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  • Steel cos strike spot deals for coking coal
    Indian steelmakers are increasingly sourcing their coking coal requirements from spot market as spot prices have substantially fallen below long-term prices in the last two quarters.
    From being completely dependent on long-term contracts, steelmakers are now sourcing only 60% of their coking coal requirements through that route, an official from a leading unlisted steel company said.If the price differential between spot and long continues, they may even bring down long purchases to 30-40%, according to industry experts.Coking coal, considered relatively stable commodity price-wise, has been seeing some severe price fluctuation in global market due to increased supply and fall in demand from China.For the April-June, most Indian steelmakers are likely to sign coking coal contracts at a six-year low of $120 per tonne. But spot market price has come down even further to $107-108."Since October, long-term agreements (LTA) for coking coal are being signed at a premium of $5-$7 to the spot prices. Prices in spot market have fallen rapidly. Increased availability of coal mainly due to less absorption from China and US have brought down spot prices," Prakash Duvvuri, head of research at OreTeam, a Delhi-based iron ore research firm, said.At present, China is facing an overcapacity of steel, due to which the production of the alloy has slowed.Following the slump, China is expected to import only 620-625 million tonne (mt) as against an earlier expectation of 630 mt. Even the US is now moving more towards Direct Reduction Iron (DRI) steel making using shale gas rather than buying coking coal.
    Giriraj Daga, senior analyst with Nirmal Bang Securities, said LTAs for coking coal were signed at $143 in January-March when spot price averaged at $135."It seems that availability of coking coal from smaller players especially from South Africa has increased which has lead to this sharp fall in spot prices," he said.Earlier LTAs for coking coal were used to be signed for a year, but this duration has now shrunk to a quarter and it may even come down to a month if price differential between long and spot prices continues, Duvvuri said.Uncertainty of steel demand and volatile prices are key reason for shorter LTAs.Another reason is that spot purchase allows more flexibility to steel companies for sourcing the key raw material."Many steelmakers in India have cut their production capacities, and need to reduce their coal consumption. LTAs do not offer flexibility of cutting down purchase abruptly, which has also led to preference towards spot market," he said.
    Among leading steelmakers Tata Steel imports 50% of its coking coal requirement while Steel Authority of India 70%. BHP Billiton of Australia is the biggest coking coal supplier for Indian steelmakers. R K Goyal, managing director at Kalyani Steel, said that steelmakers traditionally prefer LTAs over spot purchase to ensure timely availability of the raw material and to avoid uncertainty.Daga said players having huge requirements would still prefer to buy coal through LTA than spot.Industry experts do not expect the price differential in long and spot markets to continue for long."I don't expect this trend to continue for long as the equilibrium between long and spot price would be re-established. I expect prices to stabilise at $130-140, going ahead," Daga said.
    Duvvuri expects this trend to continue for 2-3 quarters or even till March."There is no deficit of coking coal in seaborne trade unlike iron ore. So there is less likelihood of fluctuation prices going ahead. In 2014, prices may average around $135 but are likely to again increase to $140 in 2015 following increase in demand from India and some improvement in China," he said.The official from the unlisted steel company said India's steel production in the current fiscal is likely to improve by 10 mt, which means 12-14 mt of additional coking coal requirement.Coking coal imports in 2013-14 were $32-33 million tonne while this fiscal they are expected to go up to 35-36 million tonne.
  • China steel and iron ore slip as GDP hits 18 month low
    Chinese steel and iron ore futures weakened on Wednesday after the world's second-largest economy expanded at its slowest pace in 18 months in the first quarter, although a slightly higher-than-forecast growth capped losses.China's economy grew an annual 7.4 percent in the first quarter, slower than the 7.7 percent pace in the previous three months but ahead of market expectations of 7.3 percent.The growth slowdown reflects Beijing's efforts to restructure its economic model to rely less on investment and more on consumption, analysts say, which may curb steel demand.The first-quarter GDP data confirmed that China "is on track to rebalance its economy and has no urgency to provide any stimulus anytime soon," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.Fixed-asset investment grew 17.6 percent in the first quarter, below market estimates for an 18.1 percent rise and that shows investment in the steel-intensive construction sector was slowing, she said."The chance is low for prices of both steel and iron ore to go higher because of oversupply," said Lau.China's average daily crude steel output hit a record high of 2.266 million tonnes in March.The most-traded rebar for October delivery on the Shanghai Futures Exchange dropped 0.7 percent to settle at 3,329 yuan ($540) a tonne.
