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CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is not liable for investment decisions, which may be based on the views expressed in this Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISILs Ratings Division, which may, in its regular operations, obtain information of a confidential nature, which is not available to CRISIL Research. No part of this Report may be published/reproduced in any form without CRISILs prior written approval.
1.
CRISIL Research
September 2011
Table of contents
Price Forecast Summary Methodology: Ferrous Metals Price Forecast Ferrous Metals
HR Steel CR Steel Sponge Iron TMT Steel Pig Iron .11 .17 .19 .21 .22
.48 .52
.51 .54 .60 .63
Annexure
.66
3.
commodities on a quarterly (2011-2012) and annual (2013 to 2014) basis. This will aid decision-making with respect to purchase of raw materials or in making strategic decisions The commodity price forecasts factor the following:
Global and domestic demand-supply scenario End-user analysis based on key consumption regions
4.
5.
Quarterly Q311 E
690 - 720 37,500 - 39,500 42,000 - 44,100 39,000 - 41,000
Annual Q212 P
660 - 690 36,800 - 38,700 41,300 - 43,400 41,800 - 43,900
Q411 P
680 - 710 38,000 - 40,000 42,400 - 44,600 40,600 - 42,600
Q112 P
670 - 700 37,400 - 39,300 41,800 - 44,000 40,800 - 42,800
Q312 P
670 - 700 37,300 - 39,200 41,700 - 43,900 40,300 - 42,300
2013 P
670 - 700 37,300 - 39,200 41,800 - 43,900 42,000 - 44,100
2014 P
650 - 680 36,100 - 37,900 40,600 - 42,700 39,100 - 41,100
Annual Q212 P
28,300 - 29,700 21,000 - 22,100
Q112 P
27,400 - 28,800 20,000 - 21,100
Q312 P
28,600 - 30,100 20,000 - 21,000
2013 P
28,800 - 30,300 20,600 - 21,600
2014 P
27,300 - 28,700 19,600 - 20,600
E: Estimated, P: Projected US $ 1 = Rs 45 approximately Note: We have assumed a constant currency rate throughout the forecast period HR Global prices refer to fob, CIS Source: CRISIL Research
6.
Quarterly Q311 E
2,350 - 2,450 9,100 - 9,500 2,300 - 2,300
Annual Q212 P
2,430 - 2,520 8,800 - 9,200 2,160 - 2,240
Q411 P
2,350 - 2,450 9,000 - 9,400 2,110 - 2,190
Q112 P
2,400 - 2,500 8,900 - 9,300 2,110 - 2,190
Q312 P
2,450 - 2,550 8,600 - 9,000 2,210 - 2,300
2013 P
2,500 - 2,600 8,300 - 8,700 2,300 - 2,400
2014 P
2,550 - 2,650 7,800 - 8,200 2,550 - 2,650
Rubber ($ / tonne)
SBR PBR NR ABS PP
Quarterly Q311 E
4,400 - 4,600 4,500 - 4,700 4,700 - 4,900 2,500 - 2,600 1,500 - 1,600
Annual Q212 P
3,680 - 3,870 3,810 - 4,010 4,160 - 4,370 2,280 - 2,390 1,470 - 1,550
Q411 P
4,040 - 4,240 4,050 - 4,260 4,100 - 4,310 2,270 - 2,390 1,490 - 1,570
Q112 P
3,880 - 4,070 3,890 - 4,090 4,200 - 4,410 2,250 - 2,370 1,470 - 1,550
Q312 P
3,350 - 3,520 3,470 - 3,650 3,950 - 4,150 2,210 - 2,320 1,440 - 1,520
2013 P
3,450 - 3,630 3,370 - 3,540 3,560 - 3,740 2,190 - 2,310 1,370 - 1,440
2014 P
3,420 - 3,590 3,300 - 3,470 3,740 - 3,930 2,080 - 2,180 1,350 - 1,410
Domestic Price
NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190
E: Estimated, P: Projected SBR grade is SBR 1502 US $ 1 = Rs 45 approximately Note: We have assumed a constant currency rate throughout the forecast period Source: CRISIL Research
7.
8.
Commodity Prices
Demand
Supply
Cost Structure
End Use segments of each of the regions such as Construction ,Auto, Consumer Durables, production of machinery have been analysed
Demand as a function of Investment and Investment/GDP have also been analysed for arriving at long term demand forecasts
Processing Costs
Other Costs
Europe
China
India
These regions together account for a significant proportion of the global commodity consumption (Refer Annexure I)
Source: CRISIL Research
9.
10.
