Khandwala Securities Limited
KSL – Metals & Mining Sector Update November 11, 20093
Gradual improvement in steel production across the globe
Demand stable in domestic market
Global steel prices subdued last month
Domestic steel prices lowered in current month
Non-ferrous metal prices stable
China continues to throw positive surprises
Valuation (Top Pick: Tata Steel, JSW Steel & Sterlite Industries)
As mentioned in our previous sector update ‘Off the Crisis, Geared toTakeoff’, the 2QFY10 proved to be steady compared to 1QFY10. Although,YoY quarterly performance looks dismal considering metal prices were at alltime high during 2QFY09, the sector has shown substantial improvementfrom sequential quarter on back of improving realization and moderate costenvironment. The global scenario now looks much more convincing thanprevious in the quarter and companies, like ArcelorMittal, are witnessingsteady improvement in capacity utilization, which is likely to extend duringthis quarter. Indian metal sector is likely to achieve stable demandenvironment; however, the financials from YoY perspective would be verystrong on account of very low base in 3QFY09 due to complete collapse ofglobal economic growth.
Gradual improvement in steelproduction across the globe
The steel industry is witnessing steady improvement in production acrossthe globe and global production touched the highest mark of 107 MT duringpast 12 months in the month of Sep’08. A very large portion of this growthwas driven by China, which now produces ~ 48% of global steel comparedto ~ 36% in the month of Sep’08. Apart from this, the developed countrieshave also shown steady improvement in the last couple of months on back ofeasing recessionary pressures and re-stocking. Steel production in the monthof Sep’09 jumped 44%, 36% and 27% from Mar’09 level in Japan, US andEurope respectively. We believe, the de-stocking exercise is by and largeover and industry would be looking at follow on consumer demand forfurther expansion in steel production.
Demand stable in domesticmarket
The Indian steel demand has remained on uptrend albeit at a lower pace,while non-ferrous metal demand has witnessed robust growth on back ofstrong energy and infrastructure demand. The flat steel demand hasremained robust on back of strong auto sector demand, however, long steeldemand has remained subdued on back of lower construction demand dueto seasonality. We believe that flat steel demand would remain stable goingforward, while long segment is likely to perceive improvement in demandfrom higher construction and infrastructure demand.