming out of metal prices globally, in our view, Nomura said.

The consensus among analysts indicated that demand for metals, particularly steel, during the current fiscal so far had been flat and the first half of the current fiscal might not see a trend reversal. But, the second half seemed poised for a moderate growth in demand.

According to bankers and industry sources, construction of some of the long delayed industrial and infrastructure projects might take off in the October-March period (after the rains) raising demand for metals.

Chauhan said FY13 had seen a domestic demand growth for steel items at 3.3 per cent. “The H2 FY14 demand growth could be anything between 4.5 per cent and 5 per cent. This may, in turn, improve the year-on-year tally,” he added.

On Thursday, Tata Steel moved up over 10 per cent. SAIL rose 7.4 per cent, JSW 7.44 per cent, NMDC 7 per cent, Sesa Goa 13 per cent, Sterlite shot up 10.42 per cent, Hind Copper by 6.6 per cent and Hindalco by 10.93 per cent.

Wheat futures likely to be range-bound next few days

Wheat futures are likely to trade in a tight range in the coming days, while dara wheat in physical market is also unlikely to see much fluctuation, according to traders.

Wheat futures witnessed a mixed trend on Friday. On the National Commodity and Derivatives Exchange, wheat for September contracts dropped by Rs 2 to Rs 1,584 a quintal with an open interest of 8,400 lots.

The grain touched a high at Rs 1,590 earlier in the day.

September contracts got some support at Rs 1,583, while resistance was at Rs 1,592.

October contracts improved by Rs 3 to Rs 1,594.

In the spot market, after witnessing a continuous fall in recent past, spot prices on the exchange rallied by Rs 35 to Rs 1,535.

According to the market experts, wheat futures have been ruling in a tight range and it may continue to rule in ranges even in the next few days too.

In the physical market, moderate buying kept dara wheat unchanged and quoted at Rs 1,470-1,475.

Around 1,000 bags of wheat arrived and stocks were directly offloaded at the mills.

Mill delivery was at Rs 1,470 while delivery at the chakki was at Rs 1,475.

Similarly, desi wheat variety remained unchanged and went for Rs 2,600-2,650.

Radhey Sham, a commodity expert, told Business Line that only need-based buying is taking place in the market and wheat prices may continue to rule around current levels even in the next few days without much fluctuation.

Flour Prices

With the demand being steady in the region, flour continued to rule flat and quoted at Rs 1,700.

Similarly, Chokar ruled flat and sold at Rs 1,150.

Power plants to bid on ‘efficiency’ for new projects

The power project developers would bid for new projects on their efficiency levels and any increase in fuel cost burden would be passed on to the consumer.

An empowered group of Ministers (eGoM) headed by the Defence Minister A K Antony on Friday gave its go-ahead for the latest standard bidding documents (SBDs) that would be applicable for projects where the fuel source is determined in advance, known as case-II.

This would facilitate award of 4,000 mw each ultra mega power projects (UMPP) in Tamil Nadu and Odisha.

“There are many clauses that would be fruitful (to power developers) such as pass-through of fuel cost,” said Jyotiraditya M Scindia, Minister of State (Independent Charge) for Power.

It is to be seen if companies come ahead to bid for new power projects. The only operational UMPP in the country run by Tata Power at Mundra has reported losses for rise in coal prices.

On the other hand, Reliance Power has approached the regulator for hike in tariff for the project bagged by the firm.

The Government has brought several changes in the new bidding norms such as there will be a single parameter for competition, which is ‘capacity charge.’

In the earlier model, a bidder had to give nearly 54 price quotes spread over 25 years. Since, the fuel cost is made pass-through now; there would be no quotes for fuel charges. The capacity charge would be linked to depreciation and loan repayment. At the same time, it will be linked to the inflation index.

In addition, an independent engineer would oversee some of the core functions of the projects. The core functions would include reviewing if the station has been set up as per the laid specifications, supervising testing and commissioning procedure and any other clause where the utility may face financial liability.

The new norms also changes the projects from a build-own-operate (BOO) model to design, build, finance, operate, and transfer (DBFOT) structure.

In a DBFOT model, the project developer will not have ownership of the land and the plants. This also means that lenders will not get security on the land or the project assets.

The Government has assured that it would recommend to Reserve Bank of India to facilitate funding for the power projects.

The project developers would also have to buy their equipment from domestic suppliers such as BHEL, L&T and Alstom-Bharat Forge, among others.

