A boon for Zinc....!!!

Mine closures – a boon for zinc

NAVEEN MATHUR

September 23, 2014:  

Zinc is used principally for galvanising iron and more than 50 per cent of metallic zinc goes into galvanising steel.

Zinc is the primary metal used in making American pennies and rising prices of this bluish-white metal this year have forced the US Mint to reduce manufacturing costs to offset higher prices.

Zinc prices have soared to three-year highs in 2014 on intensifying deficit in the global market as one of the biggest mines, Century open pit in Australia, is due for closure next year and the delayed start of its Dugald River project. MMG’s Century mine is expected to run dry in 2015, removing about 5 per cent of global supply.

Several large, aging mines are also scheduled to close next year as miners need higher prices to justify the cost of finding and developing new sources of metal. Miners may not produce enough zinc to meet the needs of steel companies and coin-makers until 2018. Owing to this, zinc production is expected to fall short of demand this year for the first time since 2007.

According to the Lisbon-based International Lead and Zinc Study Group, zinc demand is up 7.7 per cent globally in the first six months of this year to 6.8 million tonnes. As a result, users are drawing on stockpiles of the metal to make up for production shortfalls.

Supplies of the metal in LME-licensed warehouses fell to a three-and-a half- year-low in July, and are down 15 per cent this year. The warehouses contain enough zinc to meet 19 days of demand, down from 24 days at the start of the year.

Chinese factor

Moreover, China’s MMG Ltd, owner of the world’s third-biggest zinc mine, said the global deficit in the metal had increased faster than expected, spurred partly by demand growth in China to rust-proof steel for cars. Chinese demand had picked up as companies sought galvanising technology, following a push by the International Zinc Association to tout the benefits of coating steel with zinc to prevent rust.

As a result of this, Chinese imports of refined zinc have jumped by 39.3 per cent through July, given the solid underlying demand growth, up about 7 per cent in 2014, boosted by strong auto production (+9.4 per cent year to date), rising content of galvanised steel in cars to prevent rust.

After a surplus of six years, supplies of the metal would be in deficit this year, coinciding with world major economies struggling for a breakout from recession, propelled by forecasts of annual demand growth of five-six per cent.

The Zinc study group has estimated that demand for zinc exceeded output by 248,000 tonnes in 2014 through July’14, compared with a 15,000-tonne production surplus in the same period a year earlier.

Prices to rise

Strong demand growth at a time when a number of big mines are approaching the end of their lives will lead to increase in physical deficit and a rundown in stocks at registered LME and Shanghai warehouses, thereby boosting prices further.

For the coming months, prices will continue to surge as some of the world’s largest zinc mines run dry just amidst spurt in demand.

In addition, MMG Ltd, which owns Century, had planned to open a new mine in Australia next year, but it’s being delayed back to late 2016 due to technical issues. This will fuel supply concerns.

However, higher shipments from China, the world's top consumer and producer of refined zinc, in the fourth quarter as tight credit crimps domestic demand at a time of increased imports to LME warehouses in Asia could cap LME zinc prices, which gained around eight per cent this year.

LME Zinc (CMP: $2,222) prices can head higher towards $2,500/tonne, while zinc on the MCX (₹135.5) can head higher towards ₹152/kg.

The writer is Associate Director-Commodities & Currencies, Angel Commodity Broking. Views are personal.

(This article was published on September 23, 2014)

BANKS SEE GOOD FUTURE...!!!

Here's why banks will rally againBroking firm Jefferies says Indian financial system is now flooded with the kind of liquidity witnessed in 2005-07 and 2009-10Shishir Asthana  |  Mumbai  

September 22, 2014 Last Updated at 18:22 IST

Recently announced non-food credit and GDP data suggested that India is on the path of a credit-less growth. While some businesses are starving for low-cost funds, banks are flushed with liquidity, prompting them to cut down interest rates on deposits.

None of this seems to bother analysts who continue to remain bullish on the sector. Morgan Stanley in a report titled ‘Correction: The upcoming second leg of bank rallies’ says Indian banks have rallied nearly 42% on a year-to-date basis mainly on account of growing confidence in the Indian economy which would in-turn improve asset quality. But the next leg of stock performance will be fundamental driven asloan growth picks up.

