8 Apr 2010

EDITORIAL

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Dear Readers,

First of all, wish you a very happy new year. Unlike last year, this year started on a different, very

positive note. The most perceivable indicator of economic revival has been the revival in steel prices due to improved demand and that is good news for both the economy and the industry.

The mood is generally upbeat. The industry has been lately abuzz with expectation that the goods and service tax (GST) regime is coming in soon, and is set to make a radical change in the tax structure of the country. For the fast moving consumer goods (FMCG) segment, this regime will be a major shot in the arm as rationalisation of tax structure will allow them to have fewer regional warehouses instead of a warehouse in each state and will reduce cost of operations. For the road transportation sector, however, it is going to be bad news as the FMCG segment will not use roads for shorter distances after GST is implemented.

In this year’s first edition of Sourcing Insights, we take a close look at how road transportation is faring in the country even as huge investments are lined up for upgradation of our roads. However, the ground reality remains that railway transportation has been eating into the market share of road transport, the most recent and pertinent example being the increased use of Ro-Ro transportation by which the Railways piggybacks loaded trucks for specified distances.

Most purchasers also find that above 100 km, rail transportation is more economical for volume load. Road transportation is thus turning out to be the preferred option for fewer and fewer people, and this it seems will soon create overcapacity as there seems to be no let-up in expansion plans as far as road transportation is concerned.

Ask any leading truck maker in India and they will tell you that the road condition in India will not improve in the next five years. Yet a considerable amount of investment is the pipeline for making our roads better. What India lacks is a powerful planner with a unified vision, who can take a holistic view of the logistics condition of our country and suggest specific guidelines to the government regarding how to optimally utilise both our road and rail infrastructure. Perhaps only then can we claim at all international summits that we have an efficient logistics system.

International bodies such as the IRU, have found that India has the potential to use road transportation for intercontinental transportation. The industries believing in lean manufacturing also know that they cannot let road transportation die as their success lies here. Even road transporters feel that there is a lot that can be done. It just needs that one big push to propel it into the big league.

With regards,

Regards,Executive Editor

SOURCING INSIGHTS � JANUARY 2010

CONTENTS

24 Profitabilitylinkedtodriver’sknowledge

25 GST to pull down distribution, inventory carrying cost

FEAtuRE

32 Mn ore availability a cause for concern

33 Steel prices hiked across categories

PRiCE & MARKEt AnAlySiS

35 Crude oil price drops in Dec

36 Polymer prices to move up

38 Benzene to maintain steady run

39 Ammonia price may rise in short term

39 Copper zooms on positive outlook

41 Zinc moves up sharply

42 Lead demand to see an upsurge

43 Nickel leads base metals, gains 9.68%

44 Aluminium gains 4% as inventories drop

46 General uptrend in steel prices

49 Supply concerns to push up iron ore further

51 Scrap price witnessed strength in recent past

52 Rubber prices to shoot up further in February

52 CementpriceslargelyflatinDec

53 Thermal coal price rises on Chinese demand

55 Caustic soda to get dearer

56 Iron ore, coal demand to pull up freight rates

lOGiStiCS

ECO-ViEW

6 Month, Money & Market – January 2010

10 Therupeefinallygettingstronger

12 India misses energy generation target in November

COVER StORy

14 Managing road transportation

18 Report suggests ways to optimise road transport

20 WillIndiabenefitbyjoiningTIRconvention?

22 Road projects leave a lot to be desired

58 Kandla port strives to boost efficiency

58 Road freight December 2009

PRiCE tREnD

59 Commodities

65 Ferro alloys and metals

inDEX

66 Index of industrial production


ECO–VIEw

Month, Money & Market – January 2010

India’s Economy Begins On Firm FootingChandrika Bose Mitra

India has continued to put up an impressive show for the last few months with encouraging signs of growth in the economy. Consumer and business confidence has risen

drastically along with rise in industrial production, exports and import of capital goods. The country currently holds the second position just after Indonesia as far as global consumer confidence is concerned, according to Neilson. Most of the country’s population feels optimistic about job prospects next year. Again, there is an expectation that exports would return to positive growth by April 2010 while industrial output surged 11.7 per cent in November.

All of this has led to the country’s economic experts project GDP for the year to be 7 percent. At this rate the country’s growth rate is likely to match up those of China’s (which is fastest growing economies of the world) by the next plan period. The policy makers of India hope to return to the growth trajectory of 9 percent by the end of 2011-12 with improvement in key areas such as agriculture, infrastructure, manufaturing and education.

All this improvement in the Indian economy may be attributed to stimulus policy measures adopted by the government which has slowly trickled down to various sectors. Production of consumer durable goods went to a high of 37 percent as government employees spend their pay commission arrears while infrastructural investment pushed up production rates in capital goods sector.

However, along with this growth, of the economy has been badly hit by rising inflation and unsustainable fiscal deficit. India’s benchmark wholesale-price inflation rate rose to 7.31 percent in December, while wholesale food prices soared 18.22 percent in the week to December 26 from a year

earlier. Fiscal deficit has gone up by 6.8 percent of GDP to cost the state exchequer Rs 1.86 lakh crore in 2009-10, much above those expected during the beginning of the year with rising fiscal cost. Again, India’s current account deficit (CAD) for the second quarter ended September 2009 was two times higher than the $5.99 billion reported for first quarter 2009-10, according to the RBI data on balance of payments (BoP).

Hence in order to counter this situation the government is planning to slowly wind up its stimulus packages as pumping additional money into an economy would lead to higher inflation levels which is undesired at current scenario. The government is also considering on taking some tough decisions on corporate and personal tax rates.

It would however not seek to take back all of policies at one go as that would jeopardize demand driven growth in the economy. Hence it would withdraw the stimulus packages gradually, though the right course of action is yet to be decided.

Experts believe that stimulus packages can be withdrawn once government spending in infrastructure paves the way for sustainable growth along with revival in private investment, all of which is expected to take shape by middle of next year.

The growth rates gathering strength currently are likely to be effected in the short term as the stimulus packages wind up, but this can be countered by increase in industrial and infrastructural growth such as building roads, power and ports.

Industry experts opine that RBI might hike its CRR by 50-basis points by end of this month withdrawing liquidity to curb inflationary pressures. It however is unlikely to change repo rates. The RBI in addition to controlling inflation is also expected to consider factors such as money supply (M3) along with future credit growth before seeking policy decisions on this.

However one of the leading public sector commercial bank’s chairman has gone on recording saying that they may not hike interest rates in sync with RBI’s move, at least in the next six months as they feel that there is no credit crunch after limited credit growth last year. Hence, RBI’s expected roll back of monetary packages to curb inflation is unlikely to affect the economy much in the coming months.

Also, the government may be able to contain fiscal deficit below 5 percent levels in the next financial year, helped by higher revenue collections and expects the current year’s credit growth to be close to 20 percent. Hence, immediate winding up of policies may only adversely affect the Indian economy which has been cushioned so well in times of turmoil.

170190

210230

250270

290310

330350

370390

Jan-

07

Mar-0

7

May-0

7

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

A LL COMMODITIES Index PRIMA RY A RTICLES IndexMA NUFA CTURED PRODUCTS Index FUEL,POW ER,LIGHT & LUBRICA NTS IndexBas ic Meta ls A lloy s & Meta l Produc ts Index Iron & Steel Index

Wholesale Price Index (Selected Categories)

Source: OEA, Min. of Commerce


150

170

190

210

230

250

270

290

310

330

Jan'2009 Feb'2009 Mar '2009 A pr '2009 May '2009 Jun'2009 Jul'2009 A ug'2009 Sep'2009 Oc t'2009 Nov '2009

Mining & Quarry ing Manuf ac tur ing Elec tr ic ity Genera l Index

ForexRise in reserves of gold by $110 million to $18.292 billion resulted in a swell of foreign exchange reserves for the country in the week ended January 1. Forex reserves rose by $22 million to $283.521 billion after falling for three consecutive weeks before this as per RBI.

Foreign currency assets decreased by $85 million to $258.634 billion while SDRs were down by $3 million at $5.169 billion and reserve position in the IMF remained unchanged at $1.426 billion during the week.

IIPIndustrial production grew at a 25 month high 11.7 percent in November 2009 from a year earlier and experts expect the trend to continue in the coming months. Their expectations were mainly on the back of intermediate goods sector which spurted by 19.4 percent during November 2009 from 3.9 percent during the same period last year, continuing to be a bee-hive of activity which signals that industry might have entered into a turnaround phase.

Also, the number of industries showing a negative growth rate has come down sharply from seven to three during November as well as between April and November this year along with nine industry groups recording more than 8 percent growth rates during the month.

The appreciable figures for industrial production came due to 37.3 percent jump in consumer durables from a mere 0.3

percent a year ago and 12.2 percent increase in capital goods from 0.5 percent over the past twelve months which also increased due to increase in Customs collections for December 2009. This also reflected buoyant domestic market.

OilOil prices worldwide have shot up to levels as high as $83 per barrel, encouraging petroleum ministries to push for increase in prices of petrol. Public sector oil marketing companies are expected to incur losses at current domestic oil prices if global price of crude go above $76 per barrel.

The ministry is also pushing for gradual phasing out of subsidies on diesel to cut losses of companies such as Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum who are projected to lose Rs 44,300 crore in revenues on fuel sale this financial year.

Petrol prices in India may rise by almost Rs 3 per litre and this is likely to push up inflation rates even higher. Deregulation of prices of petrol, diesel, cooking gas and kerosene is desired to protect oil companies. The government has been regulating such prices till now to protect the interest of the poor and control inflation.

The EIA has forecasted rise in world oil demand by 1.47 million barrels per day to 86.65 million bpd in 2011, due to strong growth among industrialized countries though the rebound in oil demand during this year would be attributed to developing countries.

4.78

%

7.31

%

1.46

%

0.46

%

-2 .00%

-1.00%0.00%

1.00%

2.00%

3.00%4.00%

5.00%

6.00%

7.00%8.00%

9.00%

10.00%

11.00%12.00%

13.00%

14.00%

Jan'08

Feb'08

Mar'08

A pr'08

May'08

Jun'08

Jul'08

A ug'08

Sep'08

Oc t'08

Nov'08

Dec'08

Jan'09

Feb'09

Mar'09

A pr'09

May'09

Jun'09

Jul'09

A ug'09

Sep'09

Oc t'09

Nov'09

Dec'09

Source: OEA, Min. of Commerce Source: Gol, MOSPI

800

1800

2800

3800

4800

5800

6800

7800

8800

9800

Jan-

08

Feb-

08

Mar-0

8

Apr-0

8

May-0

8

Jun-

08

Jul-0

8

Aug-

08

Sep-

08

Oct-0

8

Nov-0

8

Dec-0

8

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-0

9

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct-0

9

Nov-0

9

Dec-0

9

Pric

e of

Al,

Cu,

Zn

at L

ME

($ p

er to

n)

0

5000

10000

15000

20000

25000

30000

35000

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kel P

rice

at L

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($ p

er to

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A lumin ium Cas h Of f ic ia l* Copper Cas h Of f ic ia l* Z inc Cas h Of f ic ia l* Nic kel Cas h Of f ic ia l*

Global Metal Average Prices at the LME

Source: LME

35

40

45

50

55

1-Jan-09

22-Jan-09

12-Feb-09

6-Mar-09

31-Mar-09

27-A pr-09

19-May -09

8-Jun-09

26-Jun-09

15-Jul-09

4-A ug-09

25-A ug-09

14-Sep-09

8-Oc t-09

30-Oc t-09

20-Nov -09

10-Dec -2009

1-Jan-10

Rs

agai

nst U

SD, Y

en

55

60

65

70

75

80

85

90

Rs against EU

RO

& G

BP

USD Y EN GBP EURO

Value of Re against Major Foreign Currencies

Source: RBI, www.eximin.net

Inflation Rate in India Index of Industrial Production

ECO–VIEw


ECO–VIEw

TradeIndian seems to be turning around after an average 17.4 percent decline in the past year with December exports soaring by 15 percent to $14.6 billion during from a year earlier to $12.7 billion. In November exports rose 18.2 percent. This is expected to boost up production figures further in the coming months and hence increasing IIP figures.

The government had announced various stimulus measures worth more than $2 trillion worldwide and record-low interest rates to pick up exports which seem to show effect now. Total passenger vehicle exports jumped 40.4 percent, as compared with a 15.6 percent gain in the month before, according to the Society of Indian Automobile Manufacturers (SIAM). Export figures may improve further as the industrialized countries come out of recession.