Q311 E
690 - 720
Q411 P
680 - 710
Q112 P
670 - 700
Q212 P
660 - 690
Q312 P
670 - 700
2013 P
670 - 700
2014 P
650 - 680
($/tonne)
Iron ore
Coking coal
Forecast
1Q11 P 2Q11 P 2Q12 P 3Q11 P 4Q11 P 1Q12 P 3Q12 P 2013P 4Q10 E 2014P 2Q08 4Q08 2Q09 4Q09 1Q10 2Q10 3Q10 1Q08 3Q08 1Q09 3Q09
Steel price
With coking coal supply estimated to return to normalcy (post Australian floods), we expect coking coal prices to soften from Q4 2011 onwards resulting in lower q-o-q steel prices
Strong bargaining power of iron ore suppliers and tight demand-supply will result in firm iron ore prices through 2014 Going forward, we expect supply of coking coal to improve gradually (from new mine supply), thereby showing a marginal decline in coking coal contract prices in 2013 and 2014
In addition, on the back of rising demand, capacity utilisation in global steel industry is expected to improve from 2010 levels
11.
Steel prices rose with recovery in demand, higher raw material prices
(Rs/Tonne) 1,400 1,200 1,000 800 600 400 200 0
Steel Prices
Steel demand recovery in 2010 (13 per cent y-o-y growth) was aided by a low base and strong rebound in growth of end-use segments like automobiles,
Recovery in the end-user segments can be attributed to the timely monetary intervention by governments of major
(million tonnes)
100% 80%
2000 1500 60% 1000 500 0 2005 2006 Demand 2007 2008 2009 2010 Capacity Demand/Capacity 40% 20% 0%
economies. Majority of the recovery in steel demand emanates from emerging markets like China and India. Despite a strong growth in 2010, steel consumption in developed countries has not yet recovered to pre-crisis levels.
12.
Raw material prices increased with supply constraints and demand recovery
($/tonne) 450 375 300 225 150 75 -
Coking coal prices rose in Q1 2011 mainly due to continued supply constraints in Australia
Coking coal prices have softened from Q1 2011 levels but supply has not yet completely normalised, thereby exerting upward pressure on prices
Q205 Q305 Q405 Q106 Q206 Q306 Q406 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Iron Ore
Coking Coal
Steel prices increased in 2010 (~30 per cent yo-y) and H1 2011 (15 per cent y-o-y) due to
54 39 82 125
70 47 91 111
122 51 92 92
85 61 153 129
demand recovery and higher raw material prices Going ahead, Iron prices are expected to remain firm on account of tight demand- supply situation and consolidation of suppliers
However, with the coking coal supply situation easing, coking coal prices are expected to soften from Q4 2011 onwards
13.
2500 2000 1500 1000 500 0 2009 2010 Demand 2011E 2012P 2013P 2014P Capacity Demand/Capacity
Steel demand-supply ratio is expected to recover from 72 per cent in 2010 to 79 per cent in 2014
20% 0%
Global steel demand is expected to grow at a modest 5-6 per cent during the next 3 years Economic uncertainty remains a specter in the industry particularly in the developed markets. The demand from developed regions is expected to moderate in the long run as the various stimulus packages that fuelled growth in 2010 has paved way for austerity measures
Steel demand from developing regions, especially China and India, is also expected to grow moderately during 2011 to 2014 Chinese steel demand is expected to moderate (6 7 per cent CAGR from 2011-2014) as the Chinese government is currently undertaking measures to manage inflation Indias steel demand is expected to grow by 8-9 per cent, driven by huge investments in infrastructure and expected healthy growth in automobiles, oil and gas sectors
14.
Q311 E
37,500 - 39,500
Q411 P
38,000 - 40,000
Q112 P
37,400 - 39,300
Q212 P
36,800 - 38,700
Q312 P
37,300 - 39,200
2013 P
37,300 - 39,200
2014 P
36,100 - 37,900
HR Steel Prices
Domestic steel demand is expected to grow by 8-9 per cent during 2011 - 14 Healthy growth expected in construction (1011 per cent) and automobiles (13-15 per cent) Robust growth expected in oil and gas pipelines (cumulative investments of around Rs 5 trillion over next 5 years)
Forecast
3Q11 E 2013 P 4Q11 P 1Q12 P 3Q12 P 2Q12 P 2014 P 1Q08 3Q08 4Q08 2Q09 4Q09 4Q10 1Q11 2Q11 2Q08 1Q09 3Q09 1Q10 2Q10 3Q10
400 200 0
HR Domestic
HR Steel landed
HR CIS (RHS)
With
moderate
growth
in
steel
demand,
demand-supply ratio is expected to remain above 80 per cent (lower than pre-crisis levels of ~90 per cent) Domestic steel prices in Q4 2011 are expected to be marginally higher on account of upward
pressure on domestic iron ore prices due to a ban on illegal mining in Karnataka Domestic steel prices are expected to moderate from Q1 2012 onwards due to
Demand
Capacity
Demand/Capacity (RHS)
15.
