VITAL INDUSTRY UPDATES – 22/04/2015

April 22, 2015 11:19 am Published by

        

Steel demand likely to see 6% growth: PwC

India is expected to see a 6 per cent growth in its steel demand during 2015, while the global demand is likely to remain at 2 per cent, a report said today.

“Higher demand is likely to come from India, with forecast growth of 6 per cent in 2015 compared to 1.8 per cent in 2013,” PricewaterhouseCoopers (PwC) said in a report.

It further said: “overall, the world steel demand growth is expected to remain around 2 per cent in 2014 and 2015, down from 3.8 per cent in 2013.”

The report said a sluggish demand on the global front is likely to continue as demand from China, the world’s largest steel consumer, declined considerably.

“Recoveries in Europe, the US and Japan are not anticipated to be strong enough to offset the slowdown in China and a number of emerging economies,” it said.

The fall in raw materials prices and weaker demand for steel may cause some steel companies to take a hard look at their resource portfolios, it added.

Steel industry’s 2014-15 Q4 earnings look bleak

The fourth quarter earnings of domestic steelmakers in 2014-15 are likely to be bleak as the industry continues to grapple with weak domestic demand and cheap imports.

Steel imports are expected to be at a record 9.31 million tonnes in 2014-15, surging 71 per cent over the previous fiscal year.

“Imports, coupled with subdued domestic steel demand growth, have worsened the weak steel pricing environment. Steel prices in India have declined by around 19 per cent in the past six months,” said Abhay Lijawala, Research Analyst at Deutsche Bank Market Research.

Industry officials estimate that the average realisation or the average price of steel has fallen by ₹1,500-2,500 a tonne due to weak global prices.

“Despite the fall, domestic steel prices are around 10-11 per cent higher than the landed cost of imported steel. Therefore, unless there are some import curbs, things won’t change much going forward,” said a senior official at a Mumbai-based steelmaker.

Cheap ore to blame

Indian steelmakers have been impacted indirectly due to the sharp fall in iron ore prices and depressed global steel rates. The two factors have made imports cheaper than the domestic product.

Ironically, larger companies such as SAIL and Tata Steel have not been able to capitalise on lower global iron ore prices as they rely on captive iron ore.

Kawaljeet Saluja of Kotak Institutional Equities expects non-integrated steel companies such as JSW Steel to benefit. The Sajjan Jindal-promoted company does not have captive iron ore and has benefited from cheaper iron ore imports.

The weakness in the domestic markets is expected to continue both on the iron ore side and in the prices of finished steel.

Saluja said in a recent report that with iron ore prices falling 21 per cent to $48 a tonne in the last month, the global market will remain oversupplied as four large miners will add over 200 million tonnes per annum of incremental supplies over the next 2-3 years.

He added that the slowdown in China will impact steel prices, which will create further room for price cuts from Indian steelmakers unless the government curbs steel imports by hiking import duty.

 

Century Textiles to spin off cement business, merge it with KM Birla-led

UltraTech in all-share deal

Century Textiles, owned by Birla patriarch Basant Kumar Birla, will carve out its cement business and merge it in an allshare deal with India’s largest cement maker UltraTech, owned by grandson Kumar Mangalam Birla, two people with direct knowledge of the plan said.

Both companies are in the final stages of a plan to merge the cement businesses,” one of the two persons said. “The enterprise value of Century’s cement business has been put at Rs 10,500 crore, and an announcement could be made in a few weeks.”

Once approved by shareholders, the merged entity’s capacity would add up to 87 million tonnes.

This would help UltraTech achieve 100 million tonne output much before its target of 2020 and allow it to take on the combined might of Lafarge and Holcim in India.

Post merger, UltraTech will gain access to the eastern market while strengthening its presence in Maharashtra, Chhattisgarh and Madhya Pradesh.

An AV Birla spokesperson declined comment. A questionnaire sent to an email ID sourced from the website of Century Textiles did not elicit a response. Kumar Birla, who was inducted into the board of Century Textiles in 2006, has been increasing his stake in the company.

Kumar Birla has been buying additional shares of the holding firm Pilani Investments which owns 37% in Century Textiles. Birla, who now chairs the board meetings of Century, now owns 51% stake in Pilani Investments.

At Rs 10,500 crore, the enterprise value of Century’s cement business comes to $132 per tonne — lower than the replacement cost of setting up a one-tonne plant which, according to analysts, stands at $135-145 a tonne. The transfer of the cement business will also leave the parent almost debt-free as the loans were taken to expand capacity at Satna in Madhya Pradesh.

The UltraTech share closed at Rs 2,755.25 on the BSE on Tuesday, down 0.85%, even as the Sensex fell 0.75% to 27,676.04 points. The Century Textiles scrip rose 4.61% to end at Rs 714.75.

Analysts said a consolidation will be value-accretive to UltraTech as it will improve the profitability of assets by 50% if the cement businesses of Birla group companies of Kesoram, Century and Mangalam are merged with UltraTech.

 

 

 

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