Published on 5/12/2017 5:55:10 PM | Source: Emkay Global Financial Services Ltd

Global steel spread narrows - Emkay

* Steel spread narrowed further by 12%mom due to weak steel prices (-4%mom) and higher raw material cost: 62% grade iron ore price rose by 18%mom due to high demand from China, while, coking coal prices rose by 22%mom due to concern over delayed deliveries.

* In Non-ferrous space, except Lead which rose by 2% mom, all other metals fell considerably. Aluminium decline by 6.5%mom followed by 3% and 2.7% fall in Zinc and Copper prices respectively. Silver also fell by 4%mom while Gold remained flat

*  Home sales in China fell the most in last three years while floor space under construction remained weak. Also, investment in power grid infrastructure stood flat in first 10months of CY17. Steel prices may witness volatility, if real demand doesn’t pick up.

* In India, domestic iron ore producers have increased their prices, while MOIL has reduced its prices following global trend. Domestic steel producers are trying to take a price hike of Rs 500-1000/ tonne. JSHL, JSL and Vedanta remain our top picks in the sector

* Raw material prices caught fire as price of 62% grade iron ore rose by 18%mom while coking coal price increased by 22%mom. Steel prices also remained weak and come in at US$527/tn (-4%mom). Consequently, steel margin fell by 12%mom second time in last 6 months.

* China’s endeavor to keep output as high as possible by using higher grade iron ore has led to the rally in iron ore price. In case of coking coal, delayed deliveries due to congestion at ports in Australia (recall; this is after effect of infrastructure disruption caused by the cyclone Debbie last year) is causing prices to rise.

*  In current month, mines ministry of India talked about scrapping 30% export tax on medium grade iron ores as miners are unable to sell their produce in local market due to less demand and poor offtake in exports market due to un-competitive pricing. However, we believe that this won’t happen as the focus is more on sustainability of steel industry.

* In Non-ferrous space, except Lead which rose by 2% mom, all other metals fell considerably. Aluminium decline by 6.5%mom followed by 3%mom/2.7%mom fall in Zinc and Copper respectively. Silver also falls by 4%mom while Gold remains flat.

* Steel prices in India have been stable since last one month with some improvement in demand. Raw material price volatility has been an issue and producers with backward integration of will be beneficiary. Recent price hike by NMDC and other producers from Odisha has triggered steel price hike by Rs 500- 1000/ tonne in the domestic markets. Any improvement in global steel prices would be helpful in this regard. In non- ferrous space, we believe, prices to be stable. We prefer JSHL and JSL as the preferred pick, while, Vedanta remains our top pick in non- ferrous space.


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