Commodity and Cyclical Plays


(Ashok) #268

Thanks Suhag for your views. I am not suggesting to invest based on Nomura investment alone. However, tea prices as reported on tea board site are higher on week to week basis in comparison to previous year. most of stocks are making thin margins. cost of production have gone up. loss of production reports in Kenya. all point out that the cycle is ripe for turn around.
the twitter posts of vijay kedia and other big investors has taken out steam and punt. now, the stocks will perform based on fundamentals. let us see. keep a close watch on the auction prices. production of tea is also important. same should not go down drastically. slight dip is beneficial.


(nil_71) #269

One trend China is cutting down on Coal Imports and increasing LNG Consumption. What will be the impact ?

Anybody working on it ?


(Devang) #270

Hello what are your views on Polyplex. Seems like the supply demand gap is not narrowing over the years. What are your views on it?


(khushi) #271

Paper stocks buzzing …

Can be a good cyclical short term play.

Read this so thought of sharing


(vaibhav) #272

Ragarding copper prices -

  1. Historic copper price -
    http://www.macrotrends.net/1476/copper-prices-historical-chart-data
  2. Long term US CPI (click on ‘max’) -
    https://tradingeconomics.com/united-states/consumer-price-index-cpi

to get an idea of copper’s fair value
US CPI value in 1976 from above is ~56, And present CPI is ~247.
=>247/56 = 4.4
Average Cu price during 1970-80 = $0.7 per pound, So, today’s Fair value of copper is 0.7*4.4=3.08
Actual copper price ($2.98 per pound) is not too different from 3.08.

I tried different years, price comes in range $2-3.6 per pound…This suggests there isn’t much upside left in copper.

Disc.: Invested in Hind. copper.


(phreak) #273

That takes into account inflation but not demand and supply.


(Jiten Parmar) #274

Yes. Paper prices are on upswing. But, we need to be careful and understand that upcycle has already been there for 2 years. So, be nimble.


(Jiten Parmar) #275

Yes. Demand has not grown substantially due to disruptions and some supply also coming in. Mostly on BOPP side. Polyplex is a hold at this price for me. May take 2 years for demand coming close to supply, provided no new major capacities are added.


(vaibhav) #276

Let’s try this -
World copper production in 2015 = 19 million tons (
https://en.m.wikipedia.org/wiki/List_of_countries_by_copper_production)

Copper used in a car ~20kg
Total vehicle per annum ~10cr
Total = 200cr kg=2 million ton

Additional demand For EV (as ev will need thrice as much copper) = 4 million ton per annum


(Raj A A) #277

@vicky_7900 Request to go thro the thread fully where lot of info on copper supply and demand is shared.Copper is used in many industries besides automobiles. Housing, Infra, solar, wind turbines, Electronic PCBs and so on. It is a lifeline of vibrant economy.

Predicting demand will outstrip the supply, all bigwigs are expanding the capacity, opening the hitherto unviables mines. Copper price4s are spiralling up reflecting the skewed demand supply situation.

It is forecast that copper demand will persist in foreseable future considering that no new mines are planned in near future.


(vaibhav) #278

I have gone through the thread. EV is being considered as a major source of new demand which is why I tried calculating the additional demand for EVs. That additional demand comes out to be 21% (4 million tons on 19 million tons)


(biju john) #279

Thanks Vaibhav for the calculations.I also have a starter position in Hindustan copper. Just some observations.

  1. Since India imports most of copper, i think one should add depreciation of rupee when considering Hind Copper.
  2. While looking at long term trends there have been periods of supply exceeding demand and vice versa. Looks like the inventories at present are sufficient to overcome the demand. Maybe the demand from China was overestimated, thereby capping the upsides for present. But the future prices deeper into 2018 seem to be higher. Looks like it is good to invest in copper at the bottom of a economic cycle.
  3. Like in earlier reports no new mines have come up and the grade had also gone down,but i believe the mines in south america could increase production if prices and demand goes up.
  4. Electrification in China and India to drive growth especially the rural and tier2/3 cities/demand is also expected to go up,so maybe new substations/transformers etc.
  5. EV demand especially in China.One thing about copper with respect to steel(which corrodes) is ,most of the copper in a discarded equipment like a car/transformer/cable could be recovered/recycled.So one must be careful while making demand projections.
  6. Looks like solar/wind have a greater demand for copper,although iam not sure.
    Request the experts to help on Hind coppers valuations and prices to add on or any holes in the investment thesis.

