Mining & Metals Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Must know facts:

In 2016, India stood as the 3rd largest crude steel producer in the world, while the total crude steel production was 88 MT & it accounted for 5.89 per cent of the total steel production in the world.
India is the 3rd largest producer of coal with closer to 11% share across global markets where China caters to 50% of world’s coal production. And also India ranks 4th in terms of iron ore production globally.
Mining sector (including fuel, atomic, major and minor minerals) contributed about 2.4% of GDP in 2014-15 as per the data released by Central Statistical Organisation under Ministry of Statistics & Programme implementation.
India produces as many as 88 minerals which includes 4 fuels minerals, 3 atomic minerals, 26 metallic & non-metallic minerals and 55 minor minerals (including building and other materials).

Influencing Factors for price change:

Individual stocks of Metal sector should be benchmarked against movement in – ‘NIFTY METAL’ indices.
Keep an closer watch on government initiatives to boost mining sector, this has a huge impact & could easily take stock prices higher by 10-20% in less than 5 trading sessions.
Be aware of manufacturing process of steel. Pellets are used as raw material in steel industry, so there is plenty of need for GAS for burn pellets to convert them into steel hence GAS availability sanctions by the government, plays an important role. Watch out for changes in pellets prices & GAS sanctions from government.
Another raw material that is extensively used is Coking coal – if the price of coking coal increases, its passed on across various levels of steel production.
Any news on resolution to NPA problems of troubled companies in steel sector is a huge boost to companies in the same industry with better management practices.
Watch out for import duties, custom duties levied on metals. Cheaper the raw material cost, cheaper the production cost.
Benchmark Indices that needs to be watched:
NIFTY METAL Index – index of top metal stocks listed in NSE, chosen based on Market Cap.
NIFTY 50 – Metals have a weighted average of 5.9%, so any movement in Metal stocks could move Nifty 50 index either ways. [as on 14/02/2018] [To find latest sectorial weighted average you may refer any financial website, for ex: moneycontrol.com)

Understanding the Industry:

Emerging markets especially India has played a significant role in the global mining and metals sector, particularly since the last decade. Emerging countries have stepped in to incrementally meet the growing global demand for minerals and in the process gained increasing market share in global minerals trade. Global industry is plagued by several delinquencies like stagnation of the banking markets, change in capital raising trends & emergence of these trends have certainly moved the ball in favour of Asian markets there by changing the logistical trends in the demand & supply equation.

India holds a fair advantage in cost of production and conversion costs in steel and alumina. Its strategic location enables convenient exports to develop as well as the fast-developing Asian markets.

India currently produces around 88 minerals which mainly include 50 non-metallic, 24 minor, 10 metallic, 4 fuel and 3 atomic minerals.

Rise in infrastructure development and automotive production are driving growth in the sector. Power and cement industries are also aiding growth in the metals and mining sector. Demand for iron and steel is set to continue, given the strong growth expectations for the residential and commercial building industry.

Estimated Market Size:

Emerging economies’ share of exploration expenditure has increased from around 40% at the beginning of the decade to around 60% in recent years.

Road Ahead:

India has vast mineral potential with mining leases granted for longer and stable tenure of 50 years. The demand for various metals and minerals will grow substantially over the next 15 years. India’s strategic location enables convenient exports. India’s per capita steel consumption is four times lower than the global average, sustained growth in India’s automotive sector has been driving demand for steel and aluminium. And mind you, domestic consumption alone can be a great driver to stimulate steel production.

India has an advantage in the cost of production and in conversion costs of steel and alumina.

Infrastructure projects in India are coming off age – from being under developed to developing status in real terms at least now & this can be a propeller to provide lucrative business opportunities for local producers of steel, zinc and aluminium which are basis ingredients of any infra project.

And yes, FDI upto 100% under Automatic route is allowed in – Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957. So this will add feather to emerging trends & expectations of India shining.

Top Stocks in the industry:

COAL India, Vedanta, Hindalco, JSPL, TATA Steel, JSW Steel, NMDC, MOIL, Hind Zinc, Gravita India & many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Sources / References: MakeinIndia, IBEF, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports.

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