TransGraph · – Global steel production and consumption are likely to witness rise in 2017 amid...

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Medium term Outlook on Steel Flats

August 2017

2

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Price Trend Review – Secondary Steel Market

– Domestic flat steel prices have recovered in July amid positive sentiments after GST implementation and increasing buying activity.

– Chinese steel prices have also risen in July supported by expected decline in output levels, coming at a time when steel inventories are low and demand high.

– Domestic raw material prices have also risen supported by domestic steel price rise.

– Moving ahead, prices are likely to find support in August amid increased buying during peak consumption season by automobile sector ahead of festival season.

34627

3790839465

37729 37575 3822736750

3471535812

37833

Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17

HRC Delhi (INR/ton)

till date

38957

4267944586

4252940052 41084 40682

39206 38858 39617

Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17

CRC Delhi (INR/ton)

till date

TransGraph


Iron ore and Coking coal prices witness significant rise backed up by steel price rise

– Iron ore prices have declined during Mar-June from more than two year highs despite continued strong import demand from China as stocks in the mainland surged to record highs while supplies from new mines in Australia also emerged into the market. However, prices have witnessed significant rise since mid-June amid rise in Chinese steel prices.

– Meanwhile, coking coal prices, after bottoming to

USD 150 levels in June have witnessed support from late-June amid worries about tightening supply after China has announced to ban coking coal import into small ports and rising steel prices.

– Overall, iron ore and coking coal prices are likely

to rise further in August amid rising steel prices and worries about tightening supply (for Coking coal).

4550556065707580859095

Ap

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May

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Iron Ore Prices (USD/ton)

Fe 62.5% Iron Ore (fines), CFR China (Australia)

0

50

100

150

200

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300

350

May

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Coking Coal and Met Coke Prices (usd/t)

Coking Coal (prime hard FOB Australia)

Met Coke (FOB China)

till date

TransGraph


Iron ore rises despite supply glut

– Higher Iron ore imports leading to rise in Chinese port inventories to record levels during the current year (140 mn tons). However, they witnessed moderation in July amid increased steel production backed by higher operating margins due to price rise.

– Moving ahead, despite supply glut at the iron ore front, rising steel prices are likely to support iron ore prices over the coming months.

241.572

252.3

269.11

261.73

271.03268.45

275

JFM'16 AMJ'16 JAS'16 OND'16 JFM'17 AMJ'17 JAS'17p

Chinese iron ore imports in million tons

131 130 131 131 132 134 136 137 137 139 139 141 140 139 140 140 140 139

80.0

68.0 68.0 69.0

62.0

54.0

63.058.0 58.0

54.0 56.0 57.0

65.0 63.066.0 67.0 69.0

74.0

30

50

70

90

120

125

130

135

140

145

07-Apr-17 05-May-17 02-Jun-17 30-Jun-17 28-Jul-17

Chinese iron ore port inventories

China Iron ore port Stocks (Mn Tons) Iron ore CFR China (62 Fe USD/ton)

86

66

5445

92

6860

48

0

20

40

60

80

100

Vale Rio Tinto BHP Billiton Fortescue MetalGroup

Major miners production (mn tons)

JFM AMJ

TransGraph


NMDC iron ore prices likely to witness rise in July, after a slump in June

– NMDC has earlier kept the prices of fines and lumps for the fourth consecutive month at INR 2085 and INR 2325 per ton respectively despite weakness in international prices due to steady rise in sales. However, with sales weakening over the last two months, NMDC has slashed prices by INR 200 for the month of July.

– Further, stock build-up in the recent months at the producer front due to higher export tax is likely

to have undermined prices.

1200

1700

2200

2700

Mar/16 May/16 Jul/16 Sep/16 Nov/16 Jan/17 Mar/17 May/17 Jul/17

NMDC Iron ore prices (INR per ton)

Lumps (>62%) INR/ton

Fines (< 60%) INR/ton

1.0

1.5

2.0

2.5

3.0

3.5

4.0

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NMDC Iron ore production and sales (mn tons)

Production (mn tons) Sales (mn tons)

