Commodity and Cyclical Plays

(roomy) #800

Sir, how is copper looking for a turnaround currently? any views

(lastgenesis) #801

Sorry missed the message, per se it is a space with a lot of growth potential but also a much more diffused product range and client base. As in if you are into fabrics or home textiles they are much easier markets to follow and understand, here your client can can be anyone from hospitals to automobiles so sector is difficult to penetrate, R&D capabilities are also required to greater extent but conversely if you have done so moat is also bigger.

IMO there is no Indian company that has achieved the scale or capability to make it big in this business. A few like Rajapalyam group, Ginni etc have been in the sector for a while with inconsistent results. I feel while India has some natural advantages in cotton chain, in technical it is very difficult for us to compete with China.

(HIMSHAH) #802

Anyone tracking caustic ? Heard price has softened due to crude cool off and dollar.
Please if anyone can verify the rate .

(Raj A A) #803

Textile garment export up in Oct 18. Light at the end of the tunnel. But tunnel end is far away.
Vietnam , Bangladesh exports ,due to their cheap labour , give stiff competition.
Import duty hike on 400 textile items and various GOI measures , easing of GST refund issues augur well for textiles Industry.

(tarunmahajan) #804

Lets’s first go breifly in past. Before 1980 US and Europe were major textile hubs but after 1980’s due to high labour costs manufacturing shifted to Asian countries like China, India, Bangladesh, Indonesia, Pakistan, Vietnam, Cambodia and Thailand. China was able to carve out a large portion of export pie due to low labour cost and huge natural resources. Bangladesh, Indonesia, Pakistan took advantage of FTA’s to gain benefit.(Search out why FTA’s helped these countries)

But India was not able to gain market share as per its demography(Only 5% whereas China 40% in global exports).
Reasons were :

  1. Poor government policies of earlier governments(Read UPA policy on cotton export.How I got to know this, see margin of textile companies in 2008-2012)
  2. Governements not doing any FTA’s with EU,US
  3. High Lending rate (<10%)
  4. Defragmentation/unorganized sector not cost competitive in global scale.
  5. China able to do better on all above fronts.

Why Industry might be turning now:

  1. Present Government imposed import duties on textile products.(Help Curb china as no FTA with China)
  2. Taking measures to do FTA with EU (Search google and you may find number of articles and steps taken)
  3. Central government providing special packages to textile industry .
  4. Setting up textile parks to avoid defragmentation and do large scale manufacturing.
  5. Under GST, unorganized to organized sector shift.
  6. Devalue of rupee, making india more cost competitive.
  7. Marging level of textile companies on uptrend first time after GST/Demo setback.
  8. India growth story. Domestic consumption rising.
  9. China slowing down. Increasing wages in china.
  10. Bangladesh , Indonesia having labour union issues. So countries going for 2 country approach like in all imports.

Hope these points may help you take some decisions in your investments. Currently also tracking Recycled paper industry. Feel free to connect for sharing ideas.

(Savishesh) #805

Nice note !!
Well cheap labor though important is not the only pre-requisite. A lot of investment is required in plant & machinery, technology and process and systems and in building horizontal and vertical integration. Pakistan, Bangladesh and Indonesia are at the lowest end of the value curve. Vietnam and Ethopia - lot of Chinese are building capacities to take advantage of lower duties and cheap labor and FTAs

Problem with India is Government’s short sightedness in promoting cotton based textiles only. Most of the textiles produced in India is good for summer wear and of course home textiles where we are the leaders now. But the biggest market lies in winter wear and fashion wear dominated by Chinese. And the kind of eco system they have built cannot be replicated by others so easily - its like saying that if US India Trade war breaks out China or Pakistan or some xyz country will be able to take over software development market share from India.
Moreover, China is slowly automating with help of Robots so if cheap labor is the only advantage that other countries enjoy that might not stay for long.

Textiles have certainly turned around going by the results this quarter but lets be objective in our assessment and not driven by wishful thinking

(sgkfinance) #806

Hi @jitenp (or anybody in forum),
No discussion on steel for more than 8 months (I’m a cyclical newbie), There was a bulk deal on Tata Steel though it is down, but lots of smaller companies’ stocks are down a lot.
a) Is the cycle peak over ?
b) Went through a few earnings and conf-call reports (Tata, JSW, Sarda, Prakash, Kalyani) but everyone sounds bullish (as all business men should be :slight_smile:)

I was thinking of entering but being cautious, thank you for the great forum !

(Jiten Parmar) #807

We don’t know yet, if cycle has turned. And my process and experience tells me to exit when everything looks very rosy.

Early entry, early exit.

Had exited most steel stocks, except one, which has now come back to my avg price. And reason for staying in that, there was a corporate action happening in that.

(HIMSHAH) #808

Just received from market friend


Steel stocks looks vulnerable given the sharp correction in steel prices in China, steel imports have become viable

** Landed cost of HRC Imports from China is ~INR 42000/ tonn v/s Domestic price of INR 46000/ tonne. Whereas the anti-dumping duty price threshold is INR 35000/ tonne.

** One can expect prices to correct by INR3000-4000/ tonne over next 2 months. This will trigger earnings downgrade cycle for Indian Steel stocks

** Tata steel, SAIL, JSPL appears most at risk For every INR 1000/t correction in EBIDTA the target price of Tata Steel reduces by INR 80/ Share

(HIMSHAH) #809

also talked to few friends in steel market in mumbai. they said condition in market is very bad. price going down rapidly. please check with some one.

disc. not invested in steel sector

(Jiten Parmar) #810

We don’t know if situation is temporary or prolonged. Let’s not jump to conclusions. For all we know, it might be just a pause and excesses shaken out. Some media articles giving figures on import price are incorrect and do not include all costs. So, one must discount that.

As of now, I am in wait and watch mode.

(HIMSHAH) #811

i got confirmation from friend in steel market that price are down due to china dumping…check with some one…

(Growth_without Debt) #812

@jitenp Jitenbhai any ideal about Cement companies …where they stand in cycle at presently? Should it be better to invest or wait. Q2 was worst based on input cost rise and growth in demand (monsoon) for cement company

(SOHAN) #813

Hello jiten bhai what are your views on companies making ductile iron pipes from iron and steel and basmati rice exporters

(Jiten Parmar) #814

This should answer your question, as to what I think on cement companies.

(Jiten Parmar) #815

Some basmati export players have really been beaten down. Have invested in one. Risk-reward ratio is in favor. One must keep a mid to long-term view, though.

(Amit) #816

#China trade figures: imports of refined base metals shrug off #TradeWar sentiment - copper, #zinc and #nickel up compared to last year and the country on track to be a net importer of #lead for 2nd year running. Refined #copper imports rose by +20% in first 10mths of the year…

Copper will be in bull run and India needs lot ofcopper for its growth if its want to build scale in Infrastructure and key market in ev.

(Cshar) #818

Have an exposure to LT foods, hoping cash flow improvement in 2019 once europe business is ebit positive. Though margins are lesser than KRBL, valuations have come down a bit far.

(Manohar T. Patil) #819

@jitenp - Hope you are well! Not sure if you had a chance to check on Citi report mentioned in below news item. Would be very useful to know your thoughts on steel cycle

(rockstarinvestor) #820

Hello Jiten Sir… Any views on the Shipping Companies… Been on a long downtrend… Any views…