Posts Tagged ‘global economic’

STEEL…….. INDICATOR OF ECONOMIC DEVELOPMENT

Due to most crucial necessity of steel in infrastructural and overall economic development, steel industry is often considered as an economic indicator of any country’s development. Steel seems to be heading for consolidation in the coming years as the global economic recovery is gaining momentum. In fact, China and India have reported huge rise in demand for steel with construction and auto sectors growing at a higher speed.

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Steel is not a single product. It is an alloy consisting mostly of iron, with a carbon content between 0.2% and 2.1% by weight, depending on the grade. There are currently more than 3,500 different grades of steel with many different physical, chemical, environmental properties. If the Eiffel Tower were to be rebuilt today the engineers would only need one-third of the amount of steel.

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Carbon Steel, Coated Steel (Galvanized & Color coated), billet, Electric Sheets, Flat Steel Products, Long Steel Products, slabs, Flat steel coil products(Strip) are the some of the finished steel.

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INDIAN SCENARIO

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According to the annual report 2009-10 by the Ministry of Steel, India is the fifth largest producer of steel in the world and it will become the world’s second-largest steel producer by 2012, more than doubling its capacity to 124 million tonnes (MT).

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Steel production rose 4.2 per cent to reach 60 MT in 2009-2010 and has an installed capacity of 72.76 million tones. According to the Ministry of Steel, Steel production in the 2010/11 (April-March) fiscal year is likely to be 65 million tones.

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The growth in steel consumption in any country is a positive sign for economic growth of that country. Due to improved demand from sectors like automobile, infrastructure and housing, India’s steel consumption rose 9.6 per cent to 4.14 million tonnes (MT) in April 2010. Exports continued to slide and dropped 34.8 per cent to 1.84 lakh tonnes in April, revealing the slow pace of recovery in main steel import destination–the US and the European markets.

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Some important facts

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?The domestic steel sector has attracted an investment of about US$ 238 billion.
This consists of nearly 222 MoU’s signed between the investors and state governments of Orissa, Jharkhand, Chhattisgarh and West Bengal.

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?Due to some government initiative in the budget and higher spending on infrastructure development, steel demand is likely to increase by 10 percent inthe fiscal year to March 2011. In the Union Budget 2010-11, India’s Finance Minister Pranab Mukherjee proposed to invest 1.73 trillion rupees on infrastructure sector, which will further promote the steel industry.

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Global Production and Consumption

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World production of crude steel in March 2010 rose by 31% to 120.3 million tonnes, the highest monthly total since May 2008. The total production in January to March is 342.4 million tonnes, 29% higher than the same period in 2009. This figures shows clearly that most countries are on path of rapid recovery from the recession. From January to March Chinese steel production increased by 24.5% to 158 million tonnes, Japan’s production jumped by 51% and South Korea increased by 29% .

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Current Scenario

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Steel makers in the country had increased their prices for the third time this year in April due to spiralling iron ore and coking coal prices. Iron ore prices in 2010 had almost doubled from last year’s levels to $120-160 a tonne. But the industry is hopeful that curbing exports would help reduce iron ore prices.

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Prices downgraded by around 13% in the month of April 2010, after hovering in broad range of Rs.25,130-30,150 per tonne. This is as compared to 2.06% gains in same month last year. Moreover, prices have fallen by around 4.50 percent since the year start SAIL had announced a price cut of Rs2,000 per tonne for its long products effective from 1st May 2010. However, this is not an indication of any future fall in steel prices. There is consumer resistance to further price increase but ultimately the pattern of global prices is still followed here and so we will also depend on the same.

COTTON…. “The soft, fluffy plant doing a great job”

China becoming export-oriented &‘hungering’ for most commodities for their industries at an alarming rate has been the main driver for high and increasing cotton prices.

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Cotton season 2009-10

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To start with the some statistics of current season 2009-10, the Cotton Advisory Board, in its recent meeting held on 8th April 2010 has placed the cotton acreage in the country during 2009-10 to 101.71 lakh hectares as against the acreage of 94.06 lakh hectares during the previous year. However, due to the vagaries of monsoon (irrigation coverage is 63%) & severe pest attack, cotton production in the country during this season has been revised downward from the earlier estimate of attack, cotton production in the country during this season has been revised downward from the earlier estimate of 295.00 lakh bales to 292.00 lakh bales as against cotton production of 290.00 lakh bales in the previous year.

Quantity in lakh bales of 170 kgs each Source: Cotton Advisory Board vide its meeting dt.08-04-2010

Arrivals scenario

As per the latest release by Cotton Corporation of India (CCI), cotton arrivals in India’s local markets were up by 3.3% to 27.90 million bales during the October- April period.

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Cotton Season 2010-11

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Assuming normal 2010 monsoon, India’s cotton production may increase by over 6% to a record 25 million bales in 2010-11 season, acc to the US Department of Agriculture. Productivity is also expected to rise by 6 per cent at 528 kg per hectare in the next season.

