The Morning Meeting Notes as on 8th March, 2010.
Contents
n Research Views
BHP and JFE signed 1QFY11 coking coal contract at 55% hike
BHP and JFE have signed QUARTERLY contract for coking coal for 1QFY11 at 55% hike over FY10 contract prices. The new contract prices now stands at USD200/t. This contract price is marginally below the spot price of USD220/t. This is ahead of our estimates of 30% hike. The key thing to note here is that the historical annual contract system has been done away with and now quarterly contracts are in place. This has increased the importance of spot prices as the contract prices will now be driven by spot prices more frequently than what it used to be historically. BHP has been pitching since long to do away with the annual contract system. It also tried to introduce quarterly contract previously but did not receive proper support from the other miners and steel producers. However, this year looking at the strong demand in the spot market, BHP got another incentive to pitch for quarterly contracts and it managed to gain support of other miners and forced Japanee steel producers to accpet the same. The demand of the steel making raw materials (iron ore and coking coal) has spurt significanlty post recession, mainly driven by strong demand from
We believe, the iron ore contracts may also be shifted to quarterly contracts from the annual contracts. This will lead to changes in contractual iron ore prices more frequently based on the movement in spot prices. Looking at the current strong demenad for iron ore in
The recent hike in coking coal contract prices augur well for the companies like Gujarat NRE. However, we believ that these developments poses a strong challenge in front of the steel producers to pass on the hike in the cost of raw materials (both iron ore and coking coal). If we assume the steel producers are unable to pass on the hike in cost of coking coal then the EPS of Tata Steel could be negatively impacted by 15% from Rs61 to Rs52 for FY11E. However, looking at the improving demand in US, Europe and other developed economies and strong demand in
Positive weekly close
On w-o-w basis, Nifty closed with gains of 150 odd points, thus managing to close above 20-weekly simple moving average placed at 4997. Since the hourly picture of Nifty is showing signs of weakness, due to its bullish trendline break, a dip is on the cards. Going further if Nifty sees a breach of 4997 in the coming week then the overall picture will again shift into the favor the bears. Any downside dip can be expected to take support near 4997 (i.e. 20-WSMA) or near 4967 (i.e. 50-DEMA). But if these two supports got violated then the slide will deepen and the test of 4800 is also likely. However on upside the clearance of current week's swing high of 5119 will act as a bullish trigger for the market, due to which Nifty has the possibility to go pass the hurdle of 5175.
BSE Realty:
Last week the BSE Realty index gave a trendline breakout as well as broke the recent swing high of 3471. Finally closed at 3460 with a gain of 6.90% w-o-w. Going forward this index is looking strong and now we maintain our upside target of 3600.
BSE Metal:
Last week the BSE Metal index out performed the broader markets and closed at 17560 with a gain of 7.06% on w-o-w basis. This index had already retraced 61.80% of the recent fall from 18560 to 15138 and going forward it is still looking strong and we believe that in the coming days it will test its recent high of 18560 levels.
BSE Bankex:
Last week the on the weekly chart BSE Bankex gave a trendline breakout and finally closed above that at 10198 with a gain of 3.76% on w-o-w basis. Thus going forward this index is looking strong and now it will test its recent high October 09 which is placed at 10698.
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Emkay Research
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