PINC Sector Report – Metal Weekly Update - Metallon Monitor Express

NEWS Corner

China produced 1.66mnt of crude steel per day over 11-20th Nov'11, unchanged from the first 10 days of the month but still at a 12-month low.

Brazilian Vale slashed its capital spending budget for 2012 by 11% and delayed its largest iron ore project by 2 years in the face of falling commodities prices and environmental delays.

Tata Steel defers restarting of its mill at Llanwern site in Newport, South Wales and continues to keep it mothballed until British economy and steel demand improves.

Iron ore situation in India: Regular iron ore e-auctions continued in Karnataka with auctioning of 0.79mnt of iron ore in 2 rounds in the last one week. The Supreme Court has allowed NMDC to fix iron ore floor price for e-auctions at Bellary.

JSW Steel plans expansion at JSW Ispat Steel (JISL) Ltd's Dolvi steel complex entailing 1mntpa coke oven and a 4mntpa pellet plant.

SAIL is likely to finalise within a month, a joint venture with Japan's Kobe Steel for a 0.5mnt mill in West Bengal to manufacture special grade steel. The total investment in the project will be USD400mn. The JV will help SAIL acquire the Japanese company's patented technology, used for value added applications.

JSW Steel's Nov'11 crude steel output at 0.6mnt increased 18% YoY and 5% MoM, as capacity utilisation increased to 68% vs 63% in Oct'11. We expect CU to improve further in Dec'11 as the supply of iron ore has improved.

Analyst Corner

Government clears Cairn-Vedanta deal thereby allowing Vedanta Resources PLC to acquire 40% stake in Cairn India from Cairn Energy PLC, taking total stake in Cairn India to 58.4%, including 18.4% acquired by Sesa Goa. This is a positive for Sesa Goa, as now its 18.4% stake in Cairn India would become a part of controlling stake, instead of minority stake. However, Cairn's profitability is likely to come under pressure as Vedanta had agreed to royalty sharing with ONGC as part of this deal. Nevertheless, pending Shah committee report on alleged illegal mining in Goa is a huge overhang on Sesa Goa. The stock is UNDER REVIEW.

JSW Steel's impending warrants: The management has indicated that it is likely that the 17.5mn warrants issued to the promoter group (due 15 Dec'11) may expire without conversion and the upfront amount paid (25%) would be forfeited. This would be an overhang on the stock in the near term despite improving operating performance on an increase in capacity utilisation and a likely decline in the coking coal contract price for Q4FY12. We recommend BUY on dip.

Source : Equity Bulls

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