    Rebar, a construction steel product, had rebounded from a record low of 3,141 yuan reached in March, but has struggled to gain further since touching a one-month high of 3,425 yuan last week.
    Lau said she doesn't expect steel demand to increase strongly during the seasonally brisk months of April and May given the slow decline in inventories of steel products in China.Trader-held steel stockpiles dropped for a sixth straight week to 17.99 million tonnes last week, from 18.76 million tonnes the prior week, according to data from industry consultancy Mysteel.Since the end of February, the stockpiles have fallen by 2.8 million tonnes.Iron ore for delivery in September on the Dalian Commodity Exchange fell 0.8 percent to 797 yuan per tonne, slipping for a fifth session in a row.BHP Billiton , the world's No. 3 iron ore producer, increased its full-year iron ore production guidance by 5 million tonnes to 217 million tonnes as it pushes ahead with new mine work in Australia.Top miners have been increasing output amid optimism that demand from top market China will remain robust.Iron ore for immediate delivery to China .IO62-CNI=SI was little changed at $117.10 a tonne on Tuesday, said data provider Steel Index."Traders are relatively more positive than steel mills and are not willing to sell at low prices, while some traders regret that they haven't booked more cargoes when prices slumped earlier," said an iron ore trader in Beijing.Spot iron ore prices have recovered nearly 12 percent since hitting a 17-month trough of $104.70 on March 10, but have struggled to breach the $120 resistance level.

  • JSW Steel takes a brief pause
    In two months, JSW Steel (JSW) has surged 28 per cent on bourses, touching a 52-week high of Rs 1,084 last Thursday, supported by the company’s strong performance despite challenges on the iron-ore availability front. JSW’s production data for FY14 beat its forecast. While iron ore availability in Karnataka is improving, the acquired and merged Ispat unit at Dolvi is likely to see better operational performance, with its pellet and power facilities set to be commissioned in FY15.
    All these bode well for the company and its prospects look sound. However, of late, the rupee’s appreciation, which led to softer domestic steel prices, has raised concern on steel stocks. JSW has corrected eight per cent compared to its peak levels. The concern on steel prices is also reflected in analysts’ recommendations. Of the 17 analysts polled by Bloomberg since March 2014, seven have ‘buy’ ratings, six ‘hold’ and four ‘sell’, with a consensus target price of Rs 952. However, looking at JSW’s long-term prospects, investors with a one- to two-year view could accumulate the stock on dips.
    Output growth continues
    For FY14, the company has reported crude steel production of 12.2 million tonnes (mt), higher than 11.2 mt for FY13 and slightly ahead of its FY14 forecast of 12 mt. Though the company hasn’t reported its sales volume yet, analysts feel JSW will beat its forecast of 11.55 mt for FY14. For the first nine months of the financial year, the company had already clocked sales of 8.76 mt. Analysts at Antique Broking feel JSW will beat its FY14 volume forecast. They expect the company to record sales volumes of 12.7 mt and 13.8 mt for FY15 and FY16, respectively. They attribute the high sales volume to the improved iron ore availability in Karnataka and the fact that this will facilitate higher capacity utilisation of the company’s Vijaynagar plant, Against the current levels of about 80 per cent.
    Ore availability improving
    Following the bans on category A & B iron-ore mines in Karnataka being lifted, iron-ore availability in the state is improving. While analysts expect the state to have recorded production of 20 mt per annum (mtpa) at the end of FY14, Goutam Chakraborty at Emkay Global sees an addition of two-three mtpa to iron ore output during FY15. Owing to this, along with one-two mt of usable iron ore dumps, he feels iron ore availability in Karnataka will stand at 23-25 mt during FY15. With low imports (2-2.5 mt) from other states, iron ore availability will be better and the company should be able to achieve higher capacity utilisation for its Vijaynagar plant in FY15. Also, the fresh mining output is likely to keep iron ore prices under check, adds Chakraborty.
  • AAP alleges Moily favouring Essar
    Petroleum Minister Veerappa Moily, the Aam Aadmi Party (AAP) on Wednesday accused him of favouring Ruia-controlled Essar Oil in getting certain oil and gas fields despite non-completion of a bidding process, initiated two decades earlier.Party leader and Supreme Court lawyer Prashant Bhushan accused Moily of violating the model code of conductby pushing a revised cabinet note treating the allocation of Ratna and R-series oil fields to Essar Oil as concluded, overruling various officials. According to AAP, the reserves are valued at Rs 52,000 crore and would increase substantially after further exploration.The oil fields, located 90 km south-west of Mumbai, were awarded to Essar Oil and Premier Oil in 1996, but the contract was never signed on several issues, including a dispute over the net worth of Essar and the amount of cess and royalty to be paid.