However, this increase in growth rate of exports can also be due to weak base. Hence the country is opting for more stimulus measures in this sector worth around Rs 500 crore under which exports of 2,000 new products from sectors such as engineering, handicrafts , textiles, chemicals, electronics and some metals will be allowed duty free import of inputs under the existing product and market specific incentive schemes.

Exports in the first three quarters of the current fiscal is about 19 percent lower at $119 billion as compared to $146 billion of exports in the comparable period of the previous fiscal.

0

10000

20000

30000

40000

50000

60000

70000

Jan-08

Feb-08

Mar-08

A pr-08

May -08

Jun-08

Jul-08

A ug-08

Sep-08

Oc t-08

Nov -08

Dec -08

Jan-09

Feb-09

Mar-09

A pr-09

May -09

Jun-09

Jul-09

A ug-09

Sep-09

Oc t-09

Nov -09

mill

ion

kwh

Thermal Hy dro Nuc lear Tota l

Electricity Generation

Source: CMIE, Industry Analysis Service

40

45

50

55

60

65

70

75

80

85

1-Ap

r-09

8-Ap

r-09

15-A

pr-0

922

-Apr

-09

29-A

pr-0

96-

May-0

913

-May

-09

20-M

ay-0

927

-May

-09

3-Ju

n-09

10-Ju

n-09

17-Ju

n-09

24-Ju

n-09

1-Ju

l-09

8-Ju

l-09

15-Ju

l-09

22-Ju

l-09

29-Ju

l-09

5-Au

g-09

12-A

ug-0

919

-Aug

-09

26-A

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92-

Sep-

099-

Sep-

0916

-Sep

-09

23-S

ep-0

930

-Sep

-09

7-Oc

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14-O

ct-09

21-O

ct-09

28-O

ct-09

4-No

v-09

11-N

ov-0

918

-Nov

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25-N

ov-0

92-

Dec-0

99-

Dec-0

916

-Dec

-09

23-D

ec-0

930

-Dec

-09

$ pe

r bar

rel (

fob)

Crude Oil (Brent) Pr ic es in London Crude Oil (Dubai) Pr ic es in London

Global Crude Oil Price

Source: CMIE, Industry Analysis Service

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1-Ap

r-09

8-Ap

r-09

15-A

pr-0

922

-Apr

-09

29-A

pr-0

96-

May-0

913

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-09

20-M

ay-0

927

-May

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3-Ju

n-09

10-Ju

n-09

17-Ju

n-09

24-Ju

n-09

1-Ju

l-09

8-Ju

l-09

15-Ju

l-09

22-Ju

l-09

29-Ju

l-09

5-Au

g-09

12-A

ug-0

919

-Aug

-09

26-A

ug-0

92-

Sep-

099-

Sep-

0916

-Sep

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23-S

ep-0

930

-Sep

-09

7-Oc

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14-O

ct-09

21-O

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28-O

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4-No

v-09

11-N

ov-0

918

-Nov

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25-N

ov-0

92-

Dec-0

99-

Dec-0

916

-Dec

-09

B S E Meta l Index B S E Oil & Gas Index B S E Pow er Index B S E Sens ex S & P Cnx Nif ty

Leading Equity Market Indices (Closing)

Source: Gol, MOSPI

1150000

1200000

1250000

1300000

1350000

1400000

26-D

ec-0

8

9-Ja

n-09

30-Ja

n-09

13-F

eb-0

9

27-F

eb-0

9

13-M

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27-M

ar-0

9

10-A

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24-A

pr-0

9

8-Ma

y-09

22-M

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9

5-Ju

n-09

19-Ju

n-09

3-Ju

l-09

17-Ju

l-09

31-Ju

l-09

14-A

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9

28-A

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11-S

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9

25-S

ep-0

9

9-Oc

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23-O

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v-09

20-N

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4-De

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18-D

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1-Ja

n-10

in R

s cr

ore

2 4 0 0 0 0

2 5 0 0 0 0

2 6 0 0 0 0

2 7 0 0 0 0

2 8 0 0 0 0

2 9 0 0 0 0

3 0 0 0 0 0

3 1 0 0 0 0

in m

illio

n $

in Rupees c rore in Million $

Foreign Exchange Assets

Source: CMIE

0

1000

2000

3000

4000

5000

6000

7000

8000

Vizag

Chenna iKan dla

Hald ia

Mum baiJNP T

New Man galore

Mormuga oParadip

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ta

in '0

00 to

ns

Jul-09 A ug-09 Sep-09 Oc t-09 Nov -09

Portwise Traffic

Source: CMIE

India’s Balance of Payments ($ billion)

Jul - Sept ’08-09 (Revised)

Jul - Sept ’09-10 (Preliminary) % change

Exports 53.63 42.35 -21.03

Imports 92.75 74.55 -19.62

TradeDeficit 39.12 32.2 -17.69

Invisibles (net) 26.55 19.58 -26.26

Currentaccountdeficit 12.58 12.63 0.4

Capital account 7.84 22.04 181.12

Change in Reserves (excluding valuations)

4.73 -9.42 NA

SOURCING INSIGHTS 10 JANUARY 2010

The performance of the Indian Rupee (INR) over the last year has been sluggish. There have been small phases of recovery which were not sustained. There have also

been sharp downward movements that resulted in major devaluations for INR. Finally, with the stock market gaining in strength over the last six-seven months, the necessary positive impetus has been provided which has started to show the desired results in some telling positive impact for the money market over the last month. As anticipated in the last issue, the downward phase for the Rupee finally seems to have been arrested and we may hope to see a continued resurgence as indicated below.

We now present a brief statistical trend analysis (for a six month and a one month horizon) for the exchange rate of INR against four major currencies of the world, Euro (EURO), UK Pound (UKP), US Dollar (USD) and Japanese Yen (YEN). We use the Bill selling rates for Imports for all these four currencies in terms of Indian Rupee. The time periods considered are July to December 2009 for the six month analysis and the month of December for the one month analysis. We will analyse the currencies in alphabetical order.

The INR – Euro exchange rate generally showed an upward trend in the early part of last year but it has been arrested with a downward surge in the last four months. The trend in the last six months’ data can be best described by a quadratic relationship with substantial autocorrelation. The six month trend analysis indicates that Euro is expected to depreciate strongly against INR in the coming month. Considering the last month only, the pattern is in reverse but the short term trend is also quadratic. We have made a one month forecast (20 working days) with the six month data analysis and a one week forecast (five working days) with one month data analysis. See graph, where the green line represents the actual daily exchange rate (EURO), the blue line represents the one

month forecast according to the six month trend analysis (EUROF6) and the red line is the one week ahead forecast with one month trend analysis (EUROF1). The one week forecast indicates a sharp strengthening of Euro against INR. So overall, Euro is expected to lose against INR in the coming month which may start after a quick upward movement early in the month.

The exchange rate for the British Pound (UKP) against INR was on an upward swing over the first two months (July – August) of the period under consideration, punctuated by some swings. But then it got more than compensated by the downward journey of the last four months when INR has decidedly taken an upward turn against the British Pound. The overall trend is best described by a linear and autocorrelated relationship. The analysis implies that the British Pound is now expected to depreciate against INR in the coming month (see the forecast, UKPF6 in the blue line). The short term (one month) trend is best described by a linear trend and it also predicts a sharp decrease in the value of UKP over the next week (red line, UKPF1). So, overall expectation is for a decrease in value for the British Pound against INR.

The US dollar (USD) has shown a more or less consistent downward trend in the last one year along with some small recovery. This general trend was punctuated by some oscillations where USD has recovered some of the losses. The trend for the six month period under consideration is described by a straight line trend with autocorrelation. See the one month forecast USDF6 in the blue line, showing the possibility of further depreciation of USD against INR. The one month trend is described with a quadratic curve. The next week’s forecast, USDF1 in the red line is also decreasing at a similar rate. Overall it is expected that INR will be getting stronger against USD in the long term.

Finally, coming to the Japanese Yen (YEN), the trend has been somewhat similar to that of the Euro but it has exhibited

ECO–VIEw

62.00

64.00

66.00

68.00

70.00

72.00

Months July A ug Sept Oc t Nov Dec

6 Month Forec as t 1 Month Forec as t Daily

Euro

72.00

74.00

76.00

78.00

80.00

82.00



British Pound

The Rupee Finally Getting StrongerDiganta Mukherjee

Corporate Office

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ECO–VIEw

Diganta Mukherjee is Professor, Usha Martin Academy, Kolkata

45.00

46.00

47.00

48.00

49.00

50.00



US Dollar

48.00

49.00

50.00

51.00

52.00

53.00

54.00

55.00



Japanese Yen

a slower trend and a lot more fluctuations. We have seen some gain with oscillations over the first five months of the period under consideration but there has been some gain for INR in the last month. A quadratic trend with autocorrelation best describes this data. This implies that the exchange rate for Japanese Yen against INR is expected to depreciate slowly after some initial upsurge in the coming month (see the forecast, YENF6 in the blue line). The short term (one month) trend is also quadratic (see the red line, YENF1) and is predicting a short term sharp decrease. Thus, overall trend is likely to be downward for Yen against INR.

The above analysis suggests a very encouraging picture for the Indian money market scenario in the first month of the New Year. It is anticipated that all the major foreign currencies will lose ground against INR, maybe after some initial upswing, over the next one month. It seems that the positive stock market sentiment over the last few months has finally influenced the money market to recovery. If the market sentiment continues to stay positive for some more time, the money market will get a substantial boost and that will help INR on its way back to the strength it enjoyed in early 2008.

India’s energy generation in the month November 2009 stood at 59415.85 GWH, which was 93.06 percent of the planned generation of 63845.72 GWH for the month. As

per a report by Central Electricity Authority (CEA), category wise thermal power generation was as expected highest in the month, and stood at 50907.26 GWH which was 95.95 percent of the planned 53053.72 GWH, thermal power generation was followed by hydro, nuclear and Bhutan IMP at 6778.95 GWH, 1388.48 GWH and 341.16 GWH respectively.

The western region was once again the highest generator of energy during the month with power generation of around 20233.50 GWH. Western region was followed by the northern and southern region with the generation of 15563.63 GWH and 13873.07 GWH each.

For the period April 2009 to November 2009, the country has achieved 96.98 percent of its set target for power generation. The target set was 524064.93 GWH and the achievement has been 508264.25 GWH. The energy generation for the same period last year was 479812.51 GWH.

Capacity addition250 MW of thermal power capacity was added to the total power generation capacity of the country during November, 2009. The target was to add 135 MW of thermal power during the month, hence achievement was over 185 percent of the target. The addition was done at the Chandrapura TPS Ext of Damodar Valley Corporation (DVC) in Jharkhand.

India Misses Energy Generation Target In NovemberGargi Sahai

Category wise Energy Generation Nov '09 (In percentage of GWH)

Source: Central Electricity Authority


Sector wise, the whole of 250 MW of thermal power capacity was added by the central sector, target was to add 220 MW by the central sector and 231 MW by the private sector. As far as hydro and nuclear power generation capacity addition is concerned, there was no capacity addition done during the month, whereas, the target set was 96 MW and 220 MW respectively. For the period April 09-November 09, the target set for capacity addition for the country was 7,932 MW and the achievement for the same period has been 6,017 MW, 75.86 percent of the target.

Plant load factorFor the month of November 2009, the Plant Load Factor (PLF) for the country stood at 75.47 percent, the target set for the month was 75.97 percent. PLF is a measure of the output of a power plant compared to the maximum output it could produce. The central sector’s achievement was 81.97 percent, their target for the month was 81.03 percent. For the private sector, the target set was 76.88 percent and they also over achieved their target in the month and stood at 79.66 percent.

The state sector failed to achieve their set target of 72.65 percent marginally and stood at 70.68 percent. Nine power stations in the central sector and 11 in the state sector failed to achieve their PLF target for November, 2009.

Bokaro “B” TPS (32.59 percent shortfall), Mejia TPS (29.16 percent shortfall), Farakka STPS (27.39 percent shortfall) and Badarpur TPS (19.03 percent shortfall) were the power stations in the central sector to have maximum shortfall.

In the state sector Orissa Power Generation Corporation (OPGC) achieved the lowest PLF percentage compared to its target, it had a shortfall of 46.94 percent. Tenughat Vidyut Nigam Limited (TVNL) and Karnataka Power Corporation Limited (DPL) were the other two power stations with high shortfall of 29.04 percent and 21.22 percent respectively.