The Minister of Heavy Industries and Public Enterprises, Praful Patel, has urged the Government to make it mandatory for UMPPs to source equipment locally.

The UMPPs would have to sale at least 80 per cent of the electricity produced on long-term agreement to discoms. The Government proposes to keep free 15-20 per cent of the capacity in each project for merchant sales.

Petronet receives 1st cargo at Kochi terminal

Petronet LNG Ltd, the country’s largest importer of liquid gas, has received the maiden cargo at its just constructed Kochi import terminal in Kerala which will be used commission the Rs 4,200 crore terminal.

Petronet had on August 11 received a ship carrying gas in liquid form (liquefied natural gas or LNG) from Qatar but the ship could not dock at the port.

“The LNG carrier ‘Wilenergy’ laden with its cargo of about 1,23,000 cubic metres of liquefied natural gas berthed in PLL’s jetty at Puthuvypin” yesterday, the company said in a statement.

The ship could not berth earlier due to silt reducing the navigating channel depth. The channel had to be dredged before the vessel could dock.

“This commissioning cargo has come from RasGas of Qatar,” the statement said. “Though the vessel carrying LNG arrived at the outer channel eight days ago, there was an unforeseen delay in bringing the vessel to the jetty.”

Most of the cargo will be used to commission terminal and commercial supplies from the terminal may start in a week’s time.

The Kochi terminal, however, will operate at less than 10 per cent of its 5 million tonnes per annum capacity in the first year of operation as pipelines taking gas to customers in Karnataka and Tamil Nadu are not ready, it said.

Kochi terminal is currently being connected to two main customers — Bharat Petroleum’s Kochi refinery and the Fertilisers and Chemicals Travancore Limited (FACT), which are in the process of converting their facilities to run on natural gas.

“The concern as of today is that only Phase 1 of GAIL’s pipeline network covering about 44 Kms is complete and this caters only to the limited industrial areas of the city of Kochi. Little progress has been made for the major part of the pipeline network of more than 900 Kms that would transport the gas to the northern districts of Kerala, and the states of Tamil Nadu and Karnataka,” the statement said.

At least 70 per cent of the total capacity, or 3.5 million tonnes a year, is required for the terminal to function at minimum optimum efficiency.

Gangavaram Port operations hit

Operations at the port of Gangavaram were affected for one shift on Thursday. Proponents of Samaikyandhra led by Minister for Infrastructure, Investment and Ports, Ganta Srinivasa Rao, Gajuwaka MLA Chintalpudi Venkataramaiah asked the Gangavaram Port to close its operations in expression of solidarity with the ongoing movement for keeping the State united.

The Management of the Port, built under PPP mode, cooperated and stopped the operations for the first work shift, according to a statement issued by the port. The operations of the Port resumed normally after the first shift, the statement added. Agitations across coastal Andhra and Rayalseema districts have been impacting normal life since the past 21 days.

Steel price hike inevitable in India after INR collapse

Near 20% mauling of the Indian Rupees since May has thrown haywire balance sheet of steel makers calling for rearguard action to inhibit further erosion of their bottom line. INR slide below 65 mark prompted JSW Steel announcing 5% increase from September 1st 2013, while other companies remained tightlipped about the timing and quantum of price hike



Following factors support steel price hike in India



1. Higher import bill for coking coal for large players

Indian steel mills are heavily dependent on imported coke. Coking coal prices have seen uptick recently from nearly USD 125 per tonne CFR to 136 per tonne on increased demand from China and production rationalization by miners.

Spot iron ore eases as China restocking slows as rebar down

Reuters reported that spot iron ore prices pulled back further from five month highs reached last week as Chinese mills slowed replenishing stockpiles waiting for more evidence that the country's steel market is on the road to recovery.



Shanghai rebar steel futures dropped to their weakest level in 1-1/2 weeks despite a private sector survey showing activity in China's manufacturing sector accelerated to a four month high in August.



A Shanghai based trader said that "Traders are finding it difficult to accept rising steel prices after a rapid increase in the past few weeks, so they are on a wait and see. But the outlook remains positive and prices will be on an upward track again."



The most traded rebar contract for October delivery on the Shanghai Futures Exchange was down 0.8 percent at CNY 3,765 per tonne by the midday break, just off a session low of CNY 3,763.



The decline comes despite the preliminary HSBC Purchasing Managers' Index for China rising to 50.1 in August from 47.7 in July that reinforced signs of stabilization in the world's second largest economy. The upbeat data still bodes well for China's steel market with a stabilising economy combining with the peak consumption season that starts in September.



