Commodity and Cyclical Plays

According to q1fy19 results and press release. Alumina realization per kilogram for Nalco is Rs. 64 compared to Rs. 39 for fy18.

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This is close to $927/ton, compare this to average Alumina price on Shanghai Metals Market today’s rate of 2960 Rmb/mt which converts to $435/mt. Quite a difference.

Am I doing some mistake in calculation?

As per exports data for “Aluminium and products of aluminium” (I assume alumina exports would be part of this), May and June saw realisations of Rs.178 and Rs.180/kg respectively.

Realisations should come down in the coming months as the prices have softened since. The thing is, during May and June, Nalco must have made the most of the prices, as the volumes as well were at an all time high

See the volume growth of 41% and 52% in May and June when realisation growth was around 24%. Lets see how the July numbers look. It should come in 10 days time.

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These might not be repeatable. But cycle still looks good. Even NMDC reported decent nos. Margins have gone up.

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Even then the price quoted for Alumina by Nalco @ $927/ton compared Shanghai Metal Market price of $435/ton seems unrealistic/unbelievable to me. Can you suggest some way/source to check local/Indian Alumina prices?

Thanks

Hi Gaurav,
This is an article from April

https://in.reuters.com/article/alumina-supply-china/china-stockpiles-alumina-for-export-as-supply-crunch-drives-record-prices-idINKBN1HQ1G6

“The Chinese companies are hoping to cash in on surging alumina prices. An alumina cargo bound for Brazil for May delivery sold at $800 per tonne on Wednesday, said Wan.”

So the price seems to have been 800 USD in April. If you notice the realisation numbers i posted, May and June prices were higher by about 10% than April, so its not unrealistic I think for Alumina prices to have been 15% higher than this number is April which gives 920 USD that is closer to the figure Nalco has realised.

Clearly these figures are not sustainable and I won’t be surprised if the Alumina revenues drop by 40-50% in the current quarter.

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Good nos by HindCopper

Hindustan Copper Q1 Revenue From Ops Rs 422 Cr Vs Rs 421 Cr, up 0.2% YoY

Net Profit of 35.26 Cr
10.21 Cr (245.3%) YoY | 21.92 Cr (60.9%) QoQ

Increasing Mine output/capacity/expansion is key as top line is flat. Appears to be good price realization on copper

Hindustan Copper to spend Rs 5,500 cr on expansion

Hindustan Copper Results Link:

Hi,

The realization listed in tables in your other posts are for Aluminum only. I do not know we can derive any credible information for Alumina from that data.

During Rusal sanctions for few days few shipments may have fetched $800/ton but Nalco reported realization of $1000/ton for three months (Apr,May,June). I am not convinced.

Can you independently check/verify my calculations?

Copper “Dr copper”

If the trade war contagion is contained by sane minds then we could possibly see a rebound.

https://www.bloomberg.com/news/articles/2018-08-15/base-metals-prices-mixed-as-investors-follow-talks-at-escondida

Hello all.In cyclical investing pe ratio doesn’t work to some extent.can price to book used to value cyclical stocks or only technical analysis(bottoming out on charts)?if price to book can be used what is ideal p/b ratio?

I think the OPM% works much better, thanks to Jiten for the explanation, pls refer his interview shared in this thread.

Also, as explained another member, the higher P/E ratio of cyclical stock means it’s in the cyclical bottom, and the lower P/E means it’s in cyclical top. Ex:Hindcopper at current situation.

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It’s a host of parameters, I use. Some of them are.
Replacement cost
P/B
Operating margins.

And most of all, supply and demand.

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i want to draw attention of this thread towards this company pokarna…

this company is a manufacturer of quartz , using breton stone technology , which is considered to be of superior quality. essentially a commodity play, where the company mainly supplies to the oem market , and has recently been in pursuit to establish as a brand…

the market is mainly export, to US, where the demand is currently huge and has been estimated to be on a growth trajectory of 25% cagr as mentioned by the management in one of the recent concalls…
the chief competitor is the chinese quartz, which currently holds, 60percent of the market share in the US…

the company has planned 130% capex in this segment which is scheduled to come online 18months from now [18 months had been the guidance since q4 concalls, land acquisition has been complete, machinery has been ordered ]

http://www.stoneupdate.com/news-info/latest-stuff/1554-china-quartz-surfaces-to-face-new-tariffs

the potential of this antidumping duty if imposed , can be exciting …

the Us production lines, currently enjoys lesser margins than what even pokarna enjoys…
the reason for the same was unexplained by the management

in the recent concall., they were asked what can be the potential pricing effect of their products if this duty imposition occurs, quite surprisingly, the reply that came, was they wouldnt just go and increase the price of their quartz, just because of the duty imposition…

the company has also difficult in directly passing on the RM price hikes[heavily dependant on crude, resin being a chief rm] , instead what they have done is introduced new patterns of quartz at a higher price , and removed the previous patterns form the market, as a modus to pass on the increased rm costs…

the company also has a granite business., which is currently in state of over supply mainly form the production line in brazil, whos color are in good demand in the US market, and indian colors seems to be losing the pricing power, with the declining segmental margins qoq…

the quartz topline has been attractive in terms or growth , a significant amount of capex oncoming in quartz, probable duty imposition [25 to 100%]on chinese quartz which holds the majority of the market share, and a pricing upcycle trigger possibility from the US production lines…

disclaimer… not invested

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I’m pretty surprised that after a temporary correction of around Rs1500/MT steel prices are again back at all time highs now. As on date lowest cost imported steel is around Rs600-750/MT expensive than the domestic steel. I cannot understand if It is the demand of steel or high import price which is supporting such high steel prices.

In my presentation and here too, I have maintained that these corrections often can mislead. My view for sometime has been that steel is still in mid-upcycle.

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Key points

A confluence of competitive, technological and regulatory forces have pulled-forward auto maker’s plans to aggressively introduce EVs over the next 3 to 5 years vs. 20 to 25 years previously. The path from here involves many hundreds of billions of dollars of capital investment across the sector stack including autos, commodities, cap goods and the supporting infrastructure

Battery costs have been a major barrier to increasing BEV penetration. While battery costs have dropped nearly 30% per year for the past five years, that decrease largely has been a function of improved production scale, which now is diminishing.

Cathode manufacturers are gearing up for substantial increases in production but could face associated pressure on their pricing levels. Demand for battery components like copper, cobalt and lithium could increase sharply, as could prices.

Powertrain, transmission and fuel systems manufacturers who have built business models around internal combustion will likely face headwinds as BEV adoption increases.

https://www.morganstanley.com/spc/knowledge/managing-wealth/research/auto-industry-bracesforelectricshock/

The updated presentation on Cyclical Investing Strategies I did in VP Chintan Baithak 2018 is attached here.

comm latest.pdf (1.2 MB)

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Thank you for sharing @jitenp

Recently, minister chaudhary birender singh hinted at imposing safeguards to prevent import of steel from s.korea and japan as india has become new dumping ground after U.S. tarrifs.if safeguards are imposed it could be huge trigger for steel sector.