TransGraph


State 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17e 2017-18p

Chhattisgarh 29.32 30.54 27.96 29.25 29.42 24.60 32.00 35.00

Goa 35.56 33.67 10.90 0.00 0.00 1.78 4.00 6.00

Jharkhand 22.28 18.94 17.99 22.62 17.00 19.30 23.50 25.00

Karnataka 38.98 13.48 11.50 10.00 11.00 25.50 26.50 28.00

Odisha 76.12 67.31 64.19 75.00 68.00 80.80 100.00 109.00

Others 4.90 4.64 4.07 15.31 3.49 3.92 5.00 7.00

Total 207.16 168.58 136.61 152.18 128.91 155.90 191.00 210.00

State-wise Iron ore Production

TransGraph


Indian Iron ore - Balance Sheet

Year Production Stock Mine

Heads Domestic Demand

Exports Imports Net Demand Surplus

FY12 168.58 123.80 96.61 61.74 0.98 157.37 134.03

FY13 136.61 120.20 100.48 18.37 3.05 115.80 174.70

FY14 152.18 123.97 99.91 14.42 0.36 113.97 161.83

FY15 128.91 128.66 105.30 6.12 12.09 86.09 158.39

FY16 155.90 144.52 98.96 4.50 7.09 85.37 196.96

FY17e 191.00 149.00 107.91 28.00 5.00 130.91 204.09

• Despite rise in iron ore usage, weaker exports and rising production has led to production surplus at the domestic front. Surplus production is likely to have crossed 200 million tons during FY2017.

TransGraph


Pig iron prices lower amid weak RM and steel prices in July

Indian Pig Iron Supply and demand

Parameter AMJ 2016 JAS 2016 OND 2016 JFM 2017 AMJ 2017 2015-16 2016-17 2017-18p

Production 2370 2427 2333 2322 2270 9228 9452 9700

Imports 7 11 11 5 5 22 34 30

Consumption 2349 2200 2350 2165 2046 9021 9064 9160

Exports 9 101 36 241 152 297 387 390

Stock change 19 137 -42 -79 77 -68 35 180

Source: JPC, All units in thousand tons

– Strong Indian pig iron exports in JFM 2017 created tightness in the in the domestic supplies leading to surge in domestic pig iron prices

– However, with RM prices falling, pig iron prices have

weakened during June-July.

– Prices are likely to find support in August amid rising steel and RM prices.

10000

15000

20000

25000

30000

35000

40000

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17

Indian pig iron and scrap price trends

Pig Iron Foundry Grade (Ex-Mumbai)

HMS Scrap (EXW Mumbai, INR/ton)

TransGraph


Chinese steel exports continue to fall amid rising protectionism; Production continues to rise

– Chinese crude steel production for the month of June has risen to all time record high level of 73.2 million tons, a growth of 5.4% compared to last year. Production in July is likely to remain high amid higher operating margins supported by higher steel prices.

– Rising protectionism has led to steady decline in Chinese steel exports over the past four quarters. Correction in Baltic index is also indicating weakness in demand but remains stronger than 2016

– Trade standoff between US and China could further impact Chinese exports during the current year, thereby reducing the surplus material at the global front.

68.6 68.2 68.5 66.3 67.2 67.6 61.2 72.0 72.8 72.3 73.2 74.0

2.433.10

3.614.69 4.43

6.91

4.65

1.83

4.88

1.81

5.42

10.77

0

2

4

6

8

10

12

55

60

65

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75

Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17

China Crude steel production trendProduction (mn tons) YoY change (%)

2627

3129

2829

28

24

21 2019

15

20

25

30

JFM AMJ JAS OND

China quarterly steel exports (mn tons)

2015 2016 2017

TransGraph


– Global crude steel production for the first six months of 2017 has increased by 4.3% YoY to reach 835 million tons. Production for the month of June has risen by 3.23% YoY.

– With China taking effective measures to cut its excess capacity, global capacity utilization has risen significantly in 2017.

– Global steel production and consumption are likely to witness rise in 2017 amid healthy steel industry in developing countries.

