The Lodestone:Aluminum prices move up while production cuts continue
Aluminum prices move up, but production cuts continue: LME aluminum prices are up 10% m/m and YTD is the second best performing metal after Nickel. However, production cuts by companies continue, with the metals press (MB, Bloomberg) reporting new cuts by CHALCO totaling ~0.8MT of alumina and ~0.6MT of aluminum with the latter part of ~1MT of aluminum cuts for 2014. Among the broader metals, aluminum equities have outperformed on a YTD basis globally. Spot alumina prices have so far not participated in the the LME aluminum rally, with prices flat m/m v/s the 10% increase in aluminum prices.
Steel production details in China: JPM China analyst Daniel Kang highlights China's steel output in early April strengthened seasonally to 785Mt, from 757Mt in late March. According to China Iron & Steel Association (CISA), daily crude steel output for the first 10 days in April rose 3.8% to 2.15Mt (or annualized 785Mt) from 2.07Mt (or 757Mt annualized) in late March. Steel inventories with traders retreated to 18.0Mt (18.8Mt in late March) and producer stocks edged lower to 15.1Mt (15.4Mt in late March). Together, we estimate CISA mills and traders now hold 15.9 days, down from 17.3 days in late March, but still above historical levels of 14.4 days. On the raw materials side, late-March iron ore stocks at Chinese mills restocked to 24.5 days, up from 23.7 days in late March but still below trend levels of 28 days. However, iron ore stocks at Chinese ports continued to climb to new highs of 104.6Mt, supporting c30 days of steel output (historical average of c28 days), by our estimates.
Indian coal supply-Quality issues not fully resolved? Seems so: While Coal India and NTPC have reached some settlement regarding the dues pertaining to coal quality mismatch, the issue does not appear to have been fully resolved. As per media reports (Business Standard), the Bombay High Court, has asked the coal companies to respond to allegations of the power producers regarding the supply of inferior quality of coal.
Steel prices broadly stable, while iron ore moves up: Spot iron ore remained firm with prices moving to ~$117/T, while spot steel prices in China softened.Export prices out of China remained firm.
India- Odisha iron ore supplies to restart post transportation ban: The eastern India state of Odisha had imposed transportation restrictions on iron ore given elections. As per the metals press (Steel mint) this has led to an increase in spot sponge iron ore prices. Now the ban has been removed and ore transportation has picked up. This should lead to some near term cooling in sponge iron ore prices, in our view.
India- Domestic demand should pick up once elections get over: The last 2 months have seen weak domestic demand, particularly across government projects given the ongoing national elections. In our view, post the elections, government spending should re-start allowing some pick up in demand across construction materials like steel and cement.