INDUSTRY UPDATES on 24th, Oct 2013

the industrial updates, as on 24/10/13.

(1)     Sugar stocks seen rallying 50-80% as volumes pick up

Shares of sugar firms have gained momentum over the last one week on increased volumes, as investors began hunting for beaten-down stocks in mid- and small-cap space.

The rise in sugar stocks, say analysts, has also been due to a sharp spike in prices globally. Middle Eastern buyers are lapping up Indian sugar which is likely to offload some of the inventory as well.

“We just started picking up sugar in the last few days. Expect the cycle to turn around in the next seven-eight months. Recently, the stock prices got fillip because of the fire in the Brazilian godowns. That is one of the reasons why you are seeing the stocks move up,” said Ambareesh Baliga, Managing Partner-Global Wealth Management, Edelweiss Financial Services to ET Now.

“But overall most of these stocks have bottomed out and with the cycle really turning up possibly in next seven-eight months, this could be a great time to pick up. One should have patience, I do not see a runaway rally but I do not see much of a downside also from here,” he added.

According to Manav Chopra, CMT, Nirmal Bang, international sugar prices were in a major downtrend after topping around in February 2011.

“The price bottomed out around in early August 2013 and breached the long-term falling trend line with a series of bullish candles which has confirmed a trend reversal. We expect the prices to rise towards in the medium term which is bullish for sugar stocks as it maintains a good positive correlation,” he said.

Following are his technical recommendations on three sugar stocks. He is of the view that this is the time to invest in sugar stocks from long term perspective.

He expects these stocks to rally around 50-80 per cent in next 4-8 months time.

(2)     Ambuja Cements falls over 2% as results disappoint

Shares of Ambuja Cements today fell 2.61 per cent in morning trade on the bourses after the cement maker reported a 45 per cent decline in the July-September quarter net profit.
Ambuja Cements yesterday reported a 45.4 per cent drop in net profit for the July-September quarter at Rs 166 crore due to lower realisations and higher logistics costs.
The company had clocked Rs 304 crore net profit in the corresponding period last fiscal.
Reacting to the numbers, shares of Ambuja Cements opened on a weak note and then slumped 2.61 per cent to Rs 191.50 on the BSE. Similar movement was witnessed on the National Stock Exchange as well where the company opened at Rs 193.10, then fell 2.33 per cent to an intra-day low of Rs 192.10.
The decline in the counter assumes significance as the broader market was trading in the positive territory with significant gains. At 10.59 a.m., the 30-share benchmark index Sensex was trading at 20,968.16, higher by 200.28 points.
Market experts said the decline in the counter was largely because the company’s September quarter earnings were below market expectations.
“The cement industry is going through subdued demand on account of overall economic slowdown. Lower realisation and higher logistics cost impacted profitability,” the company said yesterday.
(3)     Rally in pulses may continue on fears of crop damage

Strong buying support and weak arrivals have lifted tur prices in Indore mandis in the past one week by almost Rs 150 a quintal.
On Wednesday, tur (Maharashtra) was quoted at Rs 4,550 (Rs 4,375-4,400), while tur (Madhya Pradesh) increased to Rs 4,000-4,150.
Rise in tur and other pulse seeds in Indore mandis has been attributed to increased buying support from millers and traders ahead of Diwali. The bullish trend in tur and other pulse seeds will likely continue this week, said Rahul Vora, a local pulse trader .
Rise in tur has also lifted its dal over the past one week on improved buying support with tur dal (full) being quoted at Rs 6,300-6,400, tur dal (full) at Rs 5,800-5,900, while tur dal marka ruled at Rs 7,000-7,100.
Slack arrival and strong demand have lifted urad prices by Rs 200 within a week, with urad (bold) being quoted at Rs 4,300 , while urad (medium) ruled at Rs 3,500-3,800 .
With arrival being lower on account of damage to the crops due to heavy rains and lesser import deals, rally in urad will likely continue in the coming days, said a trader. Urad dal (medium) was at Rs 4,800-4,900, urad dal (bold) at Rs 5,500-5,600, while urad mongar ruled at Rs 6,800-7,200.
Moong and its dal ruled stable on subdued demand and buying support with moong (bold) remaining firm at Rs 5,400-5,500, while moong (medium) ruled at Rs 4,500-4,800.
Given extensive damage to the crop this year due to rains, rally in moong will also likely to continue in coming days. Moong dal on (medium) was being quoted at Rs 6,300-6,400, moong dal (bold) at Rs 7,000-7,100, while moong mongar ruled at Rs 7,400-7,700 a quintal respectively.
(4)     Power generation at Kudankulam to resume after preparatory work