Critical coal stockIn the month of November, there were as many as 25 power stations left with a critical coal stock of less than seven days by the end of the month. Less receipt of coal, high generation, unloading constraints and evacuation constraint from ports

were the reasons behind the critical stock levels at the plants as usual. Obra (91% of linkage) power stations in the northern region, Dhanu (68%), Koradi (68%) and Pathadi (73%) in the western region and Tenughat (21%), Patratu (51%) and DPL (68%) power station in the eastern region were some of the power stations which were left with a critical coal supply due to less receipt of coal.

Mettur, North Chennai, Tuticorin and Ennore were few power stations which faced coal shortage due to evacuation constraint from ports during the month. Panipat, Torrent Power AEC faced problems due to high generation and Yamuna Nagar, Mejia and Sagardighi power stations suffered due to unloading constraints.

Power supply positionAgainst the total requirement of 63,944 MU of power requirement for November, the country received the supply of 58,908 MU, a shortage of 7.9 percent. Chandigarh, Dadar Nagar Haveli, Sikkim and Lakshadweep were the only places not to have a deficit or an excess of power supply during the month. As usual, rest all states and union territories faced a shortage of power supply during the month.

Maharashtra was once again the state to face the highest power supply shortage during the month, the requirement by the state for the month was 9,582 MU whereas the availability was 7,985 MU, a shortage of 1,597 MU or 16.7 percent. Maharashtra was followed by Uttar Pradesh and Madhya Pradesh with deficits of 1338 MU and 470 MU respectively.

If we look at the percentage of deficit to the requirement of power supply, of a state or union territory, Bihar tops the list again with a deficit of 26.2 percent, the state had a requirement of 1060 MU of power supply during the month but, received only 782 MU. Bihar was followed by Andaman Nicobar and Uttar Pradesh who had deficits of 25 percent and 23.3 percent respectively.

Region wise, western region faced the highest shortfall of 2,103 MU in November followed by northern and southern region with shortfall of 1,682 MU and 797 MU respectively. For the period April to November 2009, the country’s requirement for power has been 550,257 MU whereas the availability has been 497,379 MU, a shortage of 9.6 percent.

All India PLF For Nov'09 (In Percentage)


Achievement vs Target In Capacity Addition Nov'09 (In MW)


ECO–VIEw

COVER STORy

Road transportation is important to all industries for the last mile connectivity it provides. Last mile connectivity enables an industry to receive material right at the

factory gate, where it can be used for further value addition. When material can be delivered right at the factory gate just when it is needed, the industry stands to benefit because it needs to spend less on carrying inventory.

The auto sector has already proved this and flexible logistics services brought in by just-in-time receipts helped the industry to make higher number of inventory turns. This positively impacted profitability and competitive edge of the auto sector.

A pre-requisite to this is an efficient road transportation system which can ensure delivery of materials as and when it is needed.

Yet, in India, this mode of transportation seems to be fraught with more challenges. It continues to be a neglected sector, also vis-à-vis other modes of transportation.

Road transportation – a competitive edge?Developed countries in Europe use road to transport goods over long distances and is benefited by its flexibility. However, in India, logistics service is not flexible enough and medium to large scale industries purposely avoid transporting by road from one state to other to distances over 300 km.

These industries prefer to use rail transportation over longer distances as they find it comparatively less expensive as far as interstate transportation is concerned. So they have purposely created a structure which supports carriage of large volumes of goods through distances over 300 km.

Indian industries such as steel and cement therefore work on a distribution model which is basically three tiered in most cases and the bulk movement in the first leg is by rail.

After storing the material in a warehouse, goods move by road in the next leg to reach smaller customers. This structure of transportation is not very flexible and it indirectly pulls up the cost of logistics for India as a whole.

Managing Road Transportation Rajkumar Mitra

SOURCING INSIGHTS 1� JANUARY 2010


COVER STORy

Comparatively, European countries use road transportation effectively not only for inter-state but also for inter-country goods movement and they do not need to have such a tiered or multi-echelon system of transportation.

At present, they are even aiming at inter-continent movement of goods by road to reduce logistics cost even further. According to them, changing over from one mode to other has a waiting time and also has a chance to increase wastage.

Logistics cost has thus become a substantial part of production cost for Indian industry and this is reducing the Indian competitiveness in the global market. Consultants say India’s spend on logistical activities is 13 percent of its GDP. Comparatively, USA’s spend on logistics is 9.9 percent, Europe’s 10 percent and Japan’s 11 percent of GDP.

In India, lack of flexibility in logistics service sometimes leads to a situation where goods have to be sold at a lower cost as material received in the first leg of transportation could not

be sold to the customers within the stipulated shelf life of the products. This increases the cost of selling even further.

Integrated steel plants in India using rail transportation as the first leg of transportation have a definite disadvantage. Even in cases where they know fully well that the requirement of steel will come down within a month due to slower growth

INBOUND / OUTBOUND LOGISTICS - STEEL


in the economy, they have to despatch in required volume by rail to warehouse. This leads to high stock in state-level warehouses where the finished steel is left for rusting for an indefinite period till market conditions improve and the finished steel actually gets sold.

Managing customer expectationThe mantra of success for the developed economy is therefore lower cost road transportation facilitated by three essential factors. Cost elements of road transportation according to them not only depend on cost paid to a transporter, but also on cost of time and cost of risks.

Deviation from the committed delivery time increases the cost of time and expected loss due to inappropriate quality of service increases the cost of risks.

Cost of Indian road transportation is not only higher due to the accidents and congestion, but also due to the higher fuel consumption and higher emissions it generates compared to other modes of transportation. In Europe, transportation is more fuel efficient and environment compliant as comparatively larger trucks ply with steady speed over highways.

An apt example is that it costs less to transport goods by a 10 wheeler truck compared to a 6 wheeler truck and hence the freight rate per ton is always less for a 10 wheeler truck compared to a 6 wheeler truck.

Experts say road transportation in India is costly for long distances as the industries have a purely transactional attitude with the transporters, and not enough attention is given to improve this unorganised sector. Global bodies such as the International Road-transport Union (IRU) has transformed road transportation into an organised sector and says that connecting countries by road transportation saves not only time but also money.

Changing modes of transportation from sea to rail and then by road leads to loss of time and affects competitive advantage. According to the IRU, if continents can be linked by road, logistics cost will drop as speed of door to door transportation increases.

Challenges on Indian roadsSteel, cement, fertilizers and agricultural produce are some of the sectors which depend heavily on road transportation in India. These are also the sectors which are regularly raising their issues in order to make this sector more efficient to reduce cost of transportation and gain competitive advantage.

These sectors produce goods at one place but need to distribute this to consumers located at different parts of India. To ensure door delivery to their consumers, better road infrastructure gets topmost priority in their agenda. The government has already started work on golden quadrilateral and national highway development projects to remove bottlenecks to road connectivity. Coming a close second in their agenda is the tax environment which prohibited their

goods to be moved efficiently between states. The government came to their rescue and moved from the age old sales tax regime to value added tax (VAT) and have promised to move into goods and services tax (GST) in the current year.

A huge area of concern which remains unaddressed, continues to be the general awareness standard of the transporters. This encompasses a large variety of factors which continue to create bottlenecks in all industries depending on road transportation.

Customers are driven by their transport utility function (Ut). Utility function can be expressed:

Ut = C rate + C time + C risk Ut - means total value (expressed in currency) of costs generated by transport. Higher value of Ut means worse solution. C rate - costs paid to transport operator. C rate = tkm * price / tkm C time - costs of time. C time = number of units * value of time unit, C risk - expected loss due to inappropriate quality of services.

Source : 31st IRU World Congress – Istanbul

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The average freight rate per ton is one of the lowest in the world in India, even though fuel worth Rs 10,000 to Rs 15,000 crore is wasted on highways and check-posts

annually due to interstate and intrastate check-post delays and stringent documentation, among other factors.

The average speed of trucks on Indian roads is about 20 kmph. A truck can cover only 250 to 400 km per day compared to 700 to 800 km per day in developed countries like the US and Europe; the reason being poor roads and check-post delays, which in turn pulls up truck operating costs.

These and more are the findings of a study report on ‘Operational Efficiency of National Highways for Freight Transportation in India’, published by the Transport Corporation of India Limited (TCI), one of the leading integrated logistics solutions provider in India, in association with IIM-Calcutta, in November 2009. The report further says that road freight volume in India is projected to grow to 1200 billion ton kilometer (BTKM) and goods vehicles requirement will increase to 6 million in 2011-2012.

Between 1950-51 and 2007-08, road freight volumes increased at a CAGR of 9.06 percent, vehicular fleet increased at 10.13 percent, whereas the National Highway network grew only at a CAGR of 3.77 percent. Due to inadequate road

infrastructure, which results in lower average trucking speed, commercial vehicles in India average 250 to 300 km per day, whereas the counterparts in developed nations travel more than double the speed.

Recommendations The report has provided certain recommendations in order to improve the situation. It says the government should invest in extending the highway network and upgrading and widening the existing ones especially in the high traffic density sectors.

The report has also recommended a system similar to TIR Carnet system used in the European Union that requires no checking of consignments, sealed at the origin, at interstate check-posts. This may facilitate smooth flow of high-value, perishable and time-sensitive items.

Uniform documentation and electronic check-posts will reduce paperwork and delays, the report points out, and construction of more logistics parks and transportation hubs will create common shared facilities for logistics providers ensuring safety and security of people, assets and cargo. Uniform integrated tolling systems can be introduced where vehicles need to only slow down rather than completely stop and wait in queues for collection of toll at toll gates, the report adds.

Report Suggests Ways To Optimise Road TransportSourcing Insights Bureau


COVER STORy

In today’s globalised economy, where the demand for the sustainable mobility of goods is constantly increasing, the need for efficient transport has never been greater. The road transport industry in particular is the backbone

of strong economies and dynamic societies. Due to its unique, door-to-door goods transport services, road transport is the most flexible and reliable production and distribution tool to irrigate the global economy, interconnecting all businesses to all major world markets while driving economic growth and ensuring social progress through a better distribution of wealth, regardless of the geographical location. No country or region is landlocked to road transport.

Globalisation does not necessarily mean transport over long distances. However, the possibility of an end-to-end journey with the free circulation of road transport, like electricity in an electrical wire, is needed to permit the development of trade through the interconnection of businesses all along any route.

Sustaining India’s economic growth, which significantly benefits from the globalisation of production processes and trade, requires facilitated, efficient yet secure transport. In this context, the TIR Convention is the ideal instrument to strike the right balance between facilitated formalities and border procedures and a high level of security all along the supply chain.

The TIR System The TIR System, based on the TIR Convention, was created by the United Nations immediately after the Second World War to expedite the recovery of European infrastructures, industries and economies through facilitated trade and transport.

The basic principles of the TIR Convention consist in allowing goods, placed under TIR procedures by authorised transport operators, to be moved from a departure point to a final destination point under customs seals (secure truck or container) and an internationally agreed transit customs document, the TIR Carnet.

Goods moved under TIR procedures benefit from a suspension regarding the payment of taxes and duties throughout the countries transited, until the final destination has been reached and where the import declaration takes place. The TIR Carnet is a standard internationally agreed customs declaration which, at the same time, represents for customs authorities the financial guarantee to cover the suspended taxes and duties in the event the goods are removed from customs control before they reach their final destination.

Since 1975, when the TIR Convention was amended to cover multimodal transport operations, the TIR System applies

to any shipment as long as at least one leg of the transport is carried out by road. Therefore, multimodal transport including maritime, inland waterways and rail operations can benefit from the TIR System.

Since the inception of the TIR System, the International Road Transport Union (IRU) is the international organisation mandated by the contracting parties and the United Nations to print and distribute TIR Carnets and to organise and ensure the proper functioning of the international TIR Guarantee System, which provides the 57 contracting parties with financial cover for each TIR Carnet used, up to $50,000 per transport.

State of PlayOver the past 60 years, the geographical scope of the TIR Convention has constantly expanded, from the six initial founding countries to the current 57 contracting parties where the TIR System is implemented. More than 40’000 authorised transport operators meeting the minimum conditions and requirements set out in the TIR Convention are using TIR procedures to carry out some 3 million transport operations every year.

