VITAL INDUSTRY UPDATES – 09/04/2015

April 9, 2015 4:01 pm Published by

Sesa, NMDC shares fall on weak iron ore prices

Shares in Sesa Sterlite and NMDC Ltd are trading lower on weak iron ore prices. The shares of Sesa fell 0.4 per cent and NMDC was down 0.7 per cent.

Chinese iron ore futures fell amid persistent signs of tepid demand in China and growing supplies from top miners.

The industry outlook remain subdued because of global demand, says an analyst at a domestic brokerage.

MCX-Copper: range-bound with a negative bias

The immediate outlook for the copper futures contract traded on the Multi Commodity Exchange (MCX) is not clear. The contract has been broadly trading in a sideways range of ₹370 and ₹390 a kg over the past two weeks.

It is currently trading at the mid-point of this range at ₹379 – the 21-week moving average level around which the contract has been oscillating over the last two weeks.

The contract can move in either direction from current levels. However, the signals from the short-term charts are negative and suggest that there is a strong likelihood of the contract declining in the coming days.

Immediate resistance is at ₹383. Inability to breach this hurdle could put the contract under pressure.

In such a scenario, a fall to ₹370 and ₹368 is possible in the coming days. A break below ₹368 will increase the downside pressure and push the contract lower to ₹364 – the 55-day moving average support level.

Short-term traders with high risk appetite can go short at current levels. Stop-loss can be placed at ₹384 for the target of ₹372.

Steel imports up 71% in FY15

India has imported 9.32 million tonnes (mt) of steel items in 2014-15, up around 71 per cent year-on-year. According to steel sector analysts, this has been the highest import of steel items in the past five years.

According to the recently released provisional data by the Joint Plant Committee, export of steel items dropped 8.1 per cent to 5.5 mt.

The production of finished steel at 90.55 mt, was up 3.3 per cent, and consumption at 76.35 mt increased by 3.1 per cent.

The figures indicate reduction of insularity of the Indian steel market and increase in global competitive pressure.

Jayanta Roy, Senior Vice President and co-head of corporate sector rating of ICRA told Business Line that lower landed cost of imported steel items has been behind this surge in import. “The price differential was because of higher domestic cost of production. Internationally, reduction in iron ore prices has been much more prominent than that in the local market during the previous year. This was one of the factors contributing towards higher cost of production,” he explained.

Price of Chinese hot rolled coils (HRC) ruling at around $370 a tonne, at present. This translates into landed cost of imported steel (at port) cheaper by almost $89 a tonne than the prevailing domestic steel prices, after accounting for the current exchange rates, ocean freight and various duties, industry insiders said.

The benefit for Indian producers buying iron ore locally was, however, limited. International iron ore prices dropped by $65 a tonne (from around $115 a tonne in April 2014 to around $50 a tonne now) in the last one year, the domestic price reduction was just around $9 a tonne. “This imparted cost advantage to international players by almost $90 a tonne in steel making, since each MT of steel requires around 1.6 MT of iron ore”, Roy said.

According to a recent report of Ernst & Young, global steel demand forecasts were lowered in the second half of 2014 as the earlier positive momentum faltered. “We are witnessing role reversal as several rapid-growth markets have not performed up to expectations in creating demand. Steel margins are improving as iron ore prices reached new lows, while an increase in new seaborne supply met reduced growth in Chinese steel demand”, the report said. However, steel prices also have drifted, unable to retain the gains on input costs.​

(Updated) Centre comes out with draft rules for auction of mineral

The Central Government has formulated the draft rules for mine auctions and proposes to electronically auction two types of licences/leases — Mining Lease and a Composite License.

Both leases will require state governments to identify, demarcate and geo-reference the area which will go under the hammer. The proposals are part of the draft of ‘The Mineral (Auction) Rules, 2015’.

The draft rules were made public on Wednesday with the Mines Ministry seeking comments by April 23.

State governments could also be required to obtain the green clearances and acquire all the land that it doesn’t own in the proposed area.

Similar to e-auction of coal blocks, there will be a two staged bidding where bidders will have to give an initial price offer at the technical stage of bidding. The highest such initial price offer will be the floor price for the e-auction in the financial bid stage.

The bidding parameters will be based on a production linked revenue sharing model. Bidders will have to quote a percentage of the revenue as the bidding parameter.

For mining lease, there has to be evidence of mineral content in the area. If a bid is successful and a Mining Lease is awarded, an amount equal to the actual production from the mine, the percentage quoted by the bidder and average price of the mineral as given by the Indian Bureau of Mines shall be payable by the successful bidder.

In order to be eligible for participation in the bidding of a Mining Lease, the mineral reserve should not exceed more than 1.25 times the requirement of the bidder for its specified end-use over 50 years.

Bidders will also need to furnish performance bank guarantees which will be linked to the milestones in the mining plan.

A composite licence, combination of prospecting-cum-mining lease, will also be auctioned for areas where there is an insufficient evidence of mineral content.

Here too, state governments will be required to obtain all green clearances and the necessary land before the area is put under the hammer.

The winning bidder will have to undertake exploration activities in the area. If the winner fails to find mineral content in the area, the composite license will lapse and the mining lease shall be cancelled.

Rising thermal coal imports set to propel India to top spot

India may soon become the world’s largest importer of thermal coal, nudging the current top-ranking China to second position. India’s thermal coal imports have begun to attract global attention as volumes steadily grow and China begins to slow.

Although India has been among the top destination markets for thermal coal over the last ten years or so, the expectation of increased demand in the coming years – on account of economic growth prospects, growing power demand and government policies – is driving traders to keep a close watch on developments here.

Over the last decade, India’s thermal coal demand has grown robustly, estimated at around 25 per cent CAGR. Currently, at 150 million tonnes (mt) import, the country accounts for about 16 per cent of the seaborne trade of 915 mt. Although a large coal producer, Indian coal quality is sub-standard with a high ash content of over 30 per cent. So, many power plants routinely blend indigenous coal with imported ones to derive productivity benefits.

Starting at a modest 25 mt in the year 2000, thermal coal imports expanded to 50 mt in 2009 and to 100 mt in 2012 and further to 150 mt in 2014. Projections for the next three years are placed at 165 mt, 180 mt and 190 mt until 2017.

At the same time, domestic thermal coal production is expected to increase by approximately 30 mt per annum from 510 mt in 2014.

For years, coal-fired power capacity additions have exceeded other forms of power generation while domestic feedstock production growth has trailed demand growth. By 2018, India is poised to overtake China as imports potentially reach 200 mt accounting for a fifth of the world seaborne thermal coal trade. According to the Ministry of Coal, although India has adequate coal reserves (over 300 billion tonnes of which 125 billion tonnes are in the ‘proved’ category), actual production falls short of consumption demand and the gap is met through imports.

“The domestic production of coal has been constrained due to problems in expanding the capacity arising from difficulties in land acquisition, geo-mining conditions, environment and forest clearance issues. Inadequate infrastructure is another constraining factor,” the government has said.

For coal exporters such as Indonesia, South Africa and Australia, India is some kind of a saviour even as Chinese coal imports are slowing and may not anymore be the buyer of last resort. It is generally known that China’s metals and mining sector is not in a good financial shape.

 

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This post was written by Atlantic Admin