Domestic steel prices have followed landed cost of global steel prices
Domestic steel demand grew by a 13 per cent CAGR during 2005-06 to 2010-11 Demand increase was in driven by continuous and
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
infrastructure
construction related investments, strong growth in capital goods and automobile sales
Landed
Domestic
Global (RHS)
Domestic steel prices in 2010-11 have increased by 12-14 per cent supported by an increase in global prices and healthy domestic demand growth Domestic demand in 2010-11 grew by 10 per cent (y-o-y) due to strong growth witnessed in key end-user sectors like infrastructure, pipes & tubes and
Demand
Capacity
Demand/Capacity (RHS)
automobiles
16.
Q311 E
42,000 - 44,100
Q411 P
42,400 - 44,600
Q112 P
41,800 - 44,000
Q212 P
41,300 - 43,400
Q312 P
41,700 - 43,900
2013 P
41,800 - 43,900
2014 P
40,600 - 42,700
Steel Prices
Automobile industry, a key end-user, to grow moderately by 13-14 per cent over the next 2-3 years
Forecast
1Q12 P 2Q12 P 3Q12 P 4Q11 P 3Q11 E 2013 P 2014 P 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 4Q09 1Q10 4Q10 3Q09 2Q10 3Q10 1Q11 2Q11
In 2010-11, Cars & UVs industry witnessed a strong growth of over 30 per cent. However, going ahead we expect the growth to moderate amid concerns over rising cost of owning a
HR Domestic
CR Domestic
('000 units) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
rise freight
in
and to
healthy
continue to drive the demand for commercial vehicles Moderate automobile demand growth
17.
Domestic Prices
CR prices largely follow the price trend of HR steel, which is a key cost component The automobile industry, which accounts for around 60 per cent of CR consumption in the country, has grown at a CAGR of 15-16 per cent during 2005-06 to 2010-11 thereby supporting prices of CR steel in India
HR
CR
2006-07
2007-08
2008-09
2009-10
2010-11
Comm Vehicles
Car & UV
Tractor
18.
Q311 E
20,500 - 21,500
Q411 P
19,500 - 20,500
Q112 P
20,000 - 21,100
Q212 P
21,000 - 22,100
Q312 P
20,000 - 21,000
2013 P
20,600 - 21,600
2014 P
19,600 - 20,600
(index)
400
Forecast
2013 P 4Q11 P 2Q12 P 3Q12 P 1Q12 P 3Q11 E 2014 P 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 2Q10 1Q11 1Q08 1Q10 3Q10 4Q10 2Q11
100 0
Sponge iron
CRISIL Research expects sponge iron prices to remain firm over the next 2-3 years as Sponge iron demand will grow at a slower pace than growth in long steel industry as large integrated players are increasing production of long products through blast furnace route Upward pressure on domestic iron ore prices on account of measures taken to curb illegal mining of iron ore in near term However, increased supply of scrap to limit the rise in sponge iron prices Increased ferrous scrap supply in the global market is expected to exert downward
19.
Jan-01 Jul-01
Jul-06 Jan-07
Ferrous scrap is a substitute for sponge iron and hence, the landed cost of scrap acts as a ceiling for domestic sponge iron prices Domestically, sponge iron prices have moved in line with iron ore and scrap prices As a raw material, scrap is preferred to sponge iron as the Fe content in scrap is higher Due to constraints in availability of domestic scrap, secondary steel manufacturers import scrap. In 2010-11, scrap imports have been around 3.5 million tonnes
20.
Q311 E
39,000 - 41,000
Q411 P
40,600 - 42,600
Q112 P
40,800 - 42,800
Q212 P
41,800 - 43,900
Q312 P
40,300 - 42,300
2013 P
42,000 - 44,100
2014 P
39,100 - 41,100
Demand from construction sector, a key end-user and sponge iron prices, a key raw material, drive TMT prices
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
CRISIL Research expects TMT prices to remain firm at current levels due to healthy construction demand Total construction and investments to
Sponge
TMT
(industrial
infrastructure)
increase from Rs 10,172 billion during 2006-07 to 2010-11 to Rs 18,209 billion during 2011-12 to
Forecast
4Q11 P 1Q12 P 2Q12 P 3Q12 P 2013 P 3Q11 E 2014 P 1Q08 4Q08 2Q09 3Q09 4Q09 1Q10 3Q10 4Q10 1Q11 2Q08 3Q08 1Q09 2Q10 2Q11
2015-16 Seasonality of construction demand and its impact on TMT prices have been factored forecast in to our quarterly price
Sponge iron
TMT Domestic
21.
