Metals & Mining. Chinese steel production on declining trend. Monthly Update. ICICI Securities Ltd Retail Equity Research.

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1 Monthly Update Index Performance Return % 1M 3M 6M 12M BSE Metals BSE NSE Source: Reuters, ICICIdirect.com Research Domestic steel production Month on Month (MT) Jan18 Jan17 YoY % Dec17 MoM % Finished Steel Production Imports (44.5) 0.6 (40.4) Exports (30.8) 1.0 (36.1) Consumption Source: JPC India, ICICIdirect.com Research, provisional numbers In MT AprJan 18 AprJan 17 YoY % Finished Steel Production Imports Exports Consumption Source: JPC India, ICICIdirect.com Research February 28, 2018 Chinese steel production on declining trend On an MoM basis, major base metal prices were flattish except aluminium, which declined 3.6% Spot hard coking coal prices (fob Australian east coast port) increased ~10% MoM to US$235/tonne (as on February 26, 2018) from US$214/tonne a month ago Exhibit 1: Key events Company /Industry Vedanta JSW Steel Metals & Mining Event The Supreme Court in its judgement on February 7, 2018 have directed all mining operations in Goa to be stopped with effect from March 16, The company's mines in Goa will be impacted post the judgement JSW Steel has obtained all required clearances and obtained the final commencement letter from the Karnataka government for starting of operations at Tunga Mines having capacity of 0.3 million tonne (MT) Metal Prices % Change 27Feb18 1M 3M 6M 12M LME Zinc 3, LME Lead 2, LME Copper 6, LME Aluminium 2, Indian (HRC) 43, (All prices in US$/tonne, Indian HRC price denoted in /tonne) JSW Steel Coal India Maharashtra Seamless JSW Steel reported highest ever monthly crude steel production for January Crude steel production came in at 1.46 million tonne (up 5% YoY) Coal India reported provisional production and offtake numbers for January Coal production for the month was at 56.7 million tonne (MT) up 1.3% YoY, while coal offtake was up 4.6% YoY to 53.7 MT. For the 10 month ended AprilJanuary 2018, coal production was at MT, up 1.6% YoY, while coal offtake was at MT, up 7.2% YoY The company has bagged an order of 522 crore from a leading oil & gas explorer for supply of seamless casings for oil & gas exploration activities Source: ICICIdirect.com Research Research Analysts Dewang Sanghavi dewang.sanghavi@icicisecurities.com Akshay Kadam akshay.kadam@icicisecurities.com LME zinc scales new 10year high... LME zinc recently touched a 10year high price of US$3606/tonne. Zinc prices continued to remain buoyant, supported by global refined zinc metal deficit and healthy demand prospects. According to ILZSG, the global market for refined zinc metal was in deficit by 485 kilotonne (KT) over the first 11 months of 2017 (JanuaryNovember). Metal production during the period was at tonne vs. metal usage of tonnes. ILZSG forecasts the deficit will continue in CY18 to the extent of 223 KT. Steel production (exchina) gathers steam... Chinese crude steel production, which peaked out at 75 million tonne (MT) levels in August 2017 has tapered down in the last few months. The Chinese government s crackdown on polluting industries, followed by winter cuts have resulted in a decline in steel production in the country. Chinese crude steel production of 67 MT for January 2018 is 10% lower than the peak production of 75 MT (in August 2017). The declining steel production from China has encouraged steel mills in other geographies to scale up production. Steel production in Europe increased 16% in the last few months (January 2018: 14.4 MT vs. August 2017:12.4 MT), Middle East reported an increase of 4% (January 2018: 2.9 MT vs. August 2017: 2.8 MT) while production in Asia (exchina) has increased 4% (January 2018: 28 MT vs. August 2017: 27 MT). Global crude steel production (ex China) has increased 4% to 72.4 MT from 70 MT in August The subsequent share of China in world crude steel production has dropped to 48% in January 2018 from 52% in August 2017.

