Metals - Steel prices: Bottom, not yet - Monthly Update - ElaraCapital

Ferrous

Global steel prices, except that in the US, dip: Average global steel prices declined further by 3-4% MoM in May'13 after a similar fall in April'13, except that in the US (flat MoM). Clearly, the softening trend is a reflection of the depressed demand. Moreover, the cost support also reduced as iron ore and coking coal prices fell ~16% and ~5% MoM, respectively. Hence, margins of the non-integrated producers have virtually remained unchanged. We continue to believe that steel prices should remain under pressure even after ~17% correction in the last four months as the real demand still languishes and Chinese production continues to inch up.

Domestic steel prices expected to fall by USD10-15/tonne in June: Domestic steel prices have remained under pressure over the past eight months and we expect it to remain the same next month. The price increase taken in April is expected to be virtually neutralized by June. Producers continue to give discounts/search for new markets to sell their produce. This led to increase in overall exports too. With continued fall in global steel prices (Chinese export prices have corrected by ~USD100/tonne in the last three months), domestic producers have no option but to reduce prices. We expect domestic steel prices to fall by USD10-15/tonne in June.

Domestic real steel consumption up 3.5% YoY in April'13. JPC data suggests a marginal improvement in domestic demand in April'13. Real consumption increased by 3.5% YoY to 5.6mn tonnes during April. Earlier, we observed that the demand was under pressure during Sep-March of FY13 (up 0.7% YoY). India became net steel exporter with net exports of 105kt in April reflecting the excess supply scenario in India.

Domestic iron ore fines prices are not expected to fall in June'13: The domestic iron ore lumps prices have softened by ~INR500/tonne in last two-three months but fines prices have remained firm. The overall situation remains critical for iron ore availability in India due to continued supply constraints (mining ban in Karnataka and disruption in Odisha). Recently, the Supreme Court has allowed category "B" mines to resume operations after obtaining regulatory approvals. However, it will still take some more time before any meaningful mining activities start in Karnataka. We do not expect iron ore fines/lumps prices to fall from the current levels in June.

Non-Ferrous

Base metal average prices continue to remain under pressure and fell further by 1-2% MoM in May'13 (after a fall of 5-8% MoM in March and 3-6% MoM in April). However, we feel that prices should not fall further from May average.

Source : Equity Bulls

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