Power generation in the first unit of Kudankulam Nuclear Power Plant, which was shut down after running
for a couple of hours on Tuesday, would resume soon after completion of preparatory work and certain mandatory procedures, a senior official of KNPP said here today.
“Preparatory works are now on. We are following procedures. The reactor continues to be operational. However, there are also certain mandatory procedures to be done after which power generation will resume soon,” KNPP Site Director, R.S. Sundar, told PTI.
The first unit, which was synchronised on October 22 with the southern power grid, produced 165 MW power in two hours before it was shut down.
KNPP had said power would be increased gradually towards the 1,000 MW benchmark by December once the unit attains operational stability.
Unit 1 had attained criticality on July 13, this year after much delay following protests against the project by anti-nuclear activists in areas around the complex, citing safety reasons.
Nuclear Power Corporation of India Ltd is constructing two 1,000 MW units at KNPP jointly with Russia at Kudankulam in Tiruneveli district, some 650 km from here.
(5)     Excess rains may hit soya crop

Excess rains could reduce the soyabean crop for 2013-14 to around 10.2-10.3 million tonnes, according to the Solvent Extractors Association.
“Despite the area under the crop increasing by 15 lakh hectares, the crop will be much lesser than last year’s 12.1 mt on account of heavy rains damaging the crop in Madhya Pradesh and Maharashtra both in terms of quality and quantity,” said association Executive Director B.V.Mehta.
The Monsoon’s extended run and recent rains brought by the cyclonic storm Phailin had impacted the harvest, affecting the quantity and quality of the produce.
“Till mid-September, we were very hopeful, but rains have damaged the crop” Mehta said. According to him, on account of expanded acreage this year – which was 122 lakh hectares, 14 per cent more than last year — the normal crop size should have been up at 13 mt.
The Agriculture Ministry in its early projections had estimated the crop size at 15.68 mt, while the Indore-based Soyabean Processors Association of India was a bit conservative in pegging the crop at 12.98 mt.
(6)     Steel price on the downside as oversupply continues in China

China steel market runs vulnerably since September and oversupply continues. Steel price retreats after correcting for some time. Steel price falls at domestic spot market, rebar futures price remains weak, crude steel production sustains high and buying activities from steel consuming industries slacken over the past week. Transaction in the marketplaces performs bleak and pessimistic sentiments spread amid traders.

Medium plate price posts a significant drop with the range of CNY 10 to CNY 60 per tonne in Shanghai, Guangzhou and Beijing within one week. HR coil price heads south amid fluctuation with enlarging decline. Construction steel price retreats with a weekly fall of 10-50 yuan per tonne in Shanghai, Beijing and Tainjin. Construction sites are slowing down buying activities. Therefore, market transaction is hard to uplift even on steel price fall, which causes pessimistic sentiments on the marketplaces.

Iron ore price remains volatile. Domestic iron ore concentrates price keeps stable in Hebei province and transaction is bleak on the whole. Steel mills are not enthusiastic in purchasing and keep domestic ore inventory low. Imported ore price continues rising. Platts 62 Fe content iron ore price index was USD 135 per tonne, a rise of USD 3 from last week. The replenishment in some steel mills pull imported ore price up. However, delivery from global three iron ore giants boosts and ocean freight retreats after a rise, which might lead to downfall in imported ore price in the near future.

Due to oversupply pressure and deficiency of rise in downstream demand, China steel market stays vulnerable since September. As per forecast by China Iron and Steel Association, China's daily crude steel production for early October might be 2.1281 million tonnes, down 1.11% compared to mid October. It remains high and oversupply will last, which is hard to resolve in the short term. Therefore, China steel market is expected to remain bleak.