Investment bank Barclays said that we think inventory rebuilding following a period of destocking is driving stronger activity in the Q3. The increase in imports of raw materials iron ore and crude oil in July. The price of rebar, a product used in construction is up 3.4% so far in August and is on track for its third straight month of gains.



Recent gains in steel prices had spurred appetite for raw material iron ore although traders said the restocking momentum that pushed prices to five-month peaks last week appears to be slowing.



A trader in Hong Kong said that "We should have a bit of correction for iron ore prices because they went up really fast. With prices on the high side buyers are slowing down. We have not really seen a sufficient increase in steel prices that would warrant a large increase in iron ore prices.”

Brazil Steel Institute objects to reduction of import duty rates

The Brazil Steel Institute said that in response to the decision of Brazil's Ministry of Finance to reduce the import duty rates on 100 items including steel products, import duty rates will negatively affect the Brazilian steel industry.



The IAbr said that alteration of the current duty rates before their expiry date is not compliant with the law.



On August 1st, Brazil's Ministry of Finance announced that it will reduce the import duty rates to generate greater market competitiveness and lower inflation pressure. The new duty rate regulations will see import duty rates lowered to 8% to 12% from around 25% announced in September 2012. The new import duty rates will be effective as of October 1st.

Mr Sajjan Jindal seeks status quo on iron ore export duty

BS reported that JSW Steel Limited has raised grave concerns about the removal of export duty on iron ore exports, stating it would be detrimental to the domestic steel industry which is facing acute shortage of iron ore.



In a letter to Mr Manmohan Singh Prime Minister, Mr P Chidambaram Finance Minister and Montek Singh Ahluwalia deputy chairman of the Planning Commission of India, Mr Sajjan Jindal CMD of JSW Steel has said the steel industry is facing severe shortage of iron ore in Karnataka due to a delay in restarting mines. At this juncture, relaxing export restrictions on iron ore would not be a step in the right direction.



Mr Manmohan Singh said that the government was considering easing export duty on iron ore to encourage exports as a measure of bringing down the current account deficit. Due to severe shortage of iron ore in Karnataka, presently our steel plant at Vijayanagar is operating at 75% to 80 % capacity utilization only. It is very unfortunate, that while Indian steel plants are running at lower capacity utilization, the country is importing steel to fulfill its demand.



Mr Jindal said that “India’s steel imports have registered a rise of 15 % in 2012 to 2013, a cause for further widening CAD. It would be pertinent to note that India imported steel worth USD 6 billion in 2012 to 2013, even after being the best place to manufacture steel. The production of iron ore has come down from 218 million tonnes in 2008 to 2009 to 140 million tonnes in 2012 to 2013 due to the enforcement of strict environmental and other regulatory measures. It is also evident that there used to be a surplus of almost 100 million tonnes to 110 million tonnes in 2008 to 2009 and 2009 to 2010.



However, this has come down to a meagre 17 million tonnes in the year 2012 to 2013. The production of iron ore is expected to remain at 140 million tonnes due to the cap in production in Karnataka ban in Goa and strict enforcement of environmental regulations in Odisha. However, domestic steel industry requirement is more than 145 million tonnes in the current fiscal. The industry is forced to import iron ore, which is not economically viable.



Mr Jindal said that the government of India had taken a decision in the Budget of 2007 to 2008 that iron ore exports would be discouraged through various fiscal measures at a time when more than 100 million tonnes surplus iron ore was available. If the exports restricts are relaxed in the present scenario, iron ore exports will not take place due to non availability of iron ore and restriction by the Supreme Court in Karnataka and Goa.



He said that “however, iron ore prices will increase in the domestic market, which will force the steel industry to cut production due to poor economic viability and impact the production of steel in the country. In such a scenario, the country will have to increase its steel imports, which will further worsen the current account deficit.”



He added that “If the government ensures the availability of iron ore for domestic steel production which is running at all time low utilization level in the country, the imports of steel will go down and also the CAD.”

BHP Billiton updates on iron ore production

Iron ore production increased by 7% in the 2013 financial year to 170 million tonnes (BHP Billiton share). WAIO production of 187 million tonnes (100% basis) represented a thirteenth consecutive annual production record. The delivery of WAIO's capital efficient growth program and continued strong operating performance across the supply chain contributed to this record result. Samarco's three pellet plants continued to operate at capacity during the period.