Pig iron prices to fall with decreasing input costs in the near term
(per tonne)
Pig Iron (Rs)
(Rs/tonne)
Q311 E
28,300 - 29,800
Q411 P
27,800 - 29,200
Q112 P
27,400 - 28,800
Q212 P
28,300 - 29,700
Q312 P
28,600 - 30,100
2013 P
28,800 - 30,300
2014 P
27,300 - 28,700
Pig iron prices have moved in line with domestic iron ore and coke prices
Of the total demand for pig iron, the castings segment accounts for around 70 per cent and the balance is contributed segment Automobile and construction by the steel making
industries, the key end-users of castings, are estimated to show healthy growth over the next 2-3 years Coke prices are estimated to decline in near term, however healthy demand growth and upward pressure on
Forecast
3Q11 E 2013 P 4Q11 P 1Q12 P 2Q12 P 3Q12 P 2014 P 4Q10 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 1Q11 2Q11
200 100
domestic iron ore prices will lead to firm pig iron prices in the long term
22.
23.
Q311 E
2,350 - 2,450
Q411 P
2,350 - 2,450
Q112 P
2,400 - 2,500
Q212 P
2,430 - 2,520
Q312 P
2,450 - 2,550
2013 P
2,500 - 2,600
2014 P
2,550 - 2,650
Aluminium prices
(million tonnes) 70 60 50
Forecast
40 30 20 10
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 E 4Q11 P 1Q12 P 2Q12 P 3Q12 P 2013 P 2014 P
Global demand
Global capacity
Demand/capacity (RHS)
Chinese demand for aluminium is likely to grow by 8-9 per cent between 2011-2014; growth will be slower than the previous 2 years as demand from key end-user sectors is expected to slow down, due to tightening monetary policies China, one of the high cost producers of aluminium at $2,150-2,200 per tonne, contributes nearly 40 per cent of the global production and consequently sets a floor for aluminium prices Additionally, rising raw material (alumina) prices will support higher aluminium prices during the next few years
24.
Aluminium prices
In 2010, global consumption of aluminium was primarily driven by China, where demand is estimated to have grown by 19 per cent y-o-y
Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 May-01 May-03 May-05 May-07 May-09 Sep-10 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 May-11
Robust growth in production of automobiles and consumer durables in the country mainly contributed to China's aluminium demand, while the construction sector also maintained a stable growth
(million tonnes) 50 40 30 20 10 0
Also, steady growth from the other key consuming packages regions aided driven by stimulus trend in
the
upward
aluminium prices Weak movement of US dollar vis-a-vis the currencies of major exporting regions has also contributed significantly to the rise in aluminium prices in H1 2011 (Refer Annexure II)
25.
Aluminium prices
($/tonne) 4000
Domestic aluminium demand is expected to grow by 8-9 per cent between 2011-12 to 2014-15 Steady growth is expected in power
Forecast
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 E 4Q11 P 1Q12 P 2Q12 P 3Q12 P 4Q12 P 2013 P 2014 P
1000 0
(transmission and distribution) sector and double digit growth in automobile and consumer durable sectors India is amongst the lowest-cost
Landed prices
Domestic prices
LME (RHS)
aluminium producers in the world, due to an abundant supply of bauxite, captive power sources and lower labour cost compared to US and Europe Hence to address the significant export opportunity, major domestic aluminium players are setting up huge capacities (~2 million tonnes till 2014-15) Healthy operating rates will be maintained as Indian aluminium producers are
2010-11 E
2011-12 P
2012-13 P
2013-14 P
2014-15 P
Apparent consumption
Average capacity
Demand/Capacity (RHS)
26.
27.
Q311 E
9,100 - 9,500
Q411 P
9,000 - 9,400
Q112 P
8,900 - 9,300
Q212 P
8,800 - 9,200
Q312 P
8,600 - 9,000
2013 P
8,300 - 8,700
2014 P
7,800 - 8,200
Forecast
200,000 100,000 0
LME Price
Refined copper capacity is expected to increase by 3 per cent CAGR over the next 3 years, as per ICSG
Demand to capacity ratio is expected to remain flat, which will exert a downward pressure on prices in 2012 and 2013
However, declining ore grades in major mines and continuing labour issues
Demand
Capactiy
Demand/capacity (RHS)
plaguing the industry are expected to act as a deterrent to the fall in prices
28.
Copper Prices
The
key
end-users
of
Copper
consumer durables, etc Fiscal stimulus aided consumption pick-up from key end-user regions such as China, Europe and US in
Currency
movements
has
also
Demand
Capactiy
Demand/capacity (RHS)
29.
Chinese copper demand (~ 40 per cent of total copper consumption) has posted a y-o-y decline of 9 per cent in Jan- May 2011 During the same period, Europe and US y-o-y copper demand numbers
China USA EU- 15
have been flat Copper stocks in China which were declining through April June 2011 have shown a partial rebound in July ahead of the seasonal demand in Q4 2011
SHFE stocks
31.