(7)     Record steel output credit-positive for Indian companies - Moody

Economic Times reported that record steel production by major steel makers notwithstanding the tepid economic scenario and lackluster consumption is credit positive and would aid in boosting their profitability.

The research arm of rating agency Moody's said that "It appears that, despite lukewarm economic environment and slowing Indian steel consumption, India's largest steel producers are churning out steel at record level. This credit positive event will help boost their profitability."

Attributing two factors depreciation of rupee and gas shortage for some of this anomaly between the growth in output and demand, it said that there was a risk for further dip in plant utilization in the short term.

While depreciation of the rupee from 54.3/USD at the end of March to 62.6/USD at the end of September has supported domestic prices, shortage of gas has spoilt the hope of DRI based steel minor producers, benefiting major players.

According to a Joint Plant Committee report, India's real steel consumption showed a marginal increase of 0.8% for the 6 months ending on September 30th 2013 at 36.58 million tonne.

It said that “Nevertheless, large Indian steel producers have markedly increased their production and sales in the quarter ending September.”

Moody's Investor Services said in the medium-term, the supply demand balance looks manageable based on expected capacity additions.

It said that "However, in the short term, given that the growth in domestic steel production has outpaced real domestic steel consumption over the last 5 years, there is a risk of further reductions in plant utilization unless infrastructure building and the large steel intensive industries restore their former growth trajectories."

(8)     Mexico carbon credits scheme could hit steel jobs - Report

Industry insiders have warned that proposals to introduce a system of carbon credit payments could result in job losses in Mexico's steel sector.

The plans, included in the government's proposed tax reforms in September, would see charges imposed on fossil fuel use, including about 70 pesos (USD 5.40) per tonne of coal, in an attempt to reduce carbon dioxide emissions.

But bosses at Mexican steelmaker Altos Hornos de México subsidiary Minera del Norte said the proposals would have a damaging effect on the steel industry, a major coal consumer, local daily El Universal reports.

The charges would have a "negative" impact on the sector and jeopardize economic growth and job creation, the company executives were quoted as saying.

Union leaders have also warned the carbon credits scheme would result in the loss of 400,000 jobs in the steel industry as companies are forced to shed staff.

In a separate announcement, local union leader Mr Oliverio López Ramos of section 288 of the national mining-metalworkers union SNTMMSSRM, representing some Ahmsa workers in Monclova, Coahuila state, warned the proposals could affect steel projects and new jobs.

Ahmsa also announced plans to expand methane gas capture technology in use at its coal mining subsidiary Unidad Mimosa which the company said could be used to generate up to 120MW electricity and reduce emissions.

(9)     Odisha asks SAIL to raise RSP capacity to 10 million tonnes

Economic Times reported that having awarded 6 iron ore mines to SAIL, the Odisha government has asked the steel maker for raising the capacity of Rourkela Steel Plant to 10 million tonne per annum by March, 2017 before considering more mines for the PSU.

The demand for raising the plant capacity has been made to Steel Authority of India by the state at a recent meeting between Odisha Chief Secretary Mr J K Mohapatra and Mr G Mohan Kumar Union Steel Secretary in Bhubaneswar. SAIL officials were also present.

The minutes of the meeting said that "It was impressed upon the SAIL authorities by the state Chief Secretary to enhance RSP's capacity to 10 million tonne per annum within the 12th Five Year Plan itself."

SAIL officials could not be reached for comments. RSP has the capacity to produce 2 million tonne per annum hot metal now and post the ongoing expansion, with a capital outlay of INR 12,000 crore, the capacity of the plant would go up to 4.5 million tonne per annum.

Odisha has already granted six mining leases to SAIL and only 2 of them are in working condition. The state run is likely to take steps for making the remaining functional.

The minutes read that "Since SAIL has already been granted with 6 mining leases, actual assessment of the reserve position in these leases vis a vis requirement for proposed expansion of RSP should be done before application for further mineral concessions are considered."

Meanwhile, the state government also raised the pending issues of rehabilitation and resettlement relating to the RSP and said that these issues should be addressed on a priority basis since frequent disturbances being faced by the district administration.

Close to achieving 24 million tonne capacity from 14 million tonne per annum now, SAIL has recently unveiled plans to take it to 50 million tonne by 2025.

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