Companies & Sectors
Steep coking coal contract by Japanese steelmaker worries Indian steel producers

Nippon Steel is reported to have tied up supplies from Anglo American at $330 a tonne for the next quarter, compared with the current $221. Indian steel producers are hoping that this is an exception and that prices will settle down

Indian steelmakers' margins a likely to come under tremendous pressure if the coking coal contract for the April-June quarter is sealed at $330 per tonne, amid high inflation and lukewarm demand.

A Japanese newspaper reported yesterday that steelmaker Nippon Steel
Corporation and British miner Anglo American Plc had settled a coking coal contract for the next quarter at $330 a tonne, a huge increase from $221 a tonne in the current January-March quarter.

"Generally coking coal contracts by Japanese steelmakers are a benchmark for Indian steel companies. There could be a difference of between $2 and $5 a tonne, not more than that," Arun Kumar Jagatramka, managing director, Gujarat NRE Coke, told Moneylife. "But I think that in the second quarter, prices would come down. I don't think such high prices will be sustainable in the long term."

According to reports, large mining companies like BHP Billiton and Rio Tinto are looking at the possibility of monthly contracts, instead of the quarterly contracts that have been operational over the past year. Monthly contracts would make things more difficult for steel companies, as margins could see wild swings even within the quarter.

Japanese media reported that Anglo American was the only miner to offer quarterly contracts and this was why they had settled the contract at a higher price.

However, there is no concrete confirmation of the development. Industry experts believe that coking coal contracts would be settled at $300 a tonne, or even below $300, as steelmakers would not be in a position to pass on the hike to consumers.

Alok Kumar Nemani, analyst with Nomura Financial Advisory and Securities (India), told Moneylife, "Yes, we have also heard that contract prices have been signed at $330 a tonne between Nippon and Anglo American. But we are not sure about this."

Steelmakers across the globe have increased steel prices on the back of soaring raw material prices-coking coal and iron ore in particular-after supply was disrupted due to floods in Queensland, northeast Australia, the world's top exporter of the commodity.

"The effect of the floods on mining, rail movement and infrastructure is still there and most ports are without coking coal. Two to three months would be needed to normalise the situation," Mr Jagatramka said.

The coking coal shortage in the international market pushed spot prices to more than $300 per tonne. "Selected Indian steel buyers have bought coking coal at the rate of $360 to $380 a tonne in the last two months," Mr Jagatramka said.

However, the rate of the price rise has reduced, as steel demand has slowed down in India and China. Last week, steel companies, including Steel Authority of India, JSW Steel and Essar Steel, opted for a nominal hike, as demand has softened a bit particularly for long products.

But steel makers and industry experts in India believe that coking coal contract prices would not go beyond $300 a tonne.

Mr Nemani of Nomura said, "Our estimate was that contract prices for the April-June quarter would be between $280 and $290 a tonne, but on an average it could be $260 a tonne. Of course, as supplies of the commodity are very low, miners have the pricing power."

A senior steel industry official said, "We expect coking coal contract prices to be below the $300 a tonne mark as spot prices are correcting downwards."

However, rising concerns over inflation in China, the world's largest steel producer and consumer, and India, will be in the minds of steelmakers as they finalise contracts and they would be under tremendous pressure to increase steel prices on account of spiralling domestic inflation.

Also, the Chinese government is expected to increase interest rates to cool the economy. And this is reflected in Chinese steel prices which have been sliding since the end of February.
Although the Chinese government has hiked interest rates repeatedly over the past few months, there has been no major impact on the country's steel production. But any further such rate hikes to curb inflation could affect market sentiment and impact production, analysts say.

In India, also, demand for steel products-mainly long products-has softened a bit due to the lack of big order flows from the government for the infrastructure sector. Also, private companies are finding it difficult to execute orders due to the high cost of borrowing and hurdles in land acquisition.


SEBI guidelines to allow direct foreign investment into MFs soon

At present, FIIs and NRIs are allowed to invest in MFs. However, fund houses would have to ensure KYC norms before seeking investment from overseas investors

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) will soon come out with guidelines for foreign investors undertaking direct investments in mutual funds (MFs), reports PTI.

"SEBI will issue the guidelines allowing foreign investors to invest in mutual funds shortly...We are working with the Reserve Bank of India and the finance ministry (for allowing foreign investors' entry into mutual funds... It is a matter of weeks and not months," SEBI executive director of institutional investment management KN Vaidyanathan told reporters here.

In Budget 2011-12, finance minister Pranab Mukherjee had announced to allow foreign investors to invest directly in MFs.

At present, foreign institutional investors (FIIs) and NRIs are allowed to invest in MFs. However, fund houses would have to ensure know-your-customer (KYC) norms before seeking investment from overseas investors.

Mr Vaidyanathan further said the proposal would definitely give a boost to domestic asset management companies.

The average assets managed by the MF industry, consisting of 40 players as of 31 December 2010, was Rs6,75,377 crore.


BSE plans call-auction for all exclusive stocks

Starting 4th April, BSE will launch daily trade in over 4,000 scrips exclusively listed on the bourse through pre-open call auction, wherein opening price is decided after matching all the pre-open buy and sell orders

New Delhi: The Bombay Stock Exchange (BSE) today announced opening of daily trade in over 4,000 scrips exclusively listed on the bourse through call auction, wherein opening price is decided after matching all the pre-open buy and sell orders, reports PTI.

The move, seen as one of the BSE's attempts to take on its bigger but younger rival the National Stock Exchange (NSE), would help in cutting down high level of volatility and attracting investors towards the exchange.

BSE said in a circular to its member brokers that it would implement pre-open call auction from 4th April in all the securities that are traded exclusively on its platform.

Both BSE and NSE began pre-open call auction facility in the stocks comprising their benchmark indices Sensex and Nifty from 18 October 2010. The market regulator Securities and Exchange Board of India (SEBI) had given its green signal for pre-open call auction in July last year.

The pre-open call auction begins at the market opening time at 9am every day and continues for 15 minutes.

During this time, all the buy and sell orders for eligible stocks are collected and the trading price is determined on the basis of the overall buy-sell basket, rather than the normal practice of a price being determined after matching individual buy and sell orders.

The mechanism is said to reduce the quantum of volatility, typically visible in the first few minutes of trade.

In the first 15 minutes, investors can place orders for eight minutes on the basis of which the exchanges will determine the rates at which trading will happen.

About 2,500 securities are listed on both BSE and NSE.

In addition to stocks listed on both the bourses, as many as 4,157 actively-traded stocks are listed exclusively on BSE and the bourse will launch call auction in all these stocks.

BSE said that a 20% price band would be applied on all the securities during the pre-open call auction session, except in cases where stocks have individual price bands.

However, in case of first-day trade in stocks listed through initial public offers (IPOs), there would be a price band of 100% for sell orders and 500% for buy orders, BSE said.

The bourse, despite having a much larger number of listed stocks and being in business for a much longer period, lags behind NSE in terms of business volume.

BSE has been in existence for over 135 years, but its business volumes are much lower than the NSE, which began operations in 1994. NSE overtook BSE to become the country's largest stock exchange in 1995. Nevertheless, BSE has been trying to bridge this gap over past few years.

Some of the steps taken by BSE on this front include the announcement of new derivative rates in December 2009, lowering transaction costs and increasing the duration of trade by kicking off at 9am. The NSE has also implemented this strategy of an early market opening time.


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