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Monday, 27 July 09
COKING COAL, IRON-ORE LIKELY TO BENEFIT NON-INTEGRATED STEEL PRODUCERS
 Economictimes reported that, The second half of the financial year 2008-09 was one of the toughest periods for steel companies, especially the non-integrated players without access to captive sources of raw material. The double whammy of falling sales realisation and higher input costs pulled down operating profit margins significantly.
The non-integrated producers continued to pay higher raw material prices as a part of long-term contracts signed during the beginning of the year. However, as old contracts have come to an end and new ones are being signed, these companies are breathing a sigh of relief.
The new contracts have taken into consideration the current market realty. The prices of two key inputs –
–iron ore and coking coal – have come down more than 50% in the spot market. As per reports, steel firms have signed long-term contracts for coking coal at around $110-120 per tonne and iron ore at $65-70 per tonne.
The new contract prices mark a decline of around two-thirds and one-third from their yearago levels for coking coal and iron ore, respectively. Steel prices have also fallen sharply during the same period. Because of these developments, it is essential to understand the impact of the new prices on the profitability of major steel producers, especially the non-integrated ones, for the next few quarters.
Steel prices in a number of countries have been regulated in past year, and India is no exception. Current international steel prices are 50% lower than year-ago levels and in India the decline has been 25-35 %. Accordingly, depending on the company’s market (domestic and overseas) exposure, the impact on profitability of new long-term contract will vary.
Going by international prices, a company with an operating margin of around 25% last year is expected to see a contraction in margin by around 1,000-1 ,300 basis points compared to year-ago levels. It means the fall in steel product prices outweighs the drop in input costs. The only solace for such a company is the improvement in margin from the previous two quarters. Sequentially, there could be an improvement of more than 500-1 ,000 basis points in the operating margin to 10-15 %.
For instance, many international steel producers reported either losses or a 5-8 % operating margin during the Mar ’09 quarter. Such companies are definitely going to see better days ahead. In India, Tata Steel, which has significant operations in Europe, is going to be one of the key beneficiaries. The operating margin of Corus, however, is not expected to exceed 2%. The new pricing will have a bigger impact on domestic companies.
Domestic steel prices have not fallen much due to government intervention and relatively higher domestic demand. Also, coking coal, which accounted for around two-thirds of raw material cost last year, has witnessed a much sharper decline in prices compared to iron ore. And most of the coking coal consumed in India is imported and its pricing depends more on the international environment rather than the domestic market. Hence new coking coal contract prices will capture the poor international market conditions.
The benefit of new long-term contracts for domestic players would depend on factors such as the extent of dependence on external suppliers for raw materials, actual contract prices and the month from which the contract became effective, among others. Higher the dependence on external suppliers, more the benefit.
Of the top five listed steel companies, JSW Steel and Ispat Industries are likely to benefit the most. The average operating margin from the September quarter onwards is expected to expand by around 1,000-1,500 basis points compared to the Mar ’09 quarter. The June quarter, however, will see a partial impact, depending on when the new contracts came into force.
Other top players that are likely to benefit are Steel Authority of India (Sail) and Jindal Steel & Power. Both of them are self-sufficient in iron ore but depend on outside suppliers for coking coal. The positive impact on the operating margin of these companies on account of the new prices would not be more than 500 basis points though.
Source: Economic Times - India Times
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Friday, 07 August 09
BALTIC DRY INDEX HAS WORST WEEK SINCE OCTOBER AS DEMAND SLOWS
Bloomberg reported that, The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for s ...
Friday, 07 August 09
COAL-PRICE FORECAST RAISED AT MERRILL ON CHINA, INDIA DEMAND
Bloomberg reported that, Bank of America Corp.’s Merrill Lynch & Co. unit increased its price forecast for Asian power-station coal becaus ...
Friday, 07 August 09
CHINESE DEMAND FOR FOREIGN COAL SOARS
Mining Weekly reported that, Chinese coal imports rocketed by 126,3%, year-on-year, in the first half of this year, the country’s customs auth ...
Thursday, 06 August 09
RICHARDS BAY COAL SHIPMENTS FELL 3% ON YEAR IN JULY
Bloomberg reported that, Richards Bay Coal Terminal, Africa’s largest coal-export facility, exported 3 percent less of the fuel in July than i ...
Thursday, 06 August 09
NTPC LOOKS TO BYPASS STATE TRADING FIRMS ON COAL IMPORT
A reduced coal import bill for NTPC could lead to lower power tariffs
Live mint.com reported that, India’s largest power generation utility ...
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- Therma Luzon, Inc, Philippines
- GVK Power & Infra Limited - India
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- Sojitz Corporation - Japan
- Minerals Council of Australia
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- Ind-Barath Power Infra Limited - India
- IEA Clean Coal Centre - UK
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- Central Electricity Authority - India
- Samtan Co., Ltd - South Korea
- Barasentosa Lestari - Indonesia
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- Romanian Commodities Exchange
- The Treasury - Australian Government
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- CNBM International Corporation - China
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- Energy Development Corp, Philippines
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- White Energy Company Limited
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- Karbindo Abesyapradhi - Indoneisa
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- Commonwealth Bank - Australia
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- Petron Corporation, Philippines
- Eastern Energy - Thailand
- Binh Thuan Hamico - Vietnam
- Indo Tambangraya Megah - Indonesia
- Merrill Lynch Commodities Europe
- Planning Commission, India
- Pendopo Energi Batubara - Indonesia
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- Kapuas Tunggal Persada - Indonesia
- San Jose City I Power Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
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- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- European Bulk Services B.V. - Netherlands
- The University of Queensland
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- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Renaissance Capital - South Africa
- PowerSource Philippines DevCo
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- LBH Netherlands Bv - Netherlands
- Global Green Power PLC Corporation, Philippines
- Goldman Sachs - Singapore
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- Antam Resourcindo - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
- Ministry of Mines - Canada
- Grasim Industreis Ltd - India
- Bhoruka Overseas - Indonesia
- Thiess Contractors Indonesia
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
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- Essar Steel Hazira Ltd - India
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- Maharashtra Electricity Regulatory Commission - India
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- Bayan Resources Tbk. - Indonesia
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- Siam City Cement - Thailand
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Ceylon Electricity Board - Sri Lanka
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- Economic Council, Georgia
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
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- Heidelberg Cement - Germany
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- Trasteel International SA, Italy
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- Bhatia International Limited - India
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- Attock Cement Pakistan Limited
- Electricity Generating Authority of Thailand
- Straits Asia Resources Limited - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- Bank of Tokyo Mitsubishi UFJ Ltd
- Altura Mining Limited, Indonesia
- Alfred C Toepfer International GmbH - Germany
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- Larsen & Toubro Limited - India
- Cement Manufacturers Association - India
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- Meralco Power Generation, Philippines
- PTC India Limited - India
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
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- Indogreen Group - Indonesia
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- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
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- SMG Consultants - Indonesia
- Australian Coal Association
- Deloitte Consulting - India
- Energy Link Ltd, New Zealand
- MS Steel International - UAE
- Edison Trading Spa - Italy
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Dalmia Cement Bharat India
- Gujarat Electricity Regulatory Commission - India
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