[T.S.R:17042] India's Steel, Cement and Power Units Are Perched Atop A Precipice (Citi)

And Suddenly There Was No Coal

Thermal Coal — Continued failure of India's domestic coal producers to expand domestic production is likely to force the country to increase its reliance on import coal. Already we see evidence of this, with imports from South Africa and Indonesia growing by 77% and 60%, respectively, in 2010. If domestic output struggles to grow in 2011 (as we suspect), we believe India could require an additional 20Mt in thermal coal above market expectations of 60Mt this year. This would most certainly put further upward pressure on thermal coal prices. 

Iron Ore Markets — The iron ore market started the week firm as a cyclone in the Pilbara led to two major ports closing. But since then the market has ebbed lower, with the TSI spot price now 4% off its record high at $184/t. The swaps market has seen an even steeper sell-off over the last few days. March traded at $172/t, April printed at $160 and Q2 at $158. This sharp sell-off should attract buyers into the market, as fundamentals look relatively strong in the short term.

Coal Markets — Crude oil is dominating the headlines as physical coal activity in Europe/Asia slows to a crawl. Warmer weather and growing domestic stockpiles in China mean more coal is being re-sold within the Asia-Pac region and less demand pull on South Africa / Colombia. Asian contract negotiations in April are keeping the situation tense for NEWC. European (API2) coal prices had been following crude oil with some significant covariance but fell late in the week as European market fundamentals outweighed macro sentiment. 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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