Monthly Update Index Performance Return % 1M 3M 6M 12M BSE Metals 5 5 29 33 BSE 7 9 12 30 NSE 6 8 11 29 Source: Reuters, ICICIdirect.com Research Domestic steel production Month on Month (MT) Dec17 Dec16 YoY % Nov17 MoM % Finished Steel Production 9.2 8.9 3.7 8.8 4.0 Imports 0.6 0.8 (26.4) 0.6 (8.8) Exports 1.0 0.7 28.9 1.0 (5.0) Consumption 7.6 7.2 6.2 6.9 10.9 Source: JPC India, ICICIdirect.com Research, provisional numbers In MT AprDec 17 AprDec 16 YoY % Finished Steel Production 79.3 75.1 5.6 Imports 6.1 5.5 10.9 Exports 7.6 5.0 52.9 Consumption 64.9 61.7 5.2 Source: JPC India, ICICIdirect.com Research Metal Prices % Change 26Jan18 1M 3M 6M 12M LME Zinc 3,520 7.5 9.0 25.9 28.4 LME Lead 2,594 2.6 7.6 13.4 12.1 LME Copper 7,043 2.2 3.6 11.8 19.7 LME Aluminium 2,253 0.5 4.8 17.6 24.1 Indian (HRC) 42,000 3.7 3.2 1.4 8.2 (All prices in US$/tonne, Indian HRC price denoted in /tonne) January 30, 2018 Decline in coking coal prices to ease cost... On a MoM basis, zinc and lead prices registered an uptick of 7.5% and 2.6%, respectively. Copper prices were down 2.2% MoM while prices of aluminium were flattish Exhibit 1: Key events Company /Industry Novelis Coal India Coal India JSW Steel Metals & Mining Event Novelis plans to invest US$300 million towards automotive aluminium sheet manufacturing facility in Guthrie (Kentucky, US). The greenfield facility will have an annual nameplate capacity of 200,000 metric tonnes and will include heat treatment and pretreatment lines. The aluminium manufactured will find application in vehicle parts like bodyinwhite, hoods, doors, lift gates and fenders Coal India reported provisional production and offtake numbers for December 2017. Coal production for the month was at 54.6 million tonne (MT), up 0.8% YoY, while coal offtake was up 3.8% YoY to 53.4 MT. For Q3FY18, Coal India's production volume was at 152 MT, up 2.9% YoY, while coal offtake came in at 152.4 MT, up 6.8% YoY The board of directors of Coal India, in its meeting, has approved the upward revision of non coking coal prices with effect from January 9, 2018. The price hike will be applicable to all subsidiaries including North Eastern Coalfields for regulated and non regulated sectors. CIL, on account of the price revision, will earn incremental revenues of ~ 1956 crore for the balance period of FY18. The annual projected annual incremental revenue would be 6421 crore JSW Steel reported provisional Q3FY18 production numbers. Crude steel production for the quarter was at 4.11 million tonne (MT), up 7% YoY (vs. 3.86 MT in Q3FY17). Production of flat rolled products was down 1% YoY to 2.82 MT while that of long products was up 18% YoY to 0.88 MT. For 9MFY18, the company reported crude steel production of 11.96 MT, up 2% YoY. Production of flat products was flattish YoY at 8.46 MT while that of long products increased 4% YoY to 2.48 MT Coal The Railway Board has upward revised the freight rate table for coal traffic by ~20% effective from January 15, applicable throughout the year. No busy season surcharge and development charge will also be levied. For a distance slab of 1100 km the train load rate has been revised to 198 (vs. 164.5 earlier). For the highest slab of 34913500 km the train load rate has been revised to 3815 (vs. 3159 earlier) Source: ICICIdirect.com Research Coking coal prices begin current year on weak footing... Coking coal forms a major input for steelmaking. Steelmakers are heavily dependent on imports due to its unavailability domestically. In CY17, international spot coking coal prices remained volatile on account of supply disruptions. However, the start of the current year has been weak wherein prices have declined ~22% from US$261/tonne as on January 2, 2018 to US$214/tonne as on January 29, 2018. In the backdrop of healthy steel realisations, a decline in prices of coking coal is likely to soften cost pressures on steel makers enabling margin expansion, going forward. Research Analysts Dewang Sanghavi dewang.sanghavi@icicisecurities.com Akshay Kadam akshay.kadam@icicisecurities.com