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Cotton mill use in 2009-10 rebounded faster and stronger than expected after a sharp drop in 2008-09 caused by the global financial and economic crisis.

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•Cotton ending stocks, a measure of available supply, for the current 2009- 10 year will drop by 43.35% to 40.5 million bales.

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Government Intervention

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In order to check the rise in prices of raw cotton in the domestic market, the government of India has imposed a duty on the export of the commodity. Apart from this, the Centre has also decided to levy a 3 per cent duty on cotton waste exports. An export duty of Rs 2,500 a ton is imposed export duty of Rs 2,500 a ton is imposed from April 9, 2010.

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The Deep Impact….

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•Ban on cotton exports has forced Pakistani buyers to look for alternative supplies.

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•Pushed cotton prices in New York to a two-year high on concern reduced exports from the nation may worsen tight global supplies.

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Global Scenario

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•World cotton production is forecast up by 13% in 2010/11 to 24.8 million tonnes, driven by high cotton prices.

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•World cotton mill use is expected to continue to recover in 2010/11, growing by 2% to 24.8 million tonnes, pushed by continued improvement in global economic growth but limited by high cotton prices.

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•World cotton trade is expected to increase to 7.7 million tons. Global cotton ending stocks are expected to remain stable in 2010/11. Global cotton stocks are expected to drop by 18% to 10.4 million tons by the end of July 2010, the smallest level in six years.

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•U.S. cotton plantings are accelerating, reinforcing expectations for a bumper crop following a wet winter in the big producing states. The U.S. cotton crop was 26% planted in the week to May 2, up from 16% the week before and slightly higher than the five-year average of 25% for this time of year, according to the latest data from the U.S. Department of Agriculture.

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Optimistic Outlook for Cotlook

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The continuous increase in Cotlook index was driven mainly by a rising gap between declining production and recovering consumption. The Cot look A Index jumped to over 90 cents per pound in the last part of April, after the Indian government announced the suspension of cotton export registrations and requested that cotton exports already registered, but not yet shipped, be revalidated, with a monthly  cap on revalidations to be determined.

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Conclusion

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To sum up, cotton futures last week declined in New York, but physical prices remained at a very high level on the international market irrespective of stronger U.S. dollar index. In absence of Indian exports, an expected short-supply is increasingly looming, especially for higher grades. Cotton prices will sustain its rally on back of shrinking stocks and non- availability of fine lint besides arrival of new cotton lots not before July 2010.

Weekly Update 10th – 14th May

The stock markets around the world are more or less trying to top out at higher levels. World markets are falling like ninepins on the back of fear that Europe’s debt crisis could spread in other European Union countries and may upset the global economic recovery. The hope of some rescue package tabled down when Trichet made the statement that the ECB’s 22-member Governing Council didn’t discuss buying government debt to stem the contagion.

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Markets from Europe to US tumbled as high as 11 percent during the week. Indian markets too ended their journey in deep red in the week gone by after concerns of sovereign debts in Europe sparked sharp sell-off in global equities.

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The worst hit were sectors like metal, realty, cap good and banks while oil & gas bucked the trend. In another event, Fitch downgraded the ratings for Chinese banks and has improved outlook for Indian banks. Quality of growth & large speculative investments funding by Chinese banks is the concern area. Whereas the tighter provisioning norms by Indian banks regulator has led to the improvement in Indian bank’s outlook. As a matter of fact European Union comprising of 27 countries accounts close to 19 percent share in India’s total exports & thus may affect the manufacturing sector.

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The European crisis may also affect the overall sentiments of the industry and could affect the fund raising plans of companies in India & abroad. The risk aversion in global equity markets resulted in large withdrawal by foreign institutions & the money sought its place in safe haven like bonds & gold.

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Now all are eying how European leaders will come forward to halt the fiscal worries & prevent a sovereign debt crisis after European Commission President Jose Barroso said that they will defend Euro, whatever it takes.With the crisis looming, Inflation, a major concern may not be a worry factor with the metals & crude prices coming down. And the central banks in world over may keep up the liquidity & may not tinker with the interest rates for an extended term.

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The week went by saw a sharp rise in volatility along with a major fall in stock markets around the world. Even the Base metal commodities tanked down though precious metals that is Gold and Silver saw a sharp rally in times of uncertainty. Overall trend of all world markets including ours is down now. Nifty faces resistance between 5200-5100 levels and Sensex between 17500-17000 levels.

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On the commodity front, continued debt contagion fears in Europe triggered blood bath in some commodities, especially in metals and energy. It also resulted in terrific rally in gold, which is not a general phenomenon. Expected hung parliament in UK may also give boost up to dollar index. Back at home, depreciation in local currency also added volatility. As regards trend of metals and energy in short run, after witnessing a razor sharp fall, these commodities may trade in range, however, overall trend is still down, except gold and silver.

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Agro commodities performed better on improved fundamentals. Buy at dip could be a good strategy for agro commodities.