Q311 E
2,300 - 2,300
Q411 P
2,110 - 2,190
Q112 P
2,110 - 2,190
Q212 P
2,160 - 2,240
Q312 P
2,210 - 2,300
2013 P
2,300 - 2,400
2014 P
2,550 - 2,650
($/tonne) 3000
Zinc Prices
('000 Rs/tonne)
2000
1000
Forecast
0
Dampening of demand in China and impending slowdown in USA and Europe expected to exert pressure on zinc prices in the near future
Players have advanced capital expenditure plans in mine exploration as mine supply is expected to tighten in the latter half of 2013 and 2014
Zinc concentrate market is expected to remain in surplus in 2011, the 5th straight year of surplus, thereby putting a cap on prices Prices expected to inch upwards only 2013 onwards as demand picks up and stocks continue to fall
32.
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 E 4Q11 P 1Q12 P 2Q12 P 3Q12 P 2013P 2014 P
Price ($/tonne)
Zinc Prices
The key end-use sectors of Zinc include construction, transport and industrial machinery
Refined
zinc
metal
surplus
Demand
from
China
increased
marginally by 3.7 per cent y-o-y in H1 2011 while that from US declined by 5.4 per cent Currency movements has also led to the change in zinc prices (Refer Annexure II)
33.
34.
Aluminum
29
12
26
26
Copper
20
36
26
12
0%
10%
20% Construction
30%
40%
50%
60%
70% Auto
80% Others
90%
100%
Industrial Machinery
Consumer Durables
China is the leading producer and consumer of commodities on account of its growing economy and demand from major end-use industries and exports
The run-up in real estate prices and high inflation in H2 2010 forced the Government of China to take steps to cool the economy
Accordingly, the Chinese central bank has been taking concrete steps by hiking interest rates from Q4 2010 and authorizing banks to go slow on lending to douse high inflation.
35.
Similarly, fixed asset investment in infrastructure showed a significant decline from 26 per cent in H1 2010 to 16 per cent in H1 2011
Industrial machinery too has shown a significant slowdown by clocking a growth of 22 per cent (y-o-y) in H1 2011 vis--vis a robust 45 per cent in H1 2010
36.
Forecast
CRISIL Research expects the growth momentum of end-use sectors to moderate in line with economic prospects (as indicated by S&P and IMF)
China is expected to concentrate on domestic growth and wean itself away from exports to cushion any negative impact of slowdown in key export markets
Growth in urbanisation, investments in infrastructure, construction to fuel demand The urbanisation rate in China (at 45 per cent in 2010) is expected to increase significantly, thereby attracting huge investment Construction, a key consumer of commodities, is expected to grow albeit at a slower pace (as the Chinese government tries to soft land the economy)
Automobile production is expected to remain strong due to robust domestic demand and moderate export opportunities
37.
Automobile production
(10,000 units)
2000 1600 1200
905 1,827 1,380
800 400 0
728
2006
2007
2008
2009
2010
H1 2011
2006
2007
2008
2009
2010
H1 2011
Source: NBS
38.
2011 P
6.5% 6.6% 3.0% 9.6%
2012 P
6.8% 8.8% 4.0% 9.5%
2013 P
6.2% 8.1% 6.0% 9.5%
2014 P
6.3% 8.1% 6.0% 9.5%
With a controlled slowdown induced by the government of China, CRISIL Research expects commodity growth to remain moderate, in the near future, vis--vis the high historical growth rates. This is in line with the expected economic performance of key end-use industries
However, despite tightening of interest rates, China has reported a healthy GDP growth in H1 2011 (9.6 per cent y-o-y) Going ahead, we expect China to move to a more accommodating economic policy, which keeps an eye on growth Consequently, domestic demand from commodities is expected to remain healthy
However, developments in US and Europe can impact Chinese exports and therefore commodity demand from China
39.
Aluminum
27
14
16
36
Copper
26
10
58
0%
10% Construction
20%
30% Machinery
40%
50%
60% Electricity
70%
80% Auto
90% Others
100%
Packaging
Europe is the second largest consumer of many commodities in the world Auto production in Europe decreased marginally y-o-y during the first half of 2011. However, car registrations posted a decline of 2.1 per cent y-o-y in H1 2011, primarily due to lack of sales in United Kingdom, Italy and Spain
However, construction output, declined by 1 per cent y-o-y in H12011 During H12011, index of capital goods production increased by 11 per cent y-o-y, primarily due to the low base numbers of H12010
40.