Global capacity utilization increases as China cuts capacity

1602

15721585

1620

1543

14991515

1535

2014 2015 2016 2017e

Global Finished steel production and consumption

Production (mn tons) Consumption (mn tons)

137 134 135 134 138 133 134 138 127 144 142 143 141

71.6%

68.1%68.3%70.0%69.5%69.2%

67.6%69.3%

70.6%72.0%

73.6%71.7%

73.0%

Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17

Global Crude Steel production and capacity utilization

Production (mn tons) Capacity utilization (%)Source: WorldSteel,

TransGraph


Chinese automobile production growth likely to remain strong

Strong growth in China commercial vehicle sales to

drive to automobile production higher while the

passenger vehicles sales expected to rebound due to

seasonal demand in JAS 2017 in the medium term

Chinese production is expected to grow at a stronger

pace at amid better than expected sales and inventory

restocking after buoyant sales in the last two quarters

of 2016.

-20%

-10%

0%

10%

20%

30%

40%

50%

60% Commerical vehicles sales growth (%)

6.52

6.28

6.49

7.00

6.35

6.77

5.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

JFM AMJ JAS

China automobile sales in 2017 (million units)

2016 2017

6.58

6.28

6.48

7.13

6.35

6.85

5.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

JFM AMJ JAS

China automobile production in 2017 (million units)

2016 2017

TransGraph


Recovery in US and Japanese sales along with stronger growth in China and EU to keep automobile sales growth prospects bright in the medium term

After the weak growth in the past few

months, US auto sales are expected to

witness gradual recovery in coming

months during the summer season.

Meanwhile, robust growth momentum at

the European front is likely to continue in

to the third quarter due to availability of

cheap finance and increasing consumer

spending.

Recovery in Japanese auto sales aided by

the revival in Japanese economic growth

supported by rise in exports likely to keep

the sales growth stronger in the coming

quarter.

7.3%

1.2%

-1.8%

2.5%

6.9%

-2.8%

8.1% 8.4%

1.6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Japan Germany USA

Japan, EU and US auto sales trend in 2017

(YoY % change)

JFM AMJ JAS

15781104 1329

44324939

44114100

4496 4620

0

1000

2000

3000

4000

5000

6000

JFM AMJ JAS

Japan, EU and US auto sales trend in 2017

Japan EU USA

TransGraph


Japanese auto production in recovery mode after extended slump

Japanese auto production is expected to

continue the recovery trend in the medium term

aided by government’s stimulus measures to

infuse liquidity in market and higher export

demand.

Further, aided by strong economic growth

sentiments and higher export demand Germany

automobile production is likely to witness strong

growth to the tune of 5.2% in the coming

quarter

Meanwhile, after the sluggish growth in the past

three quarters US auto production is expected

to witness moderate rebound in the next

quarter supported by increasing sales and bright

sales prospects due to improving wages,

consumer confidence and declining

unemployment in the coming quarters.

25362158

2484

1505 16171420

3082 3122 3008

0

500

1000

1500

2000

2500

3000

3500

JFM AMJ JAS

Auto production quarterly trend in 2017

Japan Germany USA

6.1%

2.4%

0.0%

2.5%3.7%

-1.2%

7.7%

5.2%

0.9%

-2%

0%

2%

4%

6%

8%

10%

Japan Germany USA

Auto production growth trend in 2017 (YoY % change)

JFM AMJ JAS

Indian Steel Dynamics

15

TransGraph


Indian steel balance sheet – Finished Non Alloy steel

Parameter Jul’17 Jul’16 % Change Apr-Jun’17 Apr-Jun’16 % Change

Gross production 8.333 7.606 9.56% 26.59 24.53 8.40%

Own consumption

0.849 0.837 1.43% 2.603 2.345 11%

Total Production for sale

7.484 6.769 10.56% 23.99 22.18 8.10%

Imports 0.662 0.419 58.00% 1.206 1.417 -14.90%

Exports 0.709 0.431 64.50% 1.778 1.111 60%

Consumption 7.477 6.757 10.66% 22.57 21.45 5.20%

Stock change -0.04 0.00 0.842 1.034

Source: JPC, All units in million units

TransGraph


Imports remain costlier due to Anti-dumping and Safeguard duties

– Currently, flat steel export prices have been rising significantly in China and Japan amid healthy demand. This led to import parity rising to around INR 5500 for China and INR 1200 for Japan.

– Domestic steel has additional support against Chinese imports as safeguard duty is applicable on Chinese imports. Currently, with global prices remaining higher, current anti-dumping duty on imports from China and Japan is zero.

