Dear WK,
Good day.
I have spoken to my Chinese MD, Mr Liu on yesterday evening. He acknowledged that the rullings is purely in Shanxi (50% cut in production). So far in Shandong Province there is no such rullings. However, Mr Liu said the steel industry in China is slowing down since June 08 (as witnessed by the dropped of steel price). Although the growth drivers (Sichuan rebuilding, Shanghai-Beijing express rail, Western part /non coastal city developments)are still there, the demand of steel is slower due to year 2006 , 2007 & 1H08 the growth were too fast.
The poor demand of steel is mainly because steel manufacturers are currently facing with increasing raw materials issue(iron ore increased 96% since June 2008 from BHP and Rio Tinto). The end users (developers, contractors, shipbuilders, automobile manuf) could not fully absorb the high steel price in the Chinese market. Moreover, during the 1H08, many contractors stock pile their steel input (that time steel price was moving up very fast). Therefore, they are still having the enough reserve and temporarily their demand of steel is expected to be lower.
OSK Research reported in the Nanyang Business dated 12 Sept 2008 that short term the demand of steel in China is slower but they are positive that in the medium to long term, the steel industry would continue to grow. In the report, it mentioned that during summer season (On-going Beijing Olympic & Paralympic) and Puasa Month in Middle East, the demand of steel is generally cyclicaly slower.
As for Hua-An, our 1st phrase (1.2 millions tons of coke) is running at 110% capacity, 2nd phrase (new 600,000 tons coke, commissioned since June 2008), running at 70% capacity. In 4Q08 (after Paralympic), barring any unforseen circumstances (eg natural disasters to happen)if the demand & supply of steel in China come back to normal, we are hopeful that we would gradually increase our 2nd phrase capacity.
Thank you for your valuable inputs.
Best regards,
Bernard Tan
----- Original Message -----
From: y wk
To: Bernard Tan
Sent: Tuesday, September 16, 2008 9:48 AM
Subject: Re: Sino Hua-An International Berhad: Aseambankers & Kenanga Research report dated 25 August 2008 (2Q08)
Dear Bernard,
Thanks for your update. I read from the news that the coking association has urge their members to slash output by 50% due to poor demand.
Is Huaan following suit and what is Huaan's management take in tackling this issue.
(Refer attachment)
Thanks
WK
1 comment:
It is reported that price for coking coal in China has dropped recently on account of downstream production cuts whilst that for thermal coal mainly maintains stable. Analysts believe coking coal price will hover on a high track despite modest downswings but thermal coal may face seasonal fluctuations.
Despite scarce supply, slumping demand presses coal companies to cut coking coal prices. Prices in Shanxi, Shandong, Anhui, Guizhou and Northeast China have descended. On September 10th 1/3 coking coal price in Ningwu lost RMB190/ton to RMB1050/ton at the mine; cleaned coal in Xiangyuan also decreased by RMB120/ton FOV.
Wang Ye an analyst with Citic Securities said earlier that coking coal price would sag in Sep due to bearish steel industry. Price for primary coking coal may decrease by RMB300/ton to RMB400/ton this year to RMB1500/ton and that for 1/3 coking coal will drop by RMB300/ton. He said that coking coal price would gain some 80% in whole this year since it is a rare variety.
Coking coal price in Shanxi once kept rising in this year, hence downstream coke producers and steelmakers have to raise prices to pass on the additional costs. However, as China's economy expansion decelerates, steel price moves downward due to dull demand. Steelmakers thus suspend productions, launch overhauls, wash out obsolete blast furnaces and reduce steel stocks. These have decreased coke demand and led to declining coke price. Coke producers hence cut outputs on surging costs, which severely whacks demand for coking coal.
Tian Shuhua an analyst with China Galaxy Securities said that Metallurgical coal price stays high in recent years, giving an impetus to coking coal output rocket. Besides, the material is mainly used in steel industry, hence the performance of the latter will greatly influence coking coal price. He said that countries all restrict exports of the rare variety, so there will not be any absolute oversupply.
On the other hand, coal stocks at some transshipment ports in North China as well as ports and power plants in South China all maintain at high tracks. Coal stock at Qinhuangdao Port now is 3m tons more than normal level and is still increasing. Against such a backdrop, prices for coals with low calorific powers slip yet that for high grade thermal coal stays near the ceiling prices.
Coking coal dropped to RMB1100/ton, pretty low compared to Huaan reported website of RMB1700/ton... good sign for Huaan.. margin to recover?
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