2010
21.2% 3.4% 8.2% 1.76%
2011 E
8.1% 6.0% 1.7% 2.0%
2012 P
4.0% 3.5% 2.0% 1.7%
2013 P
2.6% 2.3% 2.5% 2.2%
2014 P
2.3% 2.1% 2.5% 2.2%
In line with the moderate performance of end-use industries and GDP growth as indicated by S&P and IMF, CRISIL Research expects muted commodity growth during 2012-14 However, anticipated slowdown in European heavyweight countries such as Germany and the United Kingdom is a matter of apprehension Continued concerns arising out of sovereign debt crises in some EU countries such as Ireland, Greece etc. and the risk of it spreading to other member countries is a huge overhang Although the impact of the probable debt concerns on global commodity demand may not be significant, it will have a bearing on the currency and overall sentiment thereby affecting commodity prices
41.
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311 P
Q411 P
Q112 P
Q212 P
Construction
Auto
European region is not only expected to continue to witness a near term slowdown but also there seems to be a global consensus of Europe veering towards a prolonged slowdown
Many countries in the region are undertaking measures to reduce government spending in order to manage budget deficit, thereby impacting commodity demand
As per IMF, a GDP growth of 1.7- 2.2 per cent is expected during 2011-13 Although, key end-use industries in Europe showed moderate growth performance in H1 2011, the current recovery is expected to be short lived
Sustained unemployment and slowdown in manufacturing sectors in the European region is expected to remain a drag on consumption
42.
Q312 P
Capital Goods
Construction Output
1.5%
2007
2008
2009
2010
6M 2011
(Index) 120
Manufacturing
Auto production
43.
Aluminum
14
23
37
26
Copper
50
11
31
0%
10%
20% Construction
30% Machinery
40% Packaging
50%
70% Auto
80% Others
90%
100%
The key end-use industries in US recovered sharply in 2010 on the back of stimulus packages and the low base of 2009
Despite a healthy growth in key end-users in the first half of 2011, the July numbers show a slowdown reflecting the negative sentiments prevailing in the US economy
In H1 2011, motor vehicles production in North America grew by a meager 7 per cent vis-a-vis above 60 per cent growth in 2010 Total output of construction units in the first half of 2011 showed a degrowth of around 20 per cent (y-o-y) Machinery IIP index grew by around 14 per cent y-o-y during H1 2011
44.
Forecast
Auto
Construction
US Machinery IIP
With the end of the current stimulus package by the government, growth in key end-users is expected to be restrained In line with the economic outlook (as indicated by S&P and IMF) we expect growth in the US to be moderate
45.
Construction Units
3.9 %
1,532 1,636 1,655
Auto production
11,570 10,900
-26 %
1,219
-8 %
10,530 8,430 5,870 7,690
800
520 496 198
H1 2011
2005
2006
2007
2008
2009
2010
H1 2011
(Index)
Machinery 4%
92 96 100 97
-9 %
91 76 81
100 80 60 40 20 0
2005
2006
2007
2008
2009
2010
H1 2011
46.
2010
21.2% 3.4% 6.7% 2.8%
2011 E
8.1% 6.0% 2.0% 2.0%
2012 P
4.0% 3.5% 2.0% 2.1%
2013 P
2.6% 2.3% 1.0% 2.7%
2014 P
2.3% 2.1% 1.0% 2.7%
S&P recently lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA highlighting the need for US to contain its debt Despite visible support from a recovering auto sector and revived strength in consumer spending, deteriorating financial conditions and faltering business confidence have prompted a moderate growth outlook in commodity demand in US Key monitorable Monetary policy adopted by the US Federal Reserve Depreciation of the dollar will exert upward pressure on commodity prices
47.
48.
OEM
Exports
Replacement
Stocks
(I/O norm)
NR Supply
Domestic NR Price
Global NR Demand
49.
Global NR Price
Global NR Supply
Styrene
Butadiene
Utilisation level
NR SR Ratio
SR Supply
SR Demand
RM Cost
Global SR Price
Landed SR Price
Domestic SR Price
50.
51.
Quarterly Q311 E
4,400 - 4,600 4,500 - 4,700 4,700 - 4,900 2,500 - 2,600 1,500 - 1,600
Annual Q212 P
3,680 - 3,870 3,810 - 4,010 4,160 - 4,370 2,280 - 2,390 1,470 - 1,550
Q411 P
4,040 - 4,240 4,050 - 4,260 4,100 - 4,310 2,270 - 2,390 1,490 - 1,570
Q112 P
3,880 - 4,070 3,890 - 4,090 4,200 - 4,410 2,250 - 2,370 1,470 - 1,550
Q312 P
3,350 - 3,520 3,470 - 3,650 3,950 - 4,150 2,210 - 2,320 1,440 - 1,520
2013 P
3,450 - 3,630 3,370 - 3,540 3,560 - 3,740 2,190 - 2,310 1,370 - 1,440
2014 P
3,420 - 3,590 3,300 - 3,470 3,740 - 3,930 2,080 - 2,180 1,350 - 1,410
Domestic Price
NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190
52.