Since 1998, the TIR Convention has been permanently amended to ensure its compliance with security concerns. The use of modern information technologies has allowed the IRU and its Members to computerise the management of the TIR System through its international control system, SafeTIR, thereby ensuring a permanent and real time monitoring of TIR transport, from the issuance of TIR Carnets to authorised

Would India Benefit By JoiningTIR Convention?

Jean Acri

The security and cost-effectiveness of the TIR System are beneficial for the TIR Contracting Parties and their respective economies. The reduction of border formalities to a minimum allows a drastic reduction in border waiting times, thus saving not only time but also money. The IRU is committed to working in partnership with governments and the private sector in order to extend the benefits of the TIR Convention to any interested country and in particular to India.

Jean Acri, IRU Head, TIR System


COVER STORy

operators up until the termination of the related transport operations at final destination. In partnership with the 57 national Customs administrations, the IRU has implemented an appropriate IT communication network allowing a permanent update of TIR Carnet data.

Why should India join?As a secure trade and transport facilitation instrument, the TIR System has supported and promoted economic development over the last 60 years and is likely to keep expanding its geographical scope.

India, as an exporting, transit and importing country, would benefit from TIR procedures in the following ways:

the use of a standard, internationally agreed and established customs document, the TIR Carnet, for simplified trade and transport formalities and, more importantly, harmonised international transit customs procedures;the mutual recognition of customs control and procedures granted by the TIR Convention, allowing for minimum customs formalities at borders due to customs controls performed at departure and final destination;the use of secure vehicles and containers, sealed by customs officers at the point of departure, to ensure the

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integrity of the shipment throughout the journey and allow early detection of possible intrusion within the load compartment if such a situation occurs;Customs authorities benefitting from the TIR international financial guarantee provided by the IRU, therefore avoiding the necessity to manage the validation and release of financial guarantees at national level that are needed when TIR procedures do not apply;authorised transport operators relieved of the need to obtain, in each of the countries transited, appropriate financial guarantees to allow their transport to proceed as they benefit directly from the mutual recognition of the TIR international guarantee system; the online traceability of TIR Carnets allowing customs authorities, authorised transport operators and the international guarantee chain to properly monitor TIR transport, prevent abuses and carry out appropriate risk management and risk assessment at any time;the proven cost-effectiveness of the TIR System – a bank guarantee costs at least 3 to 5 percent of the amount covered plus additional sureties, whereas the TIR financial guarantee costs far less and remains valid for more than two years while a bank guarantee is valid for one year only.

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Jean Acri is the head of International Road Transport Union (IRU) based in Geneva. IRU represents bus, coach, taxi and truck operators present in 74 countries across five continents. Under the UN mandate, the IRU is international guarantor of the TIR carnet system, under which trucks are sealed by customs upon departure and can cross several borders without further checks until they reach their destinations.


COVER STORy

The government may have taken up an ambitious plan to improve the condition of

Indian roads in the next five years, but till now they have failed to impress the users with the ongoing development projects.

According to road transport users, long-term planning is most essential in case of infrastructure creation. If a new road is built, for example, users would plan to use the road as an alternative to, say, a previously used rail route, and would budget accordingly. However, if the new road suffers a damage far earlier than anticipated, it really plays havoc with the user’s budget.

For example, in a particular incident in Gujarat, a bridge collapse has resulted in a diversion of 40 km extra for the entire traffic in that route. A company which used the bridge extensively had to make an extra payment of Rs 5 crore per month as freight expense due to this incident.

According to joint executive president (logistics) of Grasim Industries Limited, Rajeev Mehta, the planner should be aware of what quantum of bulk commodities will be carried on Indian roads in the next 20 years.

In case this is not known, infrastructure development will never happen as per requirement. Mehta gave the example of a stretch in Barbil, Orissa where trucks take two days to travel a distance of only 80 km. Mehta said it was a case of poor planning as the road may have been developed keeping in mind a substantially lower volume of traffic.

Current regulations also inhibit road transport in metro cities, said Mehta. “A parallel infrastructure should be developed for freight movement on road especially within metro cities,” he said.

The average speed of trucks in metropolitan cities is only 33 to 34 km per hour. Goods are also not allowed to ply within a city in peak hours which affects effective road transportation, Mehta pointed out.

If truck movement within a metro is a problem, it is a larger problem in the rural areas as well. Fertiliser companies like Tata Chemicals present in Haldia is facing a problem as the road for distributing fertilisers to farmers is in poor shape.

The wooden bridge at Domohani en route Dalkhola has collapsed thrice in the last two years, making fertiliser distribution difficult, said Saibal Mukherjee of Tata Chemicals Haldia unit. In his previous capacity, Mukherjee was looking after the logistics aspects of the company with special focus on the road transportation. “Some rural roads and culverts are such that 10-wheeler trucks cannot ply on it and we have to

resort to transportation by 6-wheeler trucks,” Mukherjee said. Employing a lower capacity vehicle is disadvantageous as it increases the cost of transportation, he pointed out.

Highway transportRoad transportation on highways too is at a disadvantage as the movement of trucks on highways is not that energy efficient and accidents are not attended to instantly.

Heavy trucks are seldom seen on Indian roads as the truck manufacturers in India currently do not make trucks to carry more than 50 tons, Mehta said.

In case the planners projected a higher volume of road transportation on the highways, truck manufacturers may have started to manufacture 70 to 80 tonner truck by now which gives better mileage and are more fuel efficient. “Unfortunately, automobile companies are still focusing on 20 to 33 tonner lower capacity trucks,” said Mehta.

Partha Biswas, partner of Fast Cargo Movers who along with his other partners owns 48 trucks of 16 ton capacity and achieves a turnover of Rs 4.5 crore per annum from the road transportation business, said the charges to ply on highways have been rising for transporters. The toll recovered from the highways is quite high and it often ranges from Re 1 to Rs 1.50 per km, Biswas said.

According to Biswas, there is a toll tax of Rs 1500 for travelling from Kolkata to Hyderabad whose distance is 1500 km. Similarly, Kolkata to Dhanbad is a distance of 300 km and toll tax for the route is Rs 500.

With such problems, road transportation is emerging as a major challenge for India. Experts feel industries need to take ownership of developing roads in order to help the government reach its goal. “Industries should make roads connecting their own factory and the government should give them tax holidays to incentivise building of such roads,” Mehta suggested.

Going forward, competitive positioning of roads by the logistics planners will determine how well the road transport sector benefits from the infrastructure which is coming up. In case the logistics planners introduce Ro-Ro concept heavily, road transportation will suffer a setback for short distance transportation and the investments done on road infrastructure may not yield desired result. Under the Ro-Ro (Roll-on Roll-off) concept, if the roads are in poor condition, trucks can ride on trains to the nearest destination. Needless to say, that does not augur well for the road transportation system.

Ro-Ro: A threat to road transportation?With the introduction of Ro-Ro concept, the scope of road transportation seems to have come down drastically. “The planning commission of logistics should define clearly the

Road Projects Leave A Lot To Be DesiredSourcing Insights Bureau

Rajeev Mehta, joint executive president (logistics), Grasim

Industries


scope of rail and road transportation so that there is less chances of ambiguity,” Mehta said.

In a recent case, the number of trucks transporting iron ore fines to New Mangalore Port (NMP) has reduced drastically ever since the Udupi and DK district administration imposed a ban on them, in view of the deteriorating condition of the roads. The ban is effective on the National Highways 48, 13 and 17 up to August 31, 2009.

In spite of the ban, trucks have been arriving at NMP everyday. The trucks arriving from Bellary have found a way. They use the ̀ Ro-Ro’ services of Konkan Railway. According to Konkan Railway officials the trucks ride on the Ro Ro (Roll-On Roll-Off) train at Ankola then disembark at Surathkal, which is a few kilometers from the port. Each train can transport up to 40 trucks on it.

Delivery times also get reduced when trucks use the Ro-Ro service. For example, in the above mentioned route, delivery happens within 12 hours for Kolad-Verna, within 20 hours for Kolad-Surathkal, and five hours for Verna- Surathkal, which by road would take at least about 24, 40 and 10 hours respectively.

Government gearing up road infrastructure projectBut in spite of all the shortcomings in planning, the government efforts are on to build roads in the country as per the targeted plan. The Ministry of Finance, Ministry of Road Transport & Highways and National Highways Authority of India (NHAI) are working closely in order to meet their target to build 20 kilometer of road per day.

NHAI is required to award at least 21,000 km over the next three years so as to achieve the objective of constructing 7,000 kms per year. Presently, the approved National Highways Development Project (NHDP) comprises about 54,000 km, out of which about 11,000 km have already been 4-laned and another 6,000 km are under different stages of implementation. Thus, about 37,000 km are yet to be awarded for construction.

In the financing plan, it is envisaged that the construction of these 37,000 km will be completed in the year 2017. This envisages that the award of this entire length needs to be completed in five years’ time, commencing from the financing plan 2009-10.

COVER STORy

Partha Biswas, partner, Fast Cargo Movers

The toll recovered from the highways is quite high and it often ranges from Re 1 to Rs 1.50 per km.


Road transportation in India is suffering as drivers employed by

transporters do not have the basic education or necessary training to bring in transparency in the road transportation system.

In developed countries, drivers are the key differentiating factor as they coordinate the entire activity on a technology enabled platform, thereby providing transparency in road transportation. This has helped road transportation in developed countries become an inter-continental transportation, whereas in India, the opportunity of road transportation is getting reduced day by day and is currently viable within a state for a distance of 100 kilometers only.

The key differentiating factor in the Indian road transportation sector is yet to be addressed, thinks Shoummo K Acharya, member of working group of logistics, planning commission, government of India.

“A truck driver in a developed country earn business for the transport company by positioning himself well with proper education and training as a first logistics interface with customers,” Acharya explained. Comparatively, in India, the competitive edge of the transporter is lost as the drivers employed often do not have basic education or training.

Owing to lack of training, Indian driver are paid significantly lower as compared to international standards. But the implications and opportunity cost are much higher. “An Indian driver is paid Rs 10,000 per month on an average. But another Rs 30,000 worth business opportunity is lost because they were not trained,” explained Acharya.

Technology usage linked to salaryDrivers’ salary compared to other developed countries is very low in India as they do lot more activities apart from only driving. Analysis reveals drivers’ salary is insignificant while calculating cost of road transportation in India. Incidentally, biggest cost in the road transportation in India is the fuel cost and EMI. Compared to this, in developed countries such as in the US, the biggest cost component is the driver’s salary.

“An US truck driver would load the packets on a pallet car after collecting packets from the warehouse all by himself and bring it through a radio frequency (RF) reader or a bar code reader. This reader would automatically reduce the stock in the warehouse. Thereafter, he would take the pallet car near the truck, lower the base, take it inside the truck, activate the reader at the back door of the truck. The truck RF reader

reads what it is in the consignment and loads the same into its system. This sort of technology usage helps to bring quality in the logistics service where drivers’ education and training has a major role to play,” Acharya explained.

India is not averse to technology and currently smallest of the small courier companies need global positioning system (GPS) facility to track the consignments, said Sugato Chandra, executive director, MJ logistics, a Delhi based 3PL company. “Tracking systems can be implemented if the customer sees value in it. But it would be a problem if they are not ready to pay for the service,” he added.

But what once again emerges as a crucial factor is imparting adequate training to the drivers. Commenting on the same Chandra explained, “Providing training to the drivers should be the objective of all transport company even at the cost of their bottomline.”

But the main problem in India is that work of a driver is more contractual in nature and rural workforce with minimum or no education gets attracted to such services easily. “Drivers on contractual basis come for working with us for 6 – 7 months mainly from Bihar and UP,” said Partha Biswas, Partnar, Fast Cargo Movers, a transport company based in Kolkata. “While recruiting drivers, we normally refer to their past history and reliability instead of emphasizing much on their education and training undergone by them,” he noted.

But for connectivity Biswas preferred usage of a mobile rather than GPS usage in a truck as according to him he is more comfortable to communicate with the driver rather than finding where he is at the present moment and track his movements.

Profitability Linked To Drivers’ Knowledge Sourcing Insights Bureau

Shoummo K Acharya

GPS usage for increasing safety Vehicle tracking system is increasing popularity in India where safety is the prime concern in transportation. For example, transportation of liquid gases is extremely dangerous as mishandling might result in explosion. In case the carrier meets with an accident, entire onus is on the client.

