Daily Indian Steel Longs Price Outlook and Strategy

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1 Daily Indian Steel Longs Price Outlook and Strategy Decision enabling market analysis & price outlook Jan 28, 2015 Market recap and Summary outlook for next 3 days Althouhg semi finsihed steel prices including sponge ironm, channels and angles remained intact since the begining of the year, weakness in long steel prices remained the primary theme across the various spot markets in the country. Additionally, low demand enquiries, concerns of cheap imports and lack of uptick in construction activity remained some of the major factors which have resulted in the current weakness in steel prices. Going ahead, we expect the gains in semi finsihed steel products unsustainable as domestic prices of iron ore are correcting. Key factors for the coming sessions are: Import duty likely to be increased to 10% from 5 7.5% at present Expectation of pick up in construction activity Expectation of reviving demand backed by improving lending and land acquisition Quarterly earnings and weak economic growth expectations Report Summary Price outlook summary Price Ranges for next 5 days Procurement Strategy and review (TMT) TMT bar price is likely to hold the support of INR and trade higher towards INR in the coming 3 5 weeks. Range Price Bias Mixed 50% of Feb 15 buying requirements completed at on Dec 15, % of Feb 15 buying requirements completed at on Jan 14, % of Feb 15 buying requirements completed at on Jan 27, Holistic view Commodity Last Closing on 27 Jan, 2015 Range for next 5 days Price bias TMT Bar 12mm Fe500 Mumbai Neutral Channels (IS 2062), 75/100, Grade A, Ahmedabad Neutral Angle (IS 2062), 65x6, Grade A, Ahmedabad Neutral Prices are basis Ex works, exclusive of excise duty and VAT, in INR per ton Fundamental Analytics Weakness in long steel prices remained intact post the Republic Day and prices dropped in major locations including North and West owing to slow demand and falling input material prices. Weakness in long steel prices remained intact owing to weak demand and lack of queries. Meanwhile, scrap prices and sponge iron prices at some of the locations including Mandi and Kolkata have risen by INR per ton amidst the optimism over increasing demand after the RBI lowered interest rate by 25 basis points. Weakness in semi finished steel prices too was broadly absent in 2015 as sponge iron prices moved marginally higher amid falling iron ore prices indicating that weak end use demand and falling raw material prices has resulted in current weakness in finished steel prices.

2 RBI lowered repo rate to 7.75% from 8.0%, acting ahead of its annual policy meeting which is scheduled on 3 rd, February, Hence, low interest rates should revive lending activity and resume buying which would be favorable for long steel prices in the near to medium term. But most of the domestic banks have failed to pass on the benefit to the downstream economy which keeps the door open for further interest rates cut in future. (Mostly anticipated post budget) India s steel ministry has sought an immediate hike in import duty on finished steel to 10% from the present level of 5 7.5% and a withdrawal of duty on raw materials iron ore and coking coal in the light of surging steel imports up by 58% during April December While these have been part of its Budget recommendations, we expect the ministry to propose an increase in import duty to the tune of 25% to block cheap imports. Steel Ministry has also sought to keep steel in negative list with Free Trade agreements with South Korea and Japan in order to safe guards the local producers. In its budget recommendation, some sources expect the duty hike might be to the tune of 25% which should remain favorable for local prices. At the consumption front, demand growth was broadly muted in the current year. Finished steel consumption increased at a paltry pace of 1.3% to million tons compared to last year resulting in higher stocks which further dented bullish sentiments. In the last quarter of the fiscal, we expect the lending activity to remain higher as most of the businesses ramp up project execution and completion which should remain supportive for long steel demand. India Ratings & Research expects steel consuming sectors including construction, automobile and mechanical engineering to grow in FY 16 with the softening of interest rates and implementation of government policies on the revival of infrastructure and investment in the country. A better GDP forecast of nearly 6.5% growth in the next fiscal supported by industrial growth of 6.5% would gradually increase steel demand in the country but the current outlook remains stable owing to sharp weakness in International price and weak export demand. Factors such as global overcapacity, import competition, expected fall in raw material prices and addition of capacities during the fiscal will prevent a sharp price hike despite a recovery in demand in the medium to long term. Going ahead, we expect the demand for long products are likely to resume with increasing construction activity. Additionally, higher demand from projects executions should also remain supportive in the medium to long term. Indian engineering and transmission and distribution exports to the GCC (Gulf countries) are expected to remain tepid in the near future amid low oil prices which is likely to act as a dampener in the current context. However, domestic initiatives including make in India should remain supportive. Concisely, we expect the gains in TMT prices are likely to remain subdued amidst low demand from construction sector during winter months. However, increasing project implementation and expectation of reviving credit availability should remain favorable for prices in the medium to long term.

3 Technical Outlook TMT 12 mm Mumbai Spot, INR/ton TMT bar prices have traded with negative momentum and closed at INR in the last session. Price has retested the momentum low of INR after triggered the resistance channel line around INR 34400, the bottom line of the major channel positioned around INR 32300, staying above INR prices likely to bounce towards INR At the bottom line of the channel around INR 32600, price has taken support and bounced towards INR and then resuming the bearish trend within the internal bearish channel which started from the 2014 high of INR 38753, hence the resumed bearish trend can hold above the long term channel support around INR Momentum indicators such as RSI (9), is curving lower from the equilibrium which indicates bearish trend in price. On the down side, INR region could act as support. On upside, Price could face immediate resistance at INR followed by INR Concisely, TMT bar price is likely to hold the support of INR and trade higher towards INR in the coming 3 5 weeks. Physical Market Prices Market and details 27 Jan Jan 15 Change %Change Pig iron, Foundry grade, Agra, FOT basis INR/ton % Pig iron, Steel grade, Agra, FOT basis INR/ton % Ship scrap (Melting), Alang, FOT basis INR/ton (Exclusive of taxes) % Melting scrap HMS 80:20, Mandi Gobindgarh, FOT basis INR/ton % Melting scrap HMS 80:20, Mumbai, FOT basis INR/ton % Channels (IS 2062) 75/100 Grade A Ahmedabad, FOT basis, INR/ton % Angles (IS 2062) 65x6 Grade A Ahmedabad, FOT basis, INR/ton % TMT bars 12mm Fe500, FOT Mumbai, INR per ton % TMT bars 12mm Fe500, FOT Hyderabad, INR per ton %

4 TMT bars 12 mm, SAIL, Kalamboli /Pune (Excl taxes)* % Prices mentioned are naked prices, exclusive of Excise duty (12.3%), E. Cess on excise duty (3%) and VAT (5%). TMT bar on FOT basis, inclusive of Excise duty and VAT, trader's margin. *TMT SAIL inclusive of VAT for the month of Jan 15 and Dec 14.

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