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Sensex Scales Past 29,000 Mark, Steel Stocks Surge
Mon, 6 Mar 11:30 am

After opening the trading day on a firm note, Indian markets continue to trade strong in the morning trade on fresh buying by retail investors amid a mixed trend in other Asian markets. Gains are largely seen in oil & gas stocks and power stocks. Meanwhile, IT sector and consumer durables sector are trading in the red.

The BSE Sensex is trading higher by 213 points and the NSE Nifty is trading higher by 61 points. The BSE Mid Cap index is trading up by 0.7% while the BSE Small Cap index is trading higher by 0.5%. The rupee is trading at 66.84 to the US$.

Steel stocks are trading on an optimistic note with Tayo Rolls and Maharashtra Seamless witnessing majority of the buying momentum. According to a leading financial daily, Tata Steel may be considering breaking off talks over a planned merger of its European business with German company Thyssenkrupp. The merger talks had been revealed by the Tata Steel last year as part of a major restructuring of its UK steel business.

Reportedly, the deal may be under threat due to German pension liabilities. The deal has been slow moving as Tata Steel has been trying to solve the problem of its own 15-billion-pound British steel pension's scheme. Last month its UK workers had voted in favor of a new pension deal to save their jobs.

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As per the reports, Dutch unions representing workers at Tata's vast Ijmuiden plant have raised concerns over the Thyssenkrupp pensions, which are an unfunded liability and underpinned by cash-flow from the steelworks.

Thyssenkrupp is under pressure from the activist investor Cevian and recently sold its steel venture in Brazil for 1.3 billion euros.

Tata Steel share price is trading up by 0.1% on the BSE.

Meanwhile, JSW Steel share price is trading on an encouraging note (up 0.8%) after it was reported that a consortium led by JSW Steel is close to taking control of the struggling Ilva plant at Taranto in southern Italy. The plant has an annual production capacity of 10 million tonnes which equals 40% of Italy's national production.

JSW has submitted the final bids along with Cassa Deposit e Prestiti, Italy's sovereign fund and Italian steel company Arvedi. The only other contender is Lakshmi Mittal's Arcelor Mittal SA, which has teamed up with Italian steel processor Marcegaglia.

According to an article in the Hindu Business Line, JSW will invest about US$400 million for a 35% stake in Ilva. The Ilva plant was forced to suspend operations last year and slipped into insolvency after regulators found it polluting the environment.

With its long track-record of turning around sick units, JSW may well emerge the winner. However, analysts fear that even if JSW succeeds, it will have to contend with the onslaught of low-cost steel into Europe from China.

Moving on to news from stocks in cement sector. Shree Cement share price is trading up by 1.4% in morning trade after the company secured coal linkage to the order of 60,000 tonnes a year for its plant at Raipur, Chhattisgarh. The company secured the linkage from South Eastern Coalfields, a subsidiary of Coal India.

Shree Cement's December quarter earnings were marred by the performance of its power segment, which incurred a loss at the operating level, thus impacting overall profitability. In the cement segment, volumes improved 4.5% year-on-year (y-o-y) to 4.91 million tonnes due to capacity additions in east India, but realizations declined sequentially as prices corrected sharply in both eastern and northern markets post demonetization.

Company's net profit increased by a mere 0.72% YoY to Rs 2.35 billion and net sales rose 3.24% YoY to Rs 20.91 billion, aided by higher other income.

In another development, according to an article in The Livemint, cement production in 2016-17 is likely to see a YoY decline for the first time since 2001 as the 8 November demonetisation hit the building sector.

Production volume in January fell about 13% y-o-y, the first such decline since January 2001. As per the reports, after the government's demonetisation move cement production growth slowed to 0.5% in November and fell 9% in December triggered due to cash shortage. As a result, production grew mere 2.6% for the first nine months of FY17.

Valuations Stretched for Indian Cement Companies?

Valuations Stretched for Indian Cement Companies?

India's cement industry is estimated to have a capacity of about 420 million tonnes (mt). Production typically grows 5-6% a year, and caters to the housing, infrastructure and commercial sectors. Also, cement makers benefitted from low fuel and commodity costs last year. However, prices of coal and petcoke have risen sharply in the past six months, leading to higher fuel costs.

Cement stocks are trading on a firm note in morning trade with Shree Cement and Heidelberg Cement leading the gains.

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May 29, 2017 (Close)

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