– Steel imports fro the first four months of FY18 have fallen by a mere 2% compared to the same period in FY17. This is due to higher imports witnessed in June and July.

22000

27000

32000

37000

42000

47000

16-Jan-15 04-Sep-15 19-Apr-16 02-Dec-16 21-Jul-17

HR Coils landed cost (INR/ton)

Landed cost China Landed cost JapanHRC India (Delhi) Anti-dumping reference rate

0.00

0.20

0.40

0.60

0.80

1.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Indian finished steel imports (in mn tons)

2015 2016 2017

TransGraph


Indian primary producers reap in the recent price increases

Crude steel production Apr’17 – Jul’17 Apr’16 – Jul’16 Incremental Production

Growth

SAIL 3.785 3.719 0.066 1.77%

RINL 1.155 0.938 0.217 23.13%

TSL 3.93 2.777 1.153 41.52%

ESL+JSWL+JSPL 10.91 9.889 1.021 10.32%

Others 14.941 14.808 0.133 0.90%

Total 31.325 28.949 2.376 8.21%

Source: JPC, All units in million tons

– Essar increased the operating rates after improvement seen in margins in a bid to get the loan recast request put in last year approved

– Increase in sales realization aided JSW repaying debt to the tune of INR 5000 Cr in 2016

– JSPL commissioning of DRI plant of 1.7 MTPA at Angul led to strong production growth.

TransGraph


– Despite significant rise in domestic steel production and declining imports, increased domestic consumption has led to depletion of stocks. End stocks have fallen over the past few months indicating healthy demand.

– Earlier, rising imports amid subdued demand has led to stock piles at the domestic front which further pressurized prices.

Indian steel consumption growth remains steady – End stocks witness decline in FY’18

1086

414 543

-1022

-366

1416 1265

284583

-1500

-1000

-500

0

500

1000

1500

2000

Steel Stock change of primary and secondary producers (KT)

Source: JPC

6.83

6.50 6.556.47 6.46 6.48 6.48 6.53

6.44

6.17 6.17 6.206.28 6.27

5.8

6

6.2

6.4

6.6

6.8

7Indian Steel industry end stocks (million tons)

TransGraph


Stronger Passenger and commercial vehicle sales growth rate post GST along with higher rainfall expected to boost rural demand to keep demand prospects bright

India’s commercial vehicles sales are seen gradually

improving after the declining post implementation of BS-IV

norms while June sales of passenger vehicles declined on

yearly owing to uncertainty ahead of GST implementations.

Going ahead, with automobile manufacturers expected to

pass on the benefits of cost reduction after GST, vehicle

prices are expected to come down which is expected to

boost the sales along with pent-up demand from June is

likely to remain supportive to prices in the medium term

1056 1185 1117 1244

1058

1238

6.7%

10.1%

11.7%10.0%

0.3%

4.4%

0

200

400

600

800

1000

1200

1400

AMJ 2016 JAS 2016 OND 2016 JFM 2017e AMJ 2017p JAS 2017p

India Auto Production Trend

India auto production (000 units) YoY change (%)

1041 1160 1140 1224 1091 1236

12.2%

18.1%

8.0%

11.8%

4.8%6.6%

0

200

400

600

800

1000

1200

1400

AMJ 2016 JAS 2016 OND 2016 JFM 2017e AMJ 2017p JAS 2017p

India Auto Sales Trend

India auto Sales (000 units) YoY change (%) (Passenger +commercial vehicles)

6.235.65

5.105.64

6.266.98

5.59

4.565.32

5.87

2013-14 2014-15 2015-16 2016-17e 2017-18p

Indian Tractor production and sales (Lakh Units)

Tractor production (Lakh units)

Total tractor Sales (Domestic+Exports) (Lakh units)Source: ACMA, TG estimate

Technical analysis

TransGraph


Steel (HRC) price outlook

22 HR Coils (2.5mm) Delhi Spot prices are likely to extend the gains towards INR 40000 before turning weak in the coming 2-3 months

TransGraph


Price outlook summary for next 3-4 months

Market Aug 09, 2017 Price range Direction

HRC 38500 37000 to 40000 Upwards

HR Coils (2mm) Delhi Spot prices are likely to extend the gains towards INR 40000 before turning negative in the coming 2-3 months.

Ex-works Delhi, INR/ton

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