Underlying EBIT for the 2013 financial year declined by USD 3.1 billion to USD 11.1 billion. Record sales volumes at WAIO increased Underlying EBIT by USD 1.4 billion. However, this was more than offset by a 17% fall in the average realized price of iron ore to USD 110 per tonne which reduced Underlying EBIT by USD 3.9 billion, net of price linked costs.



WAIO's export volumes for the 2013 financial year were sold on the basis of shorter term, market based prices. Revenue for the period reflected the average index price one month prior to the month of shipment, adjusted for product characteristics such as iron and moisture content. Approximately 65% of shipments were delivered on a Cost and Freight (CFR) basis.



Increased labour and contractor costs reduced Underlying EBIT by USD 151 million during the period. This largely reflected our decision to invest in operating capability prior to the full commissioning and ramp up of expanded capacity at WAIO. WAIO unit cash costs including freight and royalty charges of USD 856 million and USD 1.2 billion, respectively remained largely unchanged during the 2013 financial year.



Increased depreciation and amortization charges reduced Underlying EBIT by USD 239 million and reflected the recent completion of several major projects and a USD 86 million impairment of project costs associated with the WAIO Tug Harbour project.



On June 20th 2013, BHP Billiton announced an extension of its long term WAIO JV relationship with ITOCHU Corporation and Mitsui & Company Limited. This transaction was completed in July 2013 and has aligned interests across the WAIO supply chain. Under the terms of the agreement, ITOCHU and Mitsui invested approximately USD 0.8 billion and USD 0.7 billion, respectively, in shares and loans of BHP Iron Ore (Jimblebar) Private Limited representing an 8% and 7% interest in the Jimblebar mining hub and resource. The consideration included a share of capital costs associated with the Jimblebar Mine Expansion project.



Several major milestones were achieved at our WAIO business during the 2013 financial year including an increase in port capacity to 220 million tonnes per annum (100% basis) following the successful installation of all major infrastructure associated with the Port Hedland Inner Harbour Expansion project.



First production from BHP Billiton Financial Results for the year ended 30 June 2013 the Jimblebar Mine Expansion, which will increase mine capacity to 220 million tonnes per annum (100% basis), is expected in the December 2013 quarter, ahead of schedule. Longer term, the progressive debottle necking of the supply chain is expected to underpin substantial low cost growth in ourWAJO business.



WAIO production is expected to increase by 10% to approximately 207 million tonnes (100% basis) in the 2014 financial year. The associated productivity gains will benefit unit costs in the 2014 financial year however, this is expected to be more than offset by a temporary increase in strip ratios as the Jimblebar Mine Expansion ramps up production. Total iron ore production for the 2014 financial year which includes Samarco production, is forecast to increase by 11% to 188 million tonnes.

MHMM and MC receives order for Tandem Cold Mill

Mitsubishi-Hitachi Metals Machinery, Inc and Mitsubishi Corporation jointly received an order for a Tandem Cold Mill from the Shanghai Baosteel Group Corporation (hereinafter, Baosteel), which is the largest iron and steel company in China.



The signing ceremony for the agreement was held in Shanghai. The event was attended by the Chairman of Baosteel, Mr Xu Lejiang and the vice president, Mr Zhao Zhouli (chairman of Baosteel Zhanjiang Iron and Steel Co Ltd) from the Baosteel side, Mr Masaji Santo, COO of the Infrastructure Business Division and concurrently COO of the Environmental Business Division from Mitsubishi Corporation, Mr Shunichi Miyanaga president of Mitsubishi Heavy Industries, Ltd and Mr Yasukuni Yamasaki president of M-HMM.



The Tandem Cold Mill that was the subject of this order is for Zhanjiang Steel Works, which is currently under construction in China's Guangdong Province. The plant will have an annual capacity of 2.2 million tonnes and will enable production of high grade steel sheet products such as automotive steel sheets. Production is scheduled to start during fiscal year 2015. High expectations are placed on Zhanjiang Steel Works as a base of Baosteel for exports to Southeast Asian markets and southern China. Including planned 2nd phase construction, the works is expected to have a crude steel production scale of 10 million tonnes.



Mitsubishi-Hitachi Metals Machinery is contributing to the improvement in productivity for its customers, making full use of the technologies and know-how it has cultivated to date through its actual results in the delivery of a large number of cold-rolling plants, and will continue to positively develop order-receiving activities in the future.







2 comments:

  1. Can you start posting the daily fixtures again?

    ReplyDelete
  2. Start putting the daily fixture reports up again

    ReplyDelete