(Jiten Parmar) #280

Good to see so many inputs on many sectors. Really helps.

Also, I think some discussion is also warranted on textile sector. Pure contra play. As sector is in stress and I believe should play out in next 2-3 yrs. I have already started nibbling.


(sta) #281

Which ones you like in textile?


(khushi) #282

I like sintex ind, ICIL, Kitex garments to name a few.

Disc. Small position in ICIL @ 110


(malayruparel) #283

GHCL trading at 7 PE might interest you. It has two businesses - Soda Ash and textile… Soda Ash is at cyclical uptrend and textile sector is at bottom.


(Mehnazfatima) #284

Is it not linked to trend in cotton prices


(Raj A A) #285

Copper producers face uneven palying field. China net importer of copper while India is net Exporter.


(suhagpatel) #286

Does anyone have a view on Ferro Alloys like Ferro Silicon and Ferro Manganese? I think IMFA, Maithan Alloys and Balasore are the players here.

Prices for Ferro silicon have been shooting up recently.

Disc: Small position in Maithan Alloys

Regards,
Suhag


(blueeyedinvestor) #287

Got super excited after listening to one of the fund manager on Maithan and was forcefully tempted to go through the numbers. Here are my two cents.

Operating at near 100% capacity and with no new greenfield or acquisition announed, the uptick in production is not visible at least over next 12 to 18 months. New greenfield capacity will take at least 2 years to come on stream and any new acquisition will take at least 12 to 18 months before the closure happen and consolidated numbers start yielding higher output. Hence the earning uptick is restricted over next 18 months and will be hinging purely on ferrous alloys price movement.THIS MAKES IT PRETTY RISKY BET.

Valuation wise,the company did 124 crore pat in 1HFY18 and assuming similar runrate, the FY18 should give not more than 240 crore pat (unless ferrous alloys price movement go up more aggressively). At 240 crore, the valuation is based on current market capital of Rs 1950 crore translate into a little over 8.5 times. Given the pat uptick is significantly limited for FY19, the valuation looks even more stretch.

The company is generating considerable cash flows over last three years and still not paying higher dividends, nor are they investing in growth, except that the same has been utilized for paying off debt which is still at Rs 76 crore in absolute terms (comfort is that D/E is at 0.12 times - FY17).

During the year FY17, the company purchased Rs 545 crore worth of investments and then sold Rs 415 crore worth of investments, made some Rs 15 to 16 crore profit on such sales and also received Rs 115 crore dividend (cost of investment for FY17 was net of dividend income). Is this the core business for the company. For this size of company, Rs 545 crore of investments. R U SERIOUS. WHY AUDITOR HAS NOT RAISED A FLAG FOR THIS.

Ability of the management to keep employee cost at barely 1.5% of sales is while on one side is commendable, it also raises doubts as how the same is possible in a industry which is highly fragmented. Maithan claims to be the largest player but account for barely 10% of the market in terms of capacity.

There are was no purchase and sale of investments in FY16. During FY17, the company purchased Rs 545 cr of investments on which they earn Rs 115 crore of dividend which translates into 21% dividend yield. WHY WILL ANY COMPANY EVEN IN THEIR DREAMS SELL SUCH INVESTMENTS WHICH GENERATES 21% DIVIDEND YIELD. Which investments has yielded 21% dividend. Majority of their investments are into debt funds.

Disclosure: Not invested, would be waiting for significant correction and more clarity.