Quarterly Q311 E
4,700 - 4,900 200 - 210
Annual Q212 P
4,160 - 4,370 200 - 210
($/Kg)
Q411 P
4,100 - 4,310 180 - 190
Q112 P
4,200 - 4,410 180 - 190
Q312 P
3,950 - 4,150 190 - 200
2013 P
3,560 - 3,740 170 - 180
2014 P
3,740 - 3,930 180 - 190
(Rs/Kg)
NR Price Forecast
6.0 5.0
Demand slowdown to exert downward pressure on NR prices H2 2011 onwards. Global consumption to increase merely by 1-2 per cent during 2011 due to
Forecast
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q 11 1Q12 2Q12 3Q12 2012 P 2013 P 2014 P
Global supply expected to ease H2 2011 onwards (We are assuming there is no further major weather disruption in the
Domestic Price
leading producer countries of Thailand, Indonesia and Malaysia) Supply expected to grow by 4-5 per cent y-o-y
10,765 15.4%
10,897 1.2%
11,374 4.4%
12,025 5.7%
12,866 7.0%
53.
In 2010, NR prices increased significantly by around 88 per cent on account of demand supply mismatch
NR prices continued their upward trend in Q1 2011 reaching $5.7 per kg on the back of favourable demand in key markets of US,
(In 000 tonnes) 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,000 2005 2006
However, prices declined in Q2 2011, on account of unfavourable demand situation due to slowdown in economic growth across key markets
Supply
E: Estimated
Demand/Supply (RHS)
18 54.
Import
Domestic Price
Landed Cost
Historically, India imports a very small proportion of its natural rubber requirements due to high import duty (at 20 per cent or Rs 20 which ever is lower) Most of the imports are made by players who get import duty rebate against export of finished product
Landed cost of global NR prices act as a ceiling for domestic prices Domestic prices, which have been increasing since July 2009 due to a strong auto demand, declined in September 2010 owing to oversupply in the market
55.
Global SR prices to fall in line with crude prices and lower demand
($ / tonne)
SBR PBR
($/tonne) 5,250 4,500 3,750 3,000 2,250 1,500 750 0
4Q11 P 1Q12 P 2Q12 P 3Q12 P 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 2012 P 2013 P 3Q11 E 2014 P
Q311 E
4,400 - 4,600 4,400 - 4,700
Q411 P
4,040 - 4,240 4,030 - 4,280
Q112 P
3,880 - 4,070 3,870 - 4,110
Q212 P
3,680 - 3,870 3,790 - 4,030
Q312 P
3,350 - 3,520 3,450 - 3,660
2013 P
3,450 - 3,630 3,350 - 3,560
2014 P
3,420 - 3,590 3,280 - 3,490
Review
PBR
Outlook
56.
($/bbl) 160.0
1Q07
3Q07
4Q07
1Q08
2Q08
4Q08
2Q09
4Q09
1Q10
2Q07
3Q08
1Q09
3Q09
2Q10
3Q10
Butadiene
PBR
SBR and PBR are manufactured from the same feedstock, Styrene and Butadiene, which are in turn derived from crude oil
Hence their cost is always linked to the international prices of crude oil
Generally, domestic prices of SBR and PBR follow global prices of these commodity chemicals, barring monthly aberrations
57.
Global manufacturing unit for ethylene is rapidly shifting to natural gas based crackers This shift led to a lower yield of
Note: Others include Benzene, Toluene, MXC 4, Py Gas, Fuel Gas, and SC Light Fuel Oil
butadiene (refer table) This, coupled with plants shut down in March and April 2011
2005
USA EU Middle East Asia Others World 34,842 25,313 11,803 33,504 10,412 115,874
diff
-7% -4% 7% 4% -1%
of butadiene As a result, prices surged and are expected to remain firm till Q3 2011. However going on
forward,
easing
supply
Note: With the capacity that has become operational in the Middle East, the feedstock mix for cracker has also changed in favour of gas.
account of plant coming into operation will exert downward pressure on prices
58.
59.
* Other Polymers like Poly Styrene (PS), Poly Carbonate (PC), ABS etc
60.
Q311 E
1,500 - 1,600
Q411 P
1,490 - 1,570
Q112 P
1,470 - 1,550
Q212 P
1,470 - 1,550
Q312 P
1,440 - 1,520
2013 P
1,370 - 1,440
2014 P
1,350 - 1,410
In 2011, PP prices are expected to increase by 22 per cent y-o-y owing to expected increase in upstream propylene prices
Forecast
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 E 4Q11 P 1Q12 P 2Q12 P 3Q12 P 2012 P 2013 P 2014 P
The expected increase in propylene prices is due to high crude prices and tight supply situation of propylene
PP
Propylene
Naptha
Fall in its major feedstock propylene prices Also higher capacity than demand will lead to lower operating rates and thus exert pressure on PP prices
Global demand for PP is likely to grow at a CAGR of 4-5 per cent over 2010 to
2012P
2014.
