VITAL INDUSTRY UPDATES – 05/06/2015

June 5, 2015 4:29 pm Published by

Copper facing 3rd weekly loss as demand set to ebb

London copper was set to rack up its third weekly loss in a row on Friday on expectations of a summer slowdown, while nickel was due to log the biggest climb among base metals as traders bet on dwindling ore stocks.

China’s initiative to resurrect trade along the ancient Silk Road connecting the Asia Pacific and Eurasian regions presents upside risk to demand for commodities from 2017, said Joel Crane of Morgan Stanley in Melbourne.

“(But) the dollar is rising, demand is seasonally slower, so there are some headwinds to prices in the coming months,’’ he said. Morgan Stanley forecasts copper averaging $5,952 a tonne in the third quarter.

LME copper

Three-month copper on the London Metal Exchange had edged up 0.1 percent to $5,923 a tonne by 0335 GMT, after the previous session’s 1.6-per cent loss, when prices slid to their weakest since April 23 at $5,906. Prices were on track for a 1.5-per cent weekly fall in a worsening chart picture.

The most-traded August copper contract on the Shanghai Futures Exchange dropped 1.4 per cent to 42,900 yuan ($6,911) a tonne. Support was seen at the 100-day moving average at 42,744 yuan, a break of which could spark momentum sales.

LME nickel

Across other metals, LME nickel was set to close the week up 2.5 per cent on expectations that China would turn to refined nickel as its ore stockpiles drop.

“Firmer-than-expected NPI production and weak nickel demand have delayed the market’s shift into deficit,’’ said BNP Paribas in a note. Nickel pig iron (NPI) is a cheaper source of feed than nickel, used by China’s vast stainless steel sector.

“We still expect a large deficit in 2016, but it will take longer to run down excess inventories.’’

The bank issued a trading recommendation to retain existing long positions on a risk-reward basis, but said there was no hurry to initiate fresh longs.

US non-farm productivity fell more sharply than initially thought in the first quarter, leading to a jump in labour-related production costs, a trend that could ignite inflation if sustained.

A deluge of Chinese data due next week may show some signs of steadying in the world’s second-largest economy thanks to stimulus measures, but analysts say more support is needed to counter headwinds from a property downturn and patchy exports.

Mining equipment maker Joy Global Inc reported a quarterly profit that nearly halved as customers cut spending due to weak prices.

Cement stocks take a beating on poor earnings growth

Cement stocks have underperformed the broader market in the last one month on disappointments over their earnings for the March 2015 quarter. Against the Sensex’s 2 per cent drop since May, Ambuja Cements, Grasim Industries, India Cements, JK Lakshmi Cement and JK Cement have sunk 5-10 per cent.

The shareholding patterns for the March 2015 quarter show that Foreign Portfolio Investors (FPI) have cut their holdings in several cement stocks during the quarter compared to end-December 2014.

In Ambuja Cements, for instance, FPI holding has dropped by over two percentage point to 27.43 per cent. ACC, Grasim Industries, UltraTech Cement, India Cements, The Ramco Cements and JK Lakshmi Cement are other stocks where foreign institutional holding has come down.

Earnings picture

Cement companies have shown a dismal performance in the March quarter. But for a couple of players, most have seen a drop in revenue and profits. The big four players – UltraTech, ACC, Ambuja Cements and Shree Cement – recorded 25-40 per cent drop in net profit led by lower realisation and a drop in sales volume.

While the industry’s despatches during the quarter reported a three per cent growth, year-on-year, not all companies saw their sales volumes go up.

UltraTech, ACC and Ambuja Cements reported about 3-10 per cent drop in despatches. The slowdown in demand from rural India, poor offtake in infrastructure projects and the unseasonal rains in February and March in many parts of northern India have hit cement demand.

South-based India Cements and The Ramco Cements did better than their peers in the North, supported by better realisations (20-25 per cent, year-on-year) and cost savings that buttressed the margins.

The Ramco Cements recorded a 273 per cent jump in profits. India Cements returned to profit from a loss last year. However, both companies saw a steep 16-20 per cent decline in sales volumes as the retail demand was dismal.

Shree Cements was an outlier on despatches front. It recorded a good 7.5 per cent growth in sales volumes, thanks to capacity addition. But weak realisations led to both revenues and profits being down relative to last year; profit margins came under pressure as well. The power segment too didn’t fare too well on lower demand for merchant power.

Outlook

Rural housing makes for about 40 per cent of the total cement demand. If rural wages and agriculture income come down because of the poor monsoons this year, it will be negative for cement manufacturers. However, a better infrastructure demand with road projects now kicking off and a pick-up in urban housing, demand may offer some growth.

Southern cement players may see some relief if new infrastructure development in Seemandhra and Telangana progresses well and cement demand therefore gather steam.

NMDC iron ore output, sales hit in April, May

State-owned NMDC today said its production and sales of iron ore declined by 16 per cent and 21 per cent, respectively, in the first two months of the current fiscal.

Iron ore production fell by 16 per cent to 4.14 million tonnes (m.t.) in April-May of 2015-16 fiscal from 4.94 MT during the same period in 2014-15, it said in a BSE filing.

While, sales of ore fell by 21 per cent to 4.54 m.t. from 5.74 m.t. during the reported period, it added.

The production of the company during 2014-15 touched a record at 30.44 m.t. as against 30.02 m.t. in 2013-14.

NMDC has planned a capex of Rs. 3,500 crore for 2015-16 fiscal and expects iron ore prices to firm up.

The firm plans to enhance production to a level of 35 m.t. in the current financial year.

NMDC is also planning to raise its capacity to 100 m.t. by 2024—2025.

Shares of the NMDC today fell 4.48 per cent to settle at Rs. 117.20 at the BSE.

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This post was written by Atlantic Admin