Morgan Stanley says that historically bank stocks have rallied in two cycles. Indian banks are currently in the transition phase between the two cycles. The first leg is driven by expectations around better asset quality. The second and more sustained leg is driven by a loan growth pick-up, which sets an earnings upgrade cycle in motion. Banks now have the liquidity to fuel the next round of growth.
Broking firm Jefferies says Indian financial system is now flooded with the kind of liquidity witnessed in 2005-07 and 2009-10. Ample liquidity and lower overnight rates are also showing up in falling risk spreads - BBB-minus bonds are now at their lowest levels. Both commercial paper and certificate of deposit markets are showing signs of life and no liquidity stress.
Several banks have cut home loan rates. If allowed, this trend will be seen across products and in banks' Base Rate sooner than later. Banks, it seems, are waiting for a signal from the central bank to announce a rate cut. As reported in Business Standard in a recent interaction between members of the banking community and RBI, lenders have asked the central bank to cut repo rate to spur loan growth.

RBI Governor has however ruled out any reduction in interest rate in the month-end monetary policy announcement. Analysts are expecting a rate cut from the central bank to take place sometime in 2015. A Bank of America Merrill Lynch report says that a supportive Balance of Payment situation and a stable rupee – though on account of low gold and oil prices should see the central bank reducing interest rates by around 75 basis points in 2015.

Banks however, are now facing a problem of plenty. Liquidity is at such high levels that the amount the banking system needs to borrow from the Central Bank through Liquidity Adjustment Facility (LAF) and other windows (term repos, Marginal Standing Facility or MSF) has declined, reaching near zero, says Jefferies. Without a significant RBI intervention, it is quite possible that the net liquidity balances slip back in to the negative territory or a surplus.

Morgan Stanley says that a capex cycle is needed for loan growth to go back to more than 20 per cent levels, from the current levels of less than 10 per cent. This looks tough in the near term and might happen over the next 1-2 years. However, Morgan Stanley feels retail to be strong and SME (small and medium enterprises) working capital demand to pick up – helping system loan growth to trend to 15% by FY15. This will drive the second leg of this rally.

PSU-BANKS NEED --$ 37 bn

State-run banks in India need $37 bn in fresh capital to meet Basel III: Moody's

Press Trust of India | Mumbai | Updated: Sep 22 2014, 17:03 IST

Public sector banks in India will need to raise up to $37 billion over the next 4-5 years to meet Basel III compliance norms, credit rating agency Moody's said today.

The estimate is based on assumptions that there would be a moderate recovery in the Indian economy and a gradual decline in the non-performing loans from the current levels.

"Our rated public-sector banks in the country will need to raise Rs 1.5-2.2 trillion, (USD 26-37 billion) between FY15 and the full implementation of Basel III in FY19," Moody's said in a report titled, 'Indian banks could need USD 26-37 billion in external capital for Basel III compliance'.

A significant part of the required capital-- Rs 800-900 billion (USD 13-15 billion) -- could be in the form of additional tier I (AT1) capital.

The rating agency rates 11 public sector banks in the country, representing 62 per cent of net loans in the banking system.

Basel III raises the minimum required levels for both total tier I capital to 7 per cent and common equity tier I (CETI) capital to 5.5 per cent. They will also need to meet a capital conservation buffer in order to pay dividends.

"Public sector banks barely meet current minimum capital requirements, and we anticipate that they will find it difficult to raise capital quickly in the current environment," Moody's vice-president Gene Fang said.

According to Moody's, low capital levels remain a key credit weakness for the public-sector banks.

Fang said weak asset quality has depressed profitability and internal capital generation, leaving public-sector banks reliant on periodic capital injections from the government.

"With Prime Minister Narendra Modi's administration looking to reduce the budget deficit, the amount available for such injections is not likely to grow," he added.

Moody's said banks may tap the equity markets to raise capital, but with still-low bank valuations, banks could struggle to raise the required amount.

http://www.financialexpress.com/news/staterun-banks-in-india-need-37-bn-in-fresh-capital-to-meet-basel-iii-moodys/1291618