Capacity
expansion
is
also
Operating rates
Polypropylene Prices
$/tonne
PP, the lightest thermoplastic is used mainly in consumer goods, packaging, home products, automotive parts, industrial products, textile yarns, fibres and fabrics
In 2010, domestic demand for polypropylene (PP) is estimated to have grown by 17-18 per cent y-o-y to ~2.6 million tonnes
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Domestic Price
Landed Cost
Jul-11
This was on account of healthy demand from raffia, injection moulding, BOPP (biaxially oriented polypropylene) etc.
In 2010, global prices for PP increased by 23 per cent y-o-y to average $1,300 per tonne from
* Other Polymers ABS competes with specialty and advanced thermoplastics, such as Polyamide (PA), Polybutylene terephthalate (PBT), Polyethylene Terephthalate (PET), and Poly(p-phenylene oxide) (PPO). Substitutes of ABS - Polystyrene (PS), Polypropylene (PP), However, owing to ABS' superior properties for electronics segment, higher volatility in polystyrene prices and the narrowed gap between its 63. prices and that of ABS, ABS is preferred
Q311 E
2,500 - 2,600
Q411 P
2,270 - 2,390
Q112 P
2,250 - 2,370
Q212 P
2,280 - 2,390
Q312 P
2,210 - 2,320
2013 P
2,190 - 2,310
2014 P
2,080 - 2,180
Forecast
Outlook
We expect ABS prices to decline Q4 2011 onwards on account of a fall in its chief feedstock acrylonitrile and styrene
with the expected drop in crude oil prices
Going forward margins are also expected to improve in line with the expected fall in upstream feedstock prices, on account of the expected improvement in the demand scenario.
64.
ABS Prices
($/tonne) 2,500 2,300 2,100 1,900 1,700 1,500 1,300 1,100 900
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Ex-factory (Natural)
Landed Cost
Acrylonitrile Butadiene Styrene (ABS) is used in various home appliances, electronics and automobiles
The largest consumer for ABS is China accounting for nearly 60 per cent of global consumption
In 2010, ABS prices increased significantly by around 42 per cent to $1,980 per tonne.
This is on account of the continuous tight supply situation, coupled with a high increase in upstream styrene, butadiene and ACN prices
However, ABS prices at present are under pressure due to a decline in upstream ACN prices coupled with subdued buying trends
65.
In YTD 2011, high crude prices and continual shortage of key feedstocks like butadiene and acrylonitrile (ACN) has led to an increase in ABS prices
Jan-11
Jul-11
Annexure
66.
Aluminium
Europe 11%
RoW 22% North America 13% Europe 18%
RoW 33%
Japan 4%
Japan 5%
Total 1380 million tonnes (2010)
China 45%
China 43%
Copper
RoW 20% Japan 5% America 15%
RoW 30%
Zinc
Europe 22%
Japan 5%
China 38%
China 42%
75 80 79
100 94 95
100 93 95
Sep-10 Oct-10
65 63
2162 2354
1637 1678
153 167
116 119
(Index) 200
150
base period.
100
128
Jan-09
Nov-09
Jan-10
Nov-10
May-09
Sep-09
May-10
Sep-10
Jan-11
May-11
Mar-09
Jul-09
Mar-10
Jul-10
Mar-11
currency fluctuation (in column C). Both prices (column B&C) are converted on a base of 100 in Jan-2009 (column D & E) and plotted.
68.
Actual price
Currency influence
Jul-11
125
Nov-10
May-10
May-11
Sep-09
Nov-09
Jan-10
Sep-10
Jan-11
Mar-10
Mar-11
Jul-10
Jul-11
Jan-09
May-09
Sep-09
Nov-09
Jan-10
May-10
Sep-10
Nov-10
Jan-11
May-11
Mar-09
Jul-09
Mar-10
Jul-10
Mar-11
Actual Price
Currency influence
Currency Influence
Actual Price
118
Jul-11
314 95
Sep-09
Sep-10
Jul-09
Jul-10
Mar-09
Mar-10
May-09
May-10
Mar-11
Jan-09
Nov-09
Jan-10
Nov-10
Jan-11
May-09
May-10
May-11
Mar-09
Mar-10
Mar-11
Actual Price
Currency influence
Actual Price
Currency influence
69.
May-11
Jan-09
Nov-09
Jan-10
Nov-10
Sep-09
Sep-10
Jan-11
Jul-09
Jul-10
Jul-11
Jul-11
15% 10% 5% 0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11
20.0% 10.0% 0.0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11
70.
71.
Note: Education cess is applicable at 3 percent In case of NR, customs duty applicable is 20 per cent or Rs 20, w hichever is low er During Jan-Mar 2011 customs duty w as reduced to 7.5 per cent
72.
www.crisil.com
73.