2 Exhibit 2: World crude steel production In Million Tonne Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan18 World Crude Steel Production Chinese Crude Steel Production Indian Crude Steel Production Rest of the World Source: World Steel Association (WSA), ICICIdirect.com Research For January 2018, world crude steel production for 64 countries reported by World Steel Association (WSA) was at MT, up 0.8% YoY. The crude steel capacity utilisation ratio during the month was at 70%, down 20 bps YoY. World Steel estimates Chinese crude steel production for the month at 67 MT, a decline of 0.9% YoY. For CY17, world crude steel production was at MT, up 5.3% YoY (vs MT in CY16). Chinese crude steel production was at MT, up 5.7% YoY (vs MT in CY16). While India s crude steel production was at MT, up 6.2% YoY (vs MT in CY16). Exhibit 3: Share of world crude steel production for CY17 Russia 4% Rest of the World 16% European Union 10% China 49% South Korea 4% USA 5% Source: Company, ICICIdirect.com Research India 6% Japan 6% Exhibit 4: Indian steel scenario In Million Tonne Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan18 Finished Steel Production Finished Steel Consumption Finished Steel Imports Finished Steel Exports Source: JPC India, ICICIdirect.com Research *Provisional Numbers Indian finished steel production during January 2018 was at 9.5 MT, up 5.7% YoY and 6.6% MoM. Imports during the month were at 0.3 MT, down 44.5% YoY, 40.4% MoM, while exports were down 30.8% YoY, 36.1% MoM to 0.6 MT. Finished steel consumption during the month was at 7.6 MT, up 6.8% YoY, 0.1% MoM. For the 10 months ended AprilJanuary 2018, Indian finished steel production was at 88.6 MT, up 5.3% YoY. Imports during the period were up 5.5% YoY to 6.4 MT while exports were up 40.2% YoY to 8.2 MT. Finished steel consumption witnessed growth of 5.4% YoY to 72.5 MT. Page 2

3 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16 Aug16 Oct16 Dec16 Feb17 Apr17 Jun17 Aug17 Oct17 Dec17 In Million Tonne $ / tonne Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 $ / tonne May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Jan17 Mar17 May17 Jul17 Sep17 Nov17 Jan18 $ / tonne Exhibit 5: Spot hard coking coal prices (fob Australian east coast port) Exhibit 6: International iron ore prices (US$/tonne) Source: Company, ICICIdirect.com Research Exhibit 7: Movement of Chinese exports & rebar prices Chinese exports during CY17 (JanuaryOctober) declined ~31% to 75.6 MT (vs MT in the corresponding period last year) RHS: Exports (MT) LHS: Rebar ($/tonne) Page 3

4 Apr15 Aug15 Dec15 Apr16 Aug16 Dec16 Apr17 Aug17 Dec17 Apr15 Aug15 Dec15 Apr16 Aug16 Dec16 Apr17 Aug17 Dec17 Apr15 Aug15 Dec15 Apr16 Aug16 Dec16 Apr17 Aug17 Dec17 Apr15 Aug15 Dec15 Apr16 Aug16 Dec16 Apr17 Aug17 Dec17 Non ferrous metals... Zinc Exhibit 8: LME zinc (price and inventory movement) 4, ,000 3, ,000 3, , , , , , , , ,000 1,000.0 Prices Aluminium Exhibit 9: LME aluminium (price and inventory movement) 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Price Copper Exhibit 10: LME Copper (price and inventory movement) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, , , , , , , ,000 50,000 Price Lead Exhibit 11: LME Lead (price and inventory movement) 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, , , , ,000 50,000 Price Page 4

5 Exhibit 12: Valuations Global peers Particulars Valuations: Global companies CY 17 CY 18 CY 17 CY 18 CY 17 CY 18 BHP Billiton Ltd US$ , Fortescue Metals Group Ltd US$ , Rio Tinto Ltd US$ , Vale SA BRL , ArcelorMittal US$ , POSCO KRW , United States Steel Corp US$ , Nucor Corp US$ , JFE Holdings Inc JPY , Gerdau SA BRL , Angang Steel Co Ltd CNY , Alcoa Corp US$ , Norsk Hydro ASA NOK , United Co RUSAL PLC US$ , KAZ Minerals PLC US$ , Southern Copper Corp US$ , Antofagasta PLC US$ , Lundin Mining Corp US$ 8.7 6, Currency CMP M.Cap (US$ Mn) PE (x) EV / EBITDA (x) ROE (%) Page 5

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