BOC India therefore have started to use GPS system to track their 270 odd vehicle which carry oxygen, nitrogen and argon in liquid or gaseous form from 17 plants located all over the country, said Ranabir Chatterjee, head of distribution at BOC. Tracking is done from a 24x7 control room at BOC office to monitor vehicle speed and control rash driving.

“We have recently completed one full year of usage of GPS and our overall fleet utilization thus has gone up by 7 percent. This have resulted in a cost savings also to the tune of Rs 50 – 60 lacs per annum,” Chatterjee said.

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The number of consignments sent by road may drop sharply if the Goods and Service Tax (GST) is implemented in its present form. That will hit the road

transportation sector directly.Currently, fast moving consumer goods (FMCG) industries

operating across the nation, use road transportation heavily for shorter distance transfers from warehouse to retail shops within the state. They have warehouses in each state to save themselves from dual taxation.

If an FMCG company does not have a warehouse in each state, a company with a pan-India distribution network has to pay Central Sales Tax (CST) for interstate transfers directly from a factory located in a different state and their retailers have to pay local sales tax. This leads to a dual taxation scenario, increasing the selling price of the product.

As FMCG companies exist in a fiercely competitive scenario, if any product is sold at a price higher than its competitor, the market share of the company is impacted immediately.

Thus in order to reduce the additional cost incidence on their product due to CST, FMCG companies have opened warehouses in each state so that the goods can be stock transferred and customers have to pay only the local tax component. This would keep the product competitive to any local industry present in that state.

After GST is implemented, these FMCG companies may shut down the warehouses in each state and may have to end up with only one warehouse in each region. This will reduce their need for road transportation within the state. Interstate transportation above 100 km may then be done by rail instead

GST To Pull Down Distribution & Inventory Carrying Cost

Rajkumar Mitra

K.N. Misra, VP (materials & logistics), Eveready Industries


COVER STORy

of road, bringing down India’s overall road transportation usage.

Eveready Industries, which is in the FMCG segment, manufacturing dry cell for torch and other lighting appliances, may then operate with a much bigger warehouse in Delhi and decide to close down the adjacent warehouses in Ghaziabad and Punjab when GST comes into force.

After GST, maintaining the Cuttack warehouse may also not be essential and this can be catered from the Dankuni warehouse in Kolkata, said vice president, materials and logistics of Eveready Industries, K.N. Misra. “GST implementation will actually bring down our distribution and inventory carrying cost significantly,” he said.

Warehousing at each state has a cost and all related activities in a warehouse like godown leasing tariff, unloading, loading and storage add on to the distribution cost of a company.

“After GST is implemented, an existing warehouse can be transformed into a bigger warehouse to cater to a larger number of states and can be enabled with IT infrastructure,” Misra said. Further, if there is one warehouse in each state, warehouses have to be stocked with a minimum level of inventory to feed the retailers.

Reduction in the number of warehouses will reduce more inventory carrying needs and lead to subsequent reduction in inventory carrying cost. The delivery cost will also go down as full truck consignments or rail transport will cost less compared to partial truck loads.

Another flip side of GST would be that many third party logistics (3PL) service providers who provide warehouse space to their clients might suddenly find their business volumes dropping as the need for warehousing may come down.

However the impact on 3PL industries might not be immediate as FMCG companies are seen to mostly operate in leased warehouse spaces.

Eveready Industry in fact takes warehouse space on lease and do not depend on a single clearing and forwarding agent or a 3 PL service providers.

With leasing, one do not have to depend on a single service provider and can change the C&F agent if he is not performing well, Misra said. “The control remains with us in such scenario,” he added.

However, GST implementation is sure to bring back the classical hub and spoke distribution methods, said Sugato Chandra, executive director of MJ Logistics who is into such 3 PL logistics services.

But the impact of GST implementation is not understood clearly as there are other pros and cons which may come up after its implementation.

The behavior of a state towards its own industry may change, for example, after GST is implemented.

This is because, with GST, the tax collection scenario would change dramatically as the consuming states would earn GST after it is implemented. “In the previous case, the tax went to the states producing the product,” Chandra said.

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Collection of fly ash has to be done through dedicated trucks from the power plants at first and cement plants pay the transporters to collect the fly ash.

This is because fly ash is hazardous to environment and for that power plants that generate fly ash after burning coal want this to be disposed off quickly.

Transportation of fly ash thus requires specialized arrangements so that while fly ash is transported, it does not create further pollution. Transporters who specialize in fly ash therefore have cement manufacturers as their major customers.

Flyash Movers incidentally works for major cement plants all over India. They have transported fly ash for all major plants of Ultratech, Birla Corporation, ACC, Jaypee, Prism and Lafarge.

Flyash Mover moves around 1.5 million tons of fly ash to all these cement plants in various packings and different types of vehicles move with fly ash across 6 – 7 states.

They operate open truck, closed truck and pneumatic bulk cars through UP, MP, Jharkhand, Chattisgarh, Orissa, West Bengal and Rajasthan to transport fly ash.

The company with 20 years of experience in fly ash transportation is managed by its two partners, Anand Khemka and Vipin Agrawal. It also has a sister concern named Cargo Movers.

The company has 55 bulk cars of its own and also has offices in Jharsuguda, Durgapur, Satna, Allahabad and Raeberili to manage the fly ash transportation.

With a considerable knowledge in the current state of road transportation, Khemka felt that an organized retail chain working at important transport hubs of India can bring real value to the existing system.

“This retail chain can work profitably if it provides all the service required by a transporter,” the director added.

Road transport sector is presently unorganized but is growing steadily. This situation brings a huge opportunity to build retail outlets across the country to cater to the regular needs of the transporters.

The growth in road segment is such that transporters who till now restricted themselves to road movement are now interested to send goods through rail transport also. Even sectors which move goods in closed circuit see their business to increase exponentially in the years to come.

Fly ash transportation is such a sector which works in a closed loop and transports fly ash from a power plant to a cement plant and returns to start a fresh journey again. Cement plant uses this fly ash to manufacture blended PPC cement. It is natural therefore that if demand of PPC cements increase, it would increases the requirement of fly ash to be transported.

Requirement of fly ash by the cement plant has been increasing at such a pace that fly ash transporters who till now restricted to road transportation are now actively looking at rail transportation as their future business mode, indicated Anand Khemka, director of Flyash Movers India Private Limited. “We specialize in fly ash transportation and intend to move fly ash by rail transport in future,” Khemka said.

ADVERTORIAL

Vipin Agrawal


ADVERTORIAL

Organised transport hub need of the day

At present, the transporters plying vehicles from one state to other depends on small brokers for various services, vehicles need while travelling. These transporters do not have a purchase wing to assist them and often makes procurement at higher price. This ultimately translates to higher cost of freight for the customers.

An organized retail chain is therefore the need of the day to assist transporters to have an efficient bouquet of services. “We are not an efficient negotiator and often fail to derive the best price,” Khemka said.

He narrated a specific incident when tyres were needed urgently for his vehicles. When the retailer asked to provide tyres, he quoted Rs 13,600 for the same. After the price was negotiated at Rs 13,300 and the tyres were bought, it was found that actual rate was only Rs 12,500.

“Similar incidents happened when I had to send a truck to Bilaspur or Allahabad from my office,” he added. The driver would spend time with the 3 brokers who cannot provide him a return load. The other 7 brokers in that place were waiting with suitable return loads but were not approached for the simple reason that the driver does not know them.

Khemka felt services and information should be available at the time required and the place where it is required. Otherwise it would be a loss of opportunity.

“If a broker asks today to send a load from Rourkela to Mumbai, I would have a tough time to find the prevailing freight rates and therefore can not compete well to pick up the load for that route,” he explained.

A transport hub created at important markets would help transporters to get all the services at right price and at the right

time. “It should be like an established shopping mall network across the country where I can procure confidently,” Khemka said.

These transport hubs can also track and record incoming and outgoing trucks from the hub. Trucks along with the drivers can get registered there to facilitate monitoring of trucks by a centralized agency.

Truck drivers can then find a suitable back load from a single window instead of depending on different brokers. The company would even not mind to provide its drivers with smart cards to facilitate such tracking.

This transport hub should have a parking space, truck maintenance provisions, freight booking facilities, insurance, finance zones, spare parts and all the facilities a truck driver or a truck owner can think of.

Such a transport hub would earn in crores as this kind of service is in great demand. Oil marketing company gives 4 points for 1 litre fuel bought through its cards and if it gives just 1 point to this hub for selling one liter of fuel through this hub, one can imagine the kind of money this hub would make.

Other services such as insurance services also provide commissions to its brokers and with a fraction of the commission such hubs can mean profitable business.

With this kind of a resource advantage, the hub can offer all amenities which are required by the transporters at a very nominal cost and this would ultimately translate into lower freight rate to users of road transport.

This hub may be a starting point of transparent freight rate all across India and corporates may soon start to monitor these rates as they do on sensex.

For more details refer to Anand Khemka, 09425219734 oremail at [email protected]


Recession may have hit the volume in the road transportation sector hard, but keenness to retrospect and learn and change with innovativeness on the part of a few leading

transporters have helped them to tide over the crisis . Delhi Assam Roadways Corporation Limited (DARCL), for

example, had started to carry over dimensional cargo (ODC) to elevate itself to higher order which requires special skills and this contributed to maintain a steady growth in turnover.

This is a new initiative of DARCL and apart from venturing into better margin segment, the potential in the wake of infrastructure growth in this segment is quite promising , said Nikhil Agarwal, AVP, DARCL.

Comparative profitability (PBT) in 10 wheeler segments today is wafer thin and the competition is steep with unorganized sector .

Capability to carry ODC consignment is limited in India and DARCL has its own trailers as well as 36 hydraulic axles for increasing the capacity to carry large consignments. With 5 – 6 axles, one can carry a load upto 100 tons and with 10 axles, the capacity of the vehicle increases to 250 tons.

DARCL has 98 trailers and 36 numbers of hydraulic axles- which has the capacity to lift around 500 MT single consignment ; thus with suitable configuration of axles, five Volvo pullers facilitates carriage of general ODC consignments.

Last year around July, DARCL was appreciated by Punj

DarCL esteemed CustomersPublic SectorBHEL, BPCL, BRPL, GAIL, HPCL, Hindustan Paper, IBP, IOCL, NTPC, ONGC, SAIL, VISP, Hindustan Copper, BEML, Hindustan Fertilizer Corp., Rashtriya Ispat Nigam Ltd.

Government DepartmentsArmy Ordnance Depots, Canteen Stores Department, CARE (Jharkhand and Bihar), Department of Posts, Indian Air Force

Private CustomersAditya Birla Group, Asahi India, CMCL, ISPAT Group, Jindal Group, Lloyds Steel, MARICO, Maharashtra Seamless, Nestle India, Perfetti India, Reliance Group, Reliance Communication, Sesa Industries, Siemens, Sterlite Group, Sunflag Industries, Tata Group (TISCO), Vedanta Group, VIP Industries, ... and more !

ADVERTORIAL


DARCL is associated with Concor and uses their terminals and is expecting a turnover of Rs 10 cores in FY 2009-10 from this segment. “After GST is in place, we would be able to capitalize more through this venture,” Agarwal said.

Along with the railway infrastructure, DARCL operates to bring in synergy with own and attached trucks and has the potential to hire over 10000 trucks from market to service its large customer base of over 2000 pan India. The company in fact has around 217 heavy vehicles comprising of tankers, ISO container trucks, trailers and hydraulic axles.

FTL (full truck load) continues to be the main top line for DARCL and the projected turnover in FY10 would be around Rs 1200 crores Agarwal said confidently.

Llyod for carrying consignment which was 41.6 meters in length, 4.4 meters in width and 4.3 meters in height.

“The company successfully transported this 90 ton load from Phils Heavy Engg Ltd, Padaga, Nashik Road, Mumbai to IOCL Vadodara through their hydraulic trailers with spacer bar,” a Punj Llyod official said.

The market dynamics and Customers requirement made DARCL to venture into the domestic multi-modal segment also. The wholly owned subsidiary of DARCL, Transrail logistics limited, has been operational since 2007, to facilitate this. It has already acquired one rake which is operating between Mumbai, Kolkata and Jamshedpur. Second rake is under way.

Segmentwise Transportation Share – 2008-09

Turnover

Tonnage Transported

ADVERTORIAL

There are two critical success factors for DARCL for achieving such a huge turnover in the road transportation sector.

The first is the pan India network which DARCL has with 211 offices in the country. It has a 2000 plus employee strength and it is on the process of SAP implementation to integrate its entire supply chain and customer service with ethics and commitment and prompt advance payment to vendors.