    “The officers of the petroleum ministry, the joint secretary (exploration) and the petroleum secretary, prepared a cabinet note recommending the block should either be re-auctioned or it could be given back to Oil and Natural Gas Corporation on the ground that the contract had not been concluded and also, the fact that the government would lose billions of dollars if it was done,” AAP said in a press statement released on Wednesday. Moily, however, overruled the officials on “dubious grounds”, Bhushan alleged.Producing various cabinet notes, beginning from 2008, Bhushan said the cabinet secretary had warned of “huge revenue loss for the government and that the contract had not been duly concluded.” The party said the finance secretary had also reiterated this.The party said, finally, the law minister said, “the administrative ministry may decide the matter upon its own objective, fair and reasonable assessment, keeping public interest in view.” Superseding all this, AAP charged, Moily reverted to his officials saying, “to my mind, the balance view emerging out of the opinions is that the contract should be treated as concluded and the petroleum ministry should decide on the revised offer of the contract about the current rate of royalty and cess… This also means that the gain to the contractor and loss to government revenues shown in the note is, therefore, also based on hypothetical calculations.”"Even though he admitted that the contract was not signed, he gave a very ambiguous opinion and did not state conclusively whether the contract had been concluded," Bhushan said.

  • The Ministry of Environment and Forest to decide on JSPL Jharkhand mill
    The Centre would consider later this month granting environment clearance to the proposed 6 million tonne steel plant by Jindal Steel and Power Ltd ( JSPL ) in Jharkhand. "The Ministry of Environment and Forest (MoEF) will consider the proposal for environment nod to JSPL's proposed plant in East Singhbhum district in the state on April 28. The Ministry's Expert Appraisal Committee (Industry) will look into the issue, the source said. Naveen Jindal-led JSPL proposes to set up an integrated greenfield steel plant and 1,320 MW captive power plant projects, entailing about Rs 22,000 crore investment at Asanboni, Potka in East Singhbhum district of Jharkhand. Sources said the Jharkhand State Pollution Control Board had a public hearing on the project last month. The company, sources said, are looking at about 1,800 acres of the land for the project, which is likely to be executed in five years. It has already acquired about 300 acres of land.

  • China rebar and iron ore extend losses on weak demand outlook
    Chinese steel and iron ore futures extended losses on Tuesday, weighed down by a tepid pick-up in demand for the two commodities in the world's top consumer.Demand for metals traditionally improves in the second quarter as construction and manufacturing activity firms, but a sluggish recovery in China and the lack of any major economic stimulus by Beijing is expected to pressure commodity prices."The general market sentiment remains weak amid gloomy expectations for first-quarter economic growth, which keeps denting steel demand and prices," said Xia Junyan, an analyst with Wanda Futures in Shanghai."I don't expect any big improvement in steel prices in the near future." The most-traded rebar for October delivery on the Shanghai Futures Exchange edged down 0.3 percent to 3,358 yuan a tonne by the midday break. It earlier touched 3,336 yuan, its lowest price in more than one week.China's major steel companies lost 4.7 billion yuan ($755.74 million) in the first two months of the year, compared with a profit of 5.1 billion yuan in the same period last year, local media reported on Monday, citing data from the China Iron & Steel Association.Shrinking profit margins and falling steel prices are forcing Chinese steelmakers, which produce about half of the world's steel output, to curb purchases of iron ore.
        "The market has been quiet since Monday afternoon, and everyone is watching closely for the upcoming economic data in order to find clues for the market trend," said an iron ore trader in Beijing."Demand is still there, but steel mills are bargaining a lot and offering very low prices for cargoes."China's gross domestic product likely grew 7.3 percent in the first quarter, the slowest pace in five years, according to economists polled by Reuters, ahead of the data to be released on Wednesday. Iron ore for delivery in September on the Dalian Commodity Exchange fell for a fourth day in a row, down 0.25 percent to 803 yuan a tonne by midday break.Iron ore for immediate delivery to China .IO62-CNI=SI stood little changed at $117 a tonne on Monday, after falling nearly 2 percent to $116.90 a tonne on Friday, according to data compiler Steel Index.
     Global miner Rio Tinto  said its first-quarter iron ore shipments fell 8 percent from the previous quarter due to weather-related disruptions in Australia and Canada, but shipments were still up 16 percent from a year ago. Rio miner said it would still meet full-year production target of 295 million tonnes to meet growing demand from China. 

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