Exhibit 2: World crude steel production In Million Tonne Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 World Crude Steel Production 134 137 127 145 142 143 141 143 144 141 145 136 138 Chinese Crude Steel Production 67 67 61 72 73 72 73 74 75 72 72 66 67 Indian Crude Steel Production 8 8 8 9 8 9 8 8 9 8 9 8 9 Rest of the World 58 61 57 64 61 63 60 61 61 61 64 62 62 Source: World Steel Association (WSA), ICICIdirect.com Research For December 2017, world crude steel production for 66 countries reporting to World Steel Association (WSA) was at 138.1 MT, up 3.9% YoY. The crude steel capacity utilisation ratio during the month was at 69.5%, up 180 bps YoY. For December 2017, Chinese crude steel production was at 67.0 MT, up 1.8% YoY. For CY17, world crude steel production was at 1691.2 MT, up 5.3% YoY (vs. 1606.3 MT in CY16). Chinese crude steel production was at 831.7 MT, up 5.7% YoY (vs. 786.9 MT in CY16). While India s crude steel production was at 101.4 MT, up 6.2% YoY (vs. 95.5 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 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Finished Steel Production 8.4 9.0 8.8 9.8 8.4 9.1 8.8 8.3 8.8 8.8 9.2 8.3 9.2 Finished Steel Consumption 7.2 7.4 7.3 8.0 6.0 7.5 7.2 6.9 7.4 7.4 7.5 6.4 7.6 Finished Steel Imports 0.8 0.6 0.5 0.8 0.5 0.6 0.7 0.8 1.0 0.8 0.6 0.6 0.6 Finished Steel Exports 0.7 0.9 0.8 1.6 0.7 0.6 0.6 0.8 0.9 1.1 0.8 1.0 1.0 Source: JPC India, ICICIdirect.com Research *Provisional Numbers Indian finished steel production during December 2017 was at 9.1 MT, up 3.7% YoY and 4% MoM. Imports during the month were at 0.6 MT, up 26.4% YoY, 8.8% MoM, while exports were up 28.9% YoY and down 5% MoM to 1.0 MT. The finished steel consumption during the month was at 7.6 MT, up 10.9% YoY, 6.2% MoM. For the first nine months of FY18 (AprilDecember), Indian finished steel production was at 79.3 MT, registering growth of 5.6% YoY. Imports during the period were up 10.9% YoY to 6.1 MT while exports were up 52.9% YoY to 7.6 MT. Finished steel consumption witnessed growth of 5.2% YoY to 64.9 MT. Page 2
Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 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) 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 Exhibit 6: International iron ore prices (US$/tonne) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 Source: Company, ICICIdirect.com Research Exhibit 7: Movement of Chinese exports & rebar prices Chinese exports during CY17 (JanuaryOctober) declined ~31% to 75.6 MT (vs. 109.0 MT in the corresponding period last year) 12 10 8 6 4 2 0 800 700 600 500 400 300 200 100 RHS: Exports (MT) LHS: Rebar ($/tonne) Page 3
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 7: LME zinc (price and inventory movement) 4,000.0 700,000 3,500.0 600,000 3,000.0 2,500.0 2,000.0 1,500.0 500,000 400,000 300,000 200,000 100,000 1,000.0 Prices Aluminium Exhibit 8: 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 9: LME Copper (price and inventory movement) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Price Lead Exhibit 10: LME Lead (price and inventory movement) 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 250,000 200,000 150,000 100,000 50,000 Price Page 4
Exhibit 11: Valuations Global peers Particulars Valuations: Global companies CY 17 CY 18 CY 17 CY 18 CY 17 CY 18 BHP Billiton Ltd US$ 30.7 157,388 18.2 14.8 7.2 6.3 12.5 14.7 Fortescue Metals Group Ltd US$ 5.1 15,849 5.9 8.6 3.2 4.2 23.9 14.0 Rio Tinto Ltd US$ 79.1 126,009 13.1 14.2 6.2 6.5 20.4 18.2 Vale SA BRL 13.1 69,279 10.0 10.0 6.0 6.2 15.2 12.6 ArcelorMittal US$ 30.2 30,841 9.0 10.5 6.3 6.1 12.3 9.4 POSCO KRW 392.0 34,177 11.2 10.3 6.3 6.0 6.7 7.0 United States Steel Corp US$ 41.0 7,166 22.3 13.0 7.7 6.0 12.6 18.4 Nucor Corp US$ 69.5 22,108 19.9 13.7 9.5 8.2 13.8 16.8 JFE Holdings Inc JPY 2661.5 1,635 30.1 9.8 10.8 7.4 2.8 8.4 Gerdau SA BRL 14.9 24,229 29.0 19.6 9.1 7.4 4.5 5.4 Angang Steel Co Ltd CNY 7.3 52,518 10.7 10.1 7.4 7.0 10.7 9.4 Alcoa Corp US$ 54.0 9,991 16.9 14.1 5.1 4.8 9.7 13.4 Norsk Hydro ASA NOK 57.6 119,133 15.4 12.9 6.7 5.3 9.0 10.0 United Co RUSAL PLC US$ 5.9 89,183 8.4 6.5 9.0 8.4 34.5 32.2 KAZ Minerals PLC US$ 838.2 3,745 11.0 8.2 7.4 6.0 58.7 41.7 Southern Copper Corp US$ 50.6 39,138 27.2 19.8 13.8 10.9 22.3 25.9 Antofagasta PLC US$ 954.2 9,407 17.5 18.1 6.4 6.5 9.9 8.7 Lundin Mining Corp US$ 8.8 6,427 14.1 22.0 4.2 5.8 11.0 6.4 Currency CMP M.Cap (US$ Mn) PE (x) EV / EBITDA (x) ROE (%) Page 5
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/10%; Sell: 10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com Page 6
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