The second is the great relationship, trust and confidence of stakeholders including the Banks and resource its enjoys in short and long term which helps it earn high value contracts running to crores !

With these strengths in their kitty, DARCL has tide over the recession successfully and is aiming to achieve even bigger milestone.


FEATuRE

Manganese alloy producers are now demanding revival of non-viable manganese ore beneficiation projects in India as domestic availability on regular routes

are falling and imported ores are getting costly. Domestic producers such as MOIL have revised manganese ore prices upwards in the beginning of the New Year by 20 to 25 percent but it is still cheaper than the imported ores.

For this, projects such as roasting of manganese ore which was not viable in the past are being taken up and industry experts feel government initiatives can help entrepreneurs pursue such projects to reduce dependency on imported ore.

Imported ores Increased demand from China has also resulted in South African and Australian ore prices rising appreciably, traders told Steel Insights. Post December 25, South African manganese ore was quoted at $8 to $9 per Mn content CIF Indian port and this has been a cause of worry for the domestic manganese alloy producers. Price of this ore just a day before was $6.50 per Mn unit. Comparatively, after the price increase in the New Year, low grade domestic ores are at $4 per Mn unit and high grade at $6.50 per Mn unit, traders said. Industry experts feel that price of imported manganese ores from South Africa and Australia may increase further, sensing increased demand from India and China.

Manganese ore buyers of India have already tried to procure ores from other locations such as Indonesia but were not very successful. That is because 95 percent of the consignments to India carrying manganese ore from Indonesia had quality issues and buyers had to abandon consignments after it arrived at the Indian port, said Jay Poddar, managing director of FTC Exim Private Limited. “The Indonesian manganese ores are mixed with lime which was difficult to control,” Poddar said.

Buyers should not opt for Indonesian ore unless the quality is certified by unload port inspection, Poddar warned.

Generally, load port inspection is sufficient for buying minerals from countries outside India as after loading the characteristics of such minerals do not change. But Poddar pointed out that the inspection reports furnished by Indonesian sellers do not guarantee quality product. “I had to abandon 16 to 17 containers after they reached India from Indonesia after inspecting it visually,” Poddar added. Similar concern was also voiced by Jayanta Chatterjee, secretary of Indian Ferro Alloys Producers Association (IFAPA). “Many of the manganese alloy producers have burnt their fingers importing manganese ore from Indonesia and I strongly advise great care to be taken before one attempts to buy the ore from this place,” he said.

Manganese alloy prices This kind of situation as far as manganese ore is concerned, has already started impacting the availability and price

of manganese alloy in India. The Indian manganese alloy producers were in fact depending more on imported ore as availability of domestic ore from producers such as MOIL and Rungta mines was limited.

Manufacturers informed that manganese alloy prices were rising largely due to constrained availability of manganese ore and less due to other factors. MOIL has already increased manganese ore rate by 20 to 25 percent from the New Year, sensing increased demand of manganese ore, they informed.

Basic price of high carbon ferro manganese, a manganese alloy, increased by Rs 3 per kg in the New Year to Rs 61 per kg due to increased domestic ore cost, producers said. In an online negotiation in the first week of January, a buyer negotiating for 300 tons of high carbon ferro manganese finalised at Rs 61 per kg basic rate from a seller in the Durgapur belt. His last procurement price was Rs 58 per kg basic last month.

Price of another manganese alloy, silico manganese, increased to Rs 62 per kg ex-works in the first week of January due to increased buying. In the last week of December, price of silico manganese was Rs 57 per kg. A week before, the prices were stagnating at Rs 50 to Rs 51 per kg ex-works.

Some of the manganese alloy producers said rise in electricity price was also a reason of increased manganese alloy price. Incidentally, electricity cost is a major cost element for the producers of silico manganese. Experts said 4200 units of power are required to manufacture 1 ton of silico manganese.

DPL, for example, has increased electricity charges in the middle of December by 70 paise per unit and would charge on retrospective basis from July 2009, a silico manganese manufacturer said. Others said increased exports of manganese alloy and gaining price acceptability among foreign buyers is also another reason of rise in price of the alloy.

The way outThere is a consensus among buyers that increased availability of domestic ores can control the rising price of manganese alloy. For this, low grade ores which cannot be used for making manganese alloy can be beneficiated, industry experts said. Reviving the old abandoned routes to beneficiate manganese ores is now becoming a viable option, Chatterjee said.

According to him, Sandoor mine is now re-implementing the roasting method to beneficiate manganese ore and meet the current crisis of manganese ore. “This project was abandoned long ago for cost economics but of late it has turned out to be a good method to reclaim low grade ores,” Chatterjee said.

The government should look into such projects actively so that capital goods and machineries required for such projects can be imported without payment of duty and more low grade ores can be converted to ores suitable for manufacturing manganese alloys, he added.

Mn Ore Availability A Cause For ConcernRajkumar Mitra


Leading Indian steel makers have announced a series of upward price revisions since the middle of December.

SAIL hikes galvanised sheet priceSAIL Bokaro announced an upward revision of MRRP rates of galvanized corrugated sheets by 5 to 10 percent compared to last month’s rate. SAIL Rourkela galvanized corrugated sheet increased its MRRP rates this month by 1 to 3 percent.

Rs / tonMRRP (inclusive of taxes) Calcutta Delhi Raipur Chennai

Aug 2009

GCS – BSL

0.5 mm 43,900 44,800 44,900 45,600

0.63 mm 40,800 41,700 41,800 42,600

GCS – RSP

0.5 mm 43,400 44,500 43,700 44,500

0.63 mm 40,400 41,500 40,600 41,500

Sep 2009

GCS - BSL

0.5 mm 46,400 47,300 47,500 48,200

0.63 mm 43,700 44,600 44,400 45,100

GCS - RSP

0.5 mm 45,900 47,100 46,300 47,100

0.63 mm 43,200 44,400 43,200 44,000

Oct 2009

GCS - BSL

0.5 mm 46,400 47,300 47,500 48,200

0.63 mm 44,200 45,000 44,800 45,600

GCS - RSP

0.5 mm 45,900 47,100 46,300 47,100

0.63 mm 43,700 44,800 43,700 44,500

Dec 2009

GCS - BSL

0.5 mm 45,000 45,400 45,200 46,000

0.63 mm 42,600 42,500 42,600 43,400

GCS - RSP

0.5 mm 44,500 45,200 44,100 44,900

0.63 mm 42,100 42,300 41,400 42,300

Jan 2010

GCS - BSL

0.5 mm 47,300 47,600 47,200 47,900

0.63 mm 45,600 45,900 45,500 46,200

GCS - RSP

0.5 mm 46,800 47,300 46,000 46,800

0.63 mm 45,100 45,600 44,300 45,100Source: Steel Insights Daily

It has been learnt further that SAIL Rourkela plant has reduced rebate of 2mm sheet from Rs 3400 per ton last month to Rs 1900 per ton from the beginning of the New Year.

On December 23, the rebate was reduced by Rs 700 per ton and in the New Year, the rebate was reduced by Rs 800 per ton. For this, basic price of 2mm thickness of 910 mm and 1040 mm width net of rebate increased to Rs 29,900 per ton, a buyer informed.

Essar hikes CR, GC sheet pricesRising international flat prices is prompting Indian steel makers to raise sheet prices. Essar Hypermart announced on December 17 a price increase of CR and GC sheet over their November rates. In the Gujarat region, CR coil from Essar hypermart of 0.3 mm thickness and width 900-1500 mm went up to Rs 38.21 per kg excluding VAT. The previous price was Rs 37.81 per kg excluding VAT for the same item.

Galvanised plain coil from Essar Hypermart in Gujarat of 0.3 mm of width 900-1219 mm would now cost Rs 43.20 per kg excluding VAT. Previous price of the same product was Rs 42.85 per kg excluding VAT.

HR, CR and galvanised plain (GP) sheet and coils price was increased for the second time in the month on December 21. The first increase was made on December 17. The second increase was made on December 21 across all hypermarts in the country.

The third revision took place on December 26. Essar Steel hypermart increased steel coil prices by 6 percent in December compared to the previous month, in these three consecutive price revisions.

The series of price rise continued in January as well. Essar Steel Hypermart increased its rates of galvanised plain sheet by 1 percent on January 4 compared to rates prevailing on December 26. HR and CR sheet rates were kept unchanged.

FEATuRE

Steel Prices Hiked Across CategoriesSourcing Insights Bureau

Essar Hypermart prices nCR Gujarat

thickness Width prices Rs /kg less VAt @4% prices Rs /kg less VAt @4%

HR Sheet Coil 17/12/09 21/12/09 26/12/09 04/01/10 Mom ch % 17/12/09 21/12/09 26/12/09 04/01/10 Mom ch %

2 mm 900 - 1500 34.62 35.12 36.37 36.37 0% 33.52 34.37 35.62 35.62 0%

10.1 - 20 mm 900 - 1500 33.56 34.06 35.31 35.31 0% 32.46 33.31 34.56 34.56 0%

thickness

CR Sheet Coil

0.3 mm 900 - 1500 39.44 39.89 41.14 41.14 0% 38.69 39.14 40.39 40.39 0%

0.65 mm 900 -1500 37.81 38.26 39.51 39.51 0% 37.06 37.51 38.76 38.76 0%

thickness

GP Sheet Coil

0.3 mm 1220 43.75 44.40 45.9 46.4 1% 43.25 43.90 45.40 45.90 1%

0.6 mm 1220 39.38 40.03 41.53 42.03 1% 38.88 39.53 41.03 41.53 1%

Source: Steel Insights Daily


FEATuRE

RINL increases long product pricesRINL held Vizag Steel Plant announced an upward price revision twice this December. Price of semis such as billet and blooms was increased by Rs 1000 per ton, whereas price of finished products like channel, rebar, rounds and wire rods were increased by Rs 300 to Rs 500 per ton.

Meanwhile, Vizag Steel has started to offer billet and blooms outside Vizag from January. Before January, Vizag Steel offered rates for billet and bloom for sale in Vizag only. In January, the plant has announced over 20 percent rise in its billet and bloom price and have started to offer it in Faridabad, Chennai, Kolkata and Mumbai also to beef up sales, traders said.

Product DescriptionEx-yard (Rs. per Mt) upto Dec 18, 2009 Ex-yard (Rs. per Mt) from Dec 21, 2009 Ex-yard (Rs. per Mt) in Jan 2009

Vizag Kolkata Chennai Vizag Kolkata Chennai Vizag Kolkata Chennai

Billet 125x125mm IS 2830 22100 - - 23100 - - 28700 30250 29800

Billet 65x65mm IS 2830 22750 - - 23750 - - 28850 30400 29950

Bloom 320x250mm WT 21900 - - 22900 - - 28500 30050 29600

Channel 150x75 IS2062 Gr.A 28500 29000 29000 28800 29300 29300 33300 33300 33800

Rebar 16mm IS 1786 Fe 500 29000 30300 29000 29500 30800 29500 34000 34800 34500

Rebar 8mm IS 1786 Fe 500 29500 30800 29500 30000 31300 30000 35000 35800 35500

Round 20.64 mm 55Si7 35000 35000 35000 35000 35000 35000 40500 40500 40500

Round 40mm IS 2062 Gr.A 26800 27800 27400 27100 28100 27700 31600 31900 32200

Wire rod 7 mm PC115 29200 29200 29200 29500 29500 29500 34000 34000 34000

Wire rod 8 mm IS7887 28150 28150 28150 28450 28450 28450 32950 32950 32950

The prices are inclusive of ED/cess & exclusive of VAT, etc. Source: Steel Insights Daily


PRICE AND MARkET ANALySIS CRuDE OIL

Crude Oil Price Drops In DecemberSourcing Insights Bureau

The average domestic crude oil basket price dropped from $77.39 per barrel in November 2009 to $75.02 per barrel in December 2009, according to the Ministry of

Petroleum and Natural Gas. The January price is expected to remain under $80 per barrel on international crude oil cues which does not show much positive sentiment in Nymex exchange of US or in the Brent crude oil futures price.

Both prices touched $80 per barrel in early January but came down in the middle of the month. Brent futures price incidentally was at $77.11 per barrel in the middle of the month.

In the middle of January 2010, government reports in the US unexpectedly showed December retail sales declined and jobless claims rose, while the US Labor Department reported a tame inflation rate, suggesting that the pace of economic recovery has slowed.

This immediately affected the sentiments of the crude oil market. Energy stockpiles rose affecting the price sentiments, in spite of expectations that a wave of cold weather hitting many parts of the world in the past few weeks would cause supplies to dwindle as customers burned more fuel to stay warm. Recent findings show that though US is the largest consumer of crude oil till now, Asian countries’ consumption of crude oil may soon catch up.

Demand of crude oil risingThe International Energy Agency has in fact said Chinese oil demand will rise by 3.5 percent every year until 2030, and that it will take over the US to become the world's largest oil and gas consumer by 2025.

According to a leading analyst, international crude oil price was rising in the first week of this year as the overall

demand outlook was positive and both IEA and OPEC were revising their demand estimates. International Energy Agency (IEA) has already upgraded global oil demand estimates for 2009 from 84.8 million barrels per day (mbpd) to 84.9 mbpd. For 2010, it has raised its estimates from 86.2 mbpd to 86.3 mbpd. The Organization of the Petroleum Exporting Countries (OPEC) has maintained its estimates for 2009 at 84.31 mbpd.

For 2010, OPEC has raised its demand estimates from 85.07 mbpd to 85.13 mbpd. Since July, IEA has raised its demand estimates for 2009 and 2010 by 1.1 mbpd each, while OPEC has raised by 0.47 mbpd and 0.79 mbpd, respectively.

On the other hand, analysts said total Asian demand for West African crude oil hit a record high in the beginning of 2010. Asian was set to import 1.9 million barrels per day (bpd) in January from countries like Nigeria and Angola. The average in 2008 was only 1.4 million bpd.

Asian oil demand growth was set to accelerate in 2010 with India and China consuming more imported fuel. Chinese crude demand is said to have hit all time high in December when its crude oil imports averaged more than 5 million barrels per day for a month for the first time in December, according to China's customs office.

Indian state-run oil companies were also buying record amounts of oil from outside Asia via tenders and Indian imports from West Africa and the Mediterranean were said to have hit record high.

The country's second-largest state-run refiner is set to import a total of 7 million barrels, or 250,000 barrels per day (bpd) in February loading, which is an all time high, analysts said.

Furnace oilFurnace oil prices increased marginally in the middle of December 2009 from the last months rates. The rates again dropped in early January 2010. It is expected to remain range bound during the rest of the month.

The basic furnace oil price was Rs 26,369.42 per ton ex-Haldia for IOCL in middle of December 2009 compared to Rs 26,079.42 per ton prevailing on November 16. Price on January 1, 2010 dropped to Rs 26,189.42 per ton ex-Haldia.

Commercial LPGAs predicted in our last issue, domestic commercial LPG price has gone up substantially in early January. The LPG indicator Saudi Aramco’s propane and butane price were seen to be rising again in January, compared to December prices. This is indicative that there would be again a hike in the January LPG price.

The price of commercial LPG in early January was Rs 42,150 per ton in an online negotiation. The price of the same product was Rs 38,650 per ton in early December negotiation. Saudi Aramco contract propane price rose to $740 per ton in January compared to $720 per ton in December. The contract price of butane also rose to $735 per ton in January compared to $730 per ton in December.

30

110

190

270

350

430

510

590

Feb08

M ar08

A pr08

M ay08

Jun08

Ju l08

A ug-08

S ep-08

O ct-08

N ov-08

D ec-08

Jan-09

Feb-09

M ar-09

A pr-09

M ay-09

Jun-09

Ju l-09

A ug-09

S ep-09

O ct-09

N ov-09

D ec-09

B rent($ /b ) D .crude-R s/10kg LP G R s / 10 kg FO R s per 10 kg

Crude oil, furnace oil & comm. LPG comparison

Source: Insights Research



Polymer Prices ToMove UpArusha Das

The polymer market has improved quite a bit as demand has been remaining steady, further aided by tight supply due to a number of shut downs. However, the price of

all polyethylenes softened during middle of the month in Asia on lackluster trading, although the price level was better than November. Whatever transactions were happering was to meet immediate requirement only.

Material movement will see some improvement as trade between the ASEAN-6 nations becomes duty-free along with abolition of custom duties for LLDPE trade with China.

However, there is also certain amount of uncertainty over demand ahead of the Lunar New Year holiday in China in mid-February. This has resulted into some hesitation in the buyers as they are unsure about short term price movement.

Meanwhile, there has been some supply crunch since beginning of January. This is likely to ease as the import influx from the Middle East region increases and certain plants come into operation. This would trickle down to the prices which may soften by January end.

Propylene prices nudged up in the first half of December followed by a dip in the year end. In the month beginning, price witnessed some strength on buoyant derivative market outlook and supply constraints.However, lackluster sentiments in downstream polypropylene markets have caused the dip in the second half of the month.

The Asian region witnessed an influx of import cargoes,

easing supplies amid fluctuating upstream markets and waning derivative markets.

Nevertheless, healthy crude oil prices and some improvement in demand from derivative markets pushed the market up in January 2010. Propylene prices slipped to $1090 per ton cnf India December end from $1100 per ton cnf India in the month beginning. However, the prices were on a higher level than November.

Polypropylene (PP) prices continued to move northward in December on limited deal conclusion for next month shipment, albeit the feedstock prices deteriorated. The buyers were reluctant to buy in anticipation. The prices firmed up on increased offers for January shipment. The prices during the month moved up to $1185 per ton cnf India from $1140 per ton cnf India in November end. The improvement continued in January beginning.

The prices on the domestic front moved up. Haldia Petrochemical’s (HPL) R103 grade of PP traded at Rs 73,250 per ton (basic ex-work prices) in December, up from Rs 71,250 per ton (basic ex-work prices) in November end. Reliance Industries also hiked its ex-works prices of PP raffia grade (H026SG) from Rs 68,600 per ton in November to Rs 70,600 per ton in December.

Meanwhile, dull oil and naphtha prices in December along with deteriorating derivative markets were unable to arrest a rise in ethylene prices.

This was the result of supply woes. Availability in Asia has been limited on reduced supplies from Iran, the largest Middle East supplier of ethylene to the region. On the back of same, along with improved demand from downstream sectors price surge continued in January 2010. Ethylene prices inched up to $1125 per ton cnf India by December end from $1060 per ton cnf India in November.

High density polyethylene (HDPE) prices dipped on the

5 5 0 0 05 7 5 0 0

6 0 0 0 06 2 5 0 0

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7 5 0 0 0

8 -Oct

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HPL (grade-R 103) RIL (Raf ia grade-H026SG)

Source: HPL and AdventAgeGroups

Polypropylene basic ex-work prices

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Rs p

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ton

RIL (grade-20FS010,20FA 010,20FY 010) HPL (grade-71601S)


Ex-works basic LLDPE prices



back of weak demand, rising inventory levels and a downtrend in crude prices. Markets sentiments were dull due to reluctance in buyers particularly from China.

There was anticipation in the market that there could be another price reduction. Being well stocked, there was no urgent need to buy at the current prices. Very few seller’s offers were entertained. Moreover, uncertainty loomed over demand ahead of the Lunar New Year holiday in China in mid-February.

This resulted into hesitation from buyers in China. HDPE prices slipped to $1265 per ton cnf India in December end from $1270 per ton cnf India in month beginning. However, the price level on an average was better then November. The plunge continued in January 2010.

Meanwhile, the two polymer majors of India took up different price strategy for the month. Basic HPL ex-works prices of F5400 and F5600 grade was revised downward to Rs 71,250 per ton in December. But the HPL prices continued to be higher than the market prices.

However, an ex-works price for credit payment of RIL’s F46003 grade of HDPE was increased to Rs 63,910 per ton by December.

Low Density Polyethylene (LDPE) prices also improved amid tight supplies in the initial days of the month. Outlook seemed to be firm.

However, the buying died as most Chinese players preferred to wait and watch in the mid of the month, resulting into weakening of prices. The markets awaited deal conclusion in the absence of offers from sellers.

The prices have stabilized at December level in January beginning. LDPE prices reached $1420 per ton cnf India in December beginning and slipped to $1390 per ton cnf India in December end.

LDPE prices at the domestic front increased as RIL’s 1020FA20 grade of LDPE was hiked to Rs 77,890 per ton in December from Rs 73,890 per ton in November end.

A similar trend was seen in low linear density polyethylene (LLDPE) market too. After an initial push in prices as tight supplies persisted, there was a slump.

This was in line with lowered values in Chinese markets triggered by restrained demand from processors. Falling upstream crude values with uncertainty over demand ahead of the lunar New Year break in China resulted into reluctant buying particularly in China.

However, January beginning restricted availability has pushed up LLDPE prices. Moreover, the Chinese domestic prices were bullish with a positive trend observed in LLDPE futures prices in China.

LLDPE prices have escalated to $1330 per ton cnf India in December beginning from $1260 per ton cnf India in November. This dipped to $1305 per ton cnf India by month end.

The scene in the country was a little different. HPL lowered its 71601S grade of LLDPE prices to Rs 70,450 per ton in December from Rs 70,950 per ton in November end. However, RIL hiked its ex-works basic price of LLDPE (grade 20FA010) to Rs 72,620 per ton in December, up by Rs 3000 form the prices in the previous month.

An uptrend persisted in EDC prices due to restricted availability pushing up the prices. In addition to this, the downstream demand that is from polyvinyl chloride (PVC) market was also steady. EDC prices nudged up to $485 per ton cnf India in December from $390 per ton cnf India in November.

Driven by the strength in feedstock EDC values and bullish PVC markets resulting into steady demand, VCM prices have also moved up. Most key producers hiked CFR China offers for next month shipment, gauging the markets by buying interest and sellers’ offers. VCM prices moved up by 7.9 percent to $750 per ton cnf India in December compared to November prices.

As feedstock ethylene, EDC and VCM costs escalated, PVC prices moved up.

The price in China remained high despite a seasonal lull in demand generally seen during the harsh winter in China. Improved market sentiment, tight supplies and higher production costs prompted domestic Chinese PVC producers increase their offer levels.

However, the market was sceptical about the sustainability of the rise in the price as the demand is expected to weaken due to approaching Lunar New Year holidays.

The prices improved to $940 per ton cnf India by December end which was at $890 per ton cnf India in the month beginning.

The situation in the domestic front was same. RIL’s net basic price of PVC (grade-67-03/67GER03) moved up to Rs 51,000 per ton in December which was at Rs 49,000 per ton in November end.

550005750060000625006500067500700007250075000

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14-O c t

20-O c t

26-O c t

1-Nov

7-Nov

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19-Nov

25-Nov

1-Dec

Ru

pee

s p

er t

on

HPL (grade-R 103) RIL (Raf ia grade-H026SG)


High density polyethylene ex-works prices


Benzene To Maintain Its Steady RunGargi Sahai

Benzene prices in the Mumbai chemical market, continued its rising trend in December 2009. Prices touched Rs 51 per litre (including VAT) as on

December 29 from November end figure of Rs 49 per litre (including VAT).

E-auctions conducted for benzene in December, 2009 also showed a rise in prices during the month in sync with the Mumbai market’s prices.

Data available with Sourcing Insights, shows that an e-auction conducted during middle of November 2009, fetched a weighted average (WA) price of Rs 37043.46 per ton and a similar e-auction conducted during mid of December 2009 fetched a WA price of around Rs 40316.67 per ton, a rise of around 8.84 percent.

Positive economic data provided strength to the crude oil prices which eventually helped the benzene prices to firm up during the month across all regions.

Lower run rate of Benzene production plant and start up delays in a few Middle East based aromatics units created supply shortage in Asian region which also provided support to the prices.

There was an unplanned outage at Tonen General and Japan Energy plant which further reduced the supply in the market. The rise in prices of naphtha and strong demand for some downstream products were other reasons which pushed the benzene prices up.

During the first half of the month although benzene prices witnessed a rise, the rise in prices was restricted due to poor support from upstream market.

But in the second half, the upstream markets were robust and despite of approaching year end holidays the demand for benzene pushed prices higher.

As per ICIS pricing.com, December US Gulf Coast benzene contract prices settled up 13¢ per gallon over November prices at $2.98 per gallon. In the European

region, export opportunities to both the US and Asian market led to strong benzene spot prices throughout the month.

Incidentally, crude oil (Brent) prices which were at $77.78 per barrel (FOB) on November 30, 2009, increased marginally by 0.17 percent during December, 2009 and ended the month at $77.91 per barrel (FOB).

In other news, Total Petrochemicals recently took its aromatics production facility at Port Arthur, Texas offline, which has about 2,75,000 tons per year of benzene capacity.

No reason was provided for the outage, but it is expected that it will remain offline for about three weeks, which could push benzene prices in the US further up in the short term.

Meanwhile, dissatisfaction about the European benzene contract negotiation system has led some players to trial a new system, whereby an average of up to three days’ worth of deals, instead of an average of only one day’s worth, is taken into consideration as a starting point for the discussions.

Outlook

Although benzene prices continuously improved after the last major economic turmoil, but still price is not at its peak level and not expected to look south in near future.

After remaining flat for a couple of months, benzene prices look to be trending up and could climb higher in 2010 if global supply trends tighten.

With supply constraint in Asia on back of steady domestic demand and planned outages coupled with steady imports from the US, product prices in the US and Asian regions are likely to see northwards movement.

With European prices still being more competitive, benzene buyers may see an increase of European benzene into US markets, offsetting some of the Asian cutbacks.


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3000032000

34000

36000

3800040000

42000

3-Ju

n-09

10-J

un-0

917

-Jun

-09

24-J

un-0

91-

Jul-0

98-

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915

-Jul

-09

22-J

ul-0

929

-Jul

-09

5-Aug

-09

12-A

ug-0

919

-Aug

-09

26-A

ug-0

92-

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-09

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-09

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923

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921

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Dec

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9-D

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916

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Pri

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n R

s/T

on

Benzene Price Trend

Source: Insight Research


PRICE AND MARkET ANALySIS METALS

Ammonia Price May Rise In Short TermChandrika Bose Mitra

After depressing 2009, ammonia traders are hopeful of a brighter 2010. The first signal has been coming from price trend during end of 2009. Although prices were

at low levels owing to seasonal factors but was significantly higher as compared to 2008 levels.

However, on a stand alone basis demand scenario in December was not very encouraging. Demand for offshore product were at low levels with extra product from Trinidad not cracking any deals. However, there is an argument that prices are near the floor and there is firm demand for ammonia East of Suez which is likely to push up prices soon.

The US ammonia market is still reel under low prices. Ammonia demand from the US may revive in February once end-of-the-year inventories are low post autumn. US ammonia imports fell 2.5 percent in November totaling 452,743 tons.

In the Middle East, prices are around $130 per ton higher than the lowest level reached a year ago showing fading recessionary pressures. Spot prices in the region are currently hovering around $290 per ton fob and producers are expecting to hold on to this price as tonnage is moving mostly under contract. Again with appreciable demand from Asia and supply shortage from Indonesia (due to increased demand for Indonesian ammonia), Egypt may just steer ammonia shipments towards Asian markets.

Meanwhile, Ammonia prices in Taiwan stood at $335-$340 per ton cfr during the beginning of this year. There has also been drastic increase in demand for ammonia in India with leading player FACT looking for long term ammonia supply. The spot price of ammonia in India was $315-$330 per ton CFR during December. In sync with last year’s contract price of benchmark US Tampa for all January, shipments declined 7.7 percent to $300 per ton cfr from December on greater supply.

Ammonia prices in the Black Sea port of Yuhzny during December end has been hovering around $265-275per ton fob as a result of surplus ammonia from Trinidad and falling prices

in Tampa. However, the condition was better than last year levels during this season when prices dropped $240 per ton fob, halting exports. Ammonia out of Yuhzny was at $303-305 per ton fob during the early December 2009. Yuzhny ammonia exports were up 60,000 tons in December 2009 totaling 242,964 tons. The volume of Russian ammonia transportation made up 1.680 million tons in 2009.

In the North West Europe ammonia prices stood at $310-$320 per ton cfr duty free/pd while in North Africa ammonia prices were recorded at $300-$310 per ton during mid of December. Prices in North Africa fell subsequently towards the end of the year to $290-$300 per ton CFR. Ammonia production during the current year may be insufficient to counter the increase in demand for the commodity as the only new plant to come on stream will be Ghadir II in Iran, thereby increasing price.

Thus, the ammonia market is expected to remain tight through to the end of 2010 and early 2011 after which new merchant ammonia supply is likely to come from Saudi Arabia and Qatar. In immediate short term, ammonia prices are likely to see decent rise which might accelerate post summer.

Copper Zooms On Positive OutlookArnab Mallick

Copper has been a star performer over the last few weeks. The red metal gained by around 9.60 percent on LME since middle of December. Cash official price

on LME went up from $6800.5 per ton on December 15, 2009, to $7454 per ton on January 14, 2010. Among several factors that pushed up copper price was positive market sentiment buoyed by the strong manufacturing data from the US and China, the world’s largest consumers of industrial metals.

But much of the credit behind this appreciation goes to fund interest in the metal. It was, however, well supported by the upcoming strike at Chuquicamata copper mine in Chile. Workers at the mine were preparing to down tools within days after owner Codelco refused to back out in a wage negotiation argument. Another major support came as 270 unionised workers at diversified miner Xstrata PLC’s Altonorte copper smelter and metallurgical complex in Chile went on strike during the week after mediated contract negotiations fell through over the weekend.

The bullish mood that has been setting the tone for the red metal is quite a clear indication that there is a lot of interest in the metal in the New Year. Analysts are expecting copper price to even test the $8000 to $10,000 per ton band in 2010.

People are quite clear about the fact that their optimism is not based on their expectation of the demand but rather on the return expectation from the metal from an investment perspective. This is further supported by the fact that LME

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Am m o n ia fo b Yu zh n y lo w Am m o n ia fo b Yu zh n y h ig h Am m o n ia c fr Ta m p a

Ammonia price

Source: The Market

SOURCING INSIGHTS �0 JANUARY 2010


inventories have been rising during this period as well. Analysts are cautioning that base metal prices are getting increasingly disconnected from supply and demand.

Copper inventories have seen a sharp jump of over 53,175 tons to close at 5,23,975 tons on January 14 from the December 15 level of 4,70,800 tons. Crossing the 5,00,000-ton mark will surely dampen the market sentiment to some extent. But despite that, prices have been moving northwards. Unprecedented levels of Chinese imports, new investor cash, improving economic data and a weaker dollar have combined this year to see a substantial increase in price and is likely to attract more funds as return expectation is getting stronger.

But Chinese demand and stockpiling continues to be the most important factor that is likely to push up copper prices with major support coming from the dollar’s weakness and growing confidence in the global economy’s recovery.

Higher precious metals and crude oil prices were also supporting copper. The arbitrage window between Shanghai and London was in favour of imports, lifting hopes that China’s imports may rise which also helped in boosting copper prices. Participants are bidding up the metal in New York, in response to the price differential between LME and SHFE prices.

High equities across the globe also lent support. There was news during the week that China’s refined copper imports rose 14.8 percent in November after a 40 percent fall in the previous month, on investor buying and the arrival of delayed shipments. Meanwhile, some positive data like the US existing home sales jumping in November at the fastest pace since February 2007, the personal income in the US increasing 0.4 percent in November and spending increasing by 0.5 percent helped to boost confidence.

Although strength in the market is seen on the bourses during the initial trading days of the New Year, it was soured after the unexpectedly weak US employment data signalled a slow and arduous economic recovery, triggering profit booking during middle of the month. As per the latest Labor Department report, the initial claims for state unemployment

benefits have gone up by 1000 to 4,34,000. The worse-than-expected US payrolls data is surely going to dampen the market sentiment to a considerable extent. Although weaker dollar triggered by the jobless data has provided a boost, it is unlikely to overcome the negative sentiment, analysts feel.

But what is emerging as an even bigger threat is the possibility of monetary tightening in China. The People’s Bank of China unexpectedly raised auction yields of its three-month bills, for the first time since mid-August. The central bank move triggered an expected pull back in industrial metals. The red metal was also under pressure as speculative investors were selling base metals ahead of the reweighting of the Dow Jones UBS and Goldman Sachs commodity indexes. And finally, there is growing concern pertaining to the rising inventories.

Meanwhile, custom data showed that China’s unwrought copper imports jumped by more than a quarter in December, reaching 3,69,368 tons after the previous month’s 2,90,158 tons. “We still think the future is promising because countries like China and other emerging economies are going to generate greater demand for copper,” Jose Pablo Arellano, CEO of Codelco said.

In the meantime, the World Bureau of Metal Statistics (WBMS) announced that the global copper market was in surplus by 1,96,000 tons between January and October

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1-Dec 7-Dec 11-Dec 17-Dec 23-Dec 31-Dec 7-Jan 13-Jan

$ pe

r ton

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470,000

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510,000

530,000

tons

LME Cas h Of f ic ia l* LME 3 Mth Of f ic ia l LME Inv entory (MT)

Copper LME Price and Inventories

WORLD REFINED COPPER USAGE AND SUPPLY TRENDS, 2003-2008

2003 2004 2005 2006 2007 2008 (p)2008 2009

Jun Jul Aug SepJan-Sep

World Mine Production 13757 14594 14924 14990 15463 15388 11323 11654 1351 1270 1338 1319World Mine Capacity 15318 16042 16814 17164 18146 18824 14046 14659 1618 1676 1680 1629Mine Capacity Utilization(%) 89.8 91 88.8 87.3 85.2 81.7 80.6 79.5 83.5 75.8 79.7 81PrimaryRefinedProduction 13487 13858 14412 14682 15201 15514 11569 11507 1256 1290 1305 1305SecondaryRefinedProduction 1786 2069 2161 2613 2743 2717 2051 2049 228 243 256 266WorldRefinedProduction(Secondary+Primary) 15273 15928 16573 17295 17944 18232 13620 13556 1484 1533 1561 1570WorldRefineryCapacity 18804 19179 20250 20629 21614 22562 16816 17489 1931 1998 2000 1938RefineriesCapacityUtilization(%) 81.2 83 81.8 83.8 83 80.8 81 77.5 76.8 76.7 78.1 81WorldRefinedUsage1 15716 16839 16673 17043 18168 18006 13712 13608 1631 1534 1425 1567RefinedStocksEndofPeriod 1780 923 867 1131 1027 1158 964 1192 1043 993 1100 1192Period Stock Change -267 -857 -56 264 -104 131 -63 33 -6 -50 107 92RefinedBalance2 -443 -911 -101 252 -224 225 -92 -52 -147 -1 137 3SeasonallyAdjustedRefinedBalance3 118 161 -105 20 76 11

1. Based on EU apparent usage Source: ICSG2. Surplus/deficit is calculated using refined production minus refined usage3. Surplus/deficit calculated using seasonally adjusted refined production minus seasonally adjusted refined usage



In the same period of 2008, the market was in surplus by 65,000 tons. Global consumption in the first 10 months of 2009 was 15.24 million tons (mt), which is slightly lower than the same period last year. Chinese apparent consumption increased 44 percent to 5.991 mt from 4.163 mt in the same period the previous year. However, WBMS said this increase “masks a build up of unreported stocks since the output of semi manufacturers was reported to be only 10.3 percent higher than last year.” Demand in Europe was 2.474 mt, 24.5 percent below the January to October 2008 total. World mine production in the period rose 2.3 percent on the year to 13.11 mt and refined production rose 0.5 percent to 15.4 mt.

In other news, the global refined copper market was in a 50,000 tons deficit during the first nine months of the year, the International Copper Study Group (ICSG) announced said. Over the same period last year, the copper market was in a 92,000 tons deficit.

OutlookThe expectation about the red metal is a bit mixed at the moment with a downward bias. There will be some volatility on back of reweighting of the Dow Jones UBS and Goldman Sachs commodity indexes and concern over Chinese monetary tightening. Although the spread between benchmark 3-month between SHFE and LME would favour arbitrage trading (proving support to LME copper), this may not get translated into actual action as investors are worried about Chinese monetary policy. On the other hand, weakening dollar will extend some support. Overall, the cash official price is likely to average around $7483 per ton during January 18 to February 12 on LME.

Zinc Moves Up Sharply On Positive CuesArnab Mallick

Moving in line with copper and nickel, zinc also appreciated sharply over the last few weeks. Cash official zinc price appreciated by more than 9.50

percent to close at $2492.5 per ton on January 14 from $2276 per ton on December 15.

However, what continues to be a major area of concern is the rising inventories of the metal on the LME warehouses. Inventories increased by around 6.80 percent m-o-m to

4,88,175 tons on January 14, 2010, from the earlier 4,57,125 tons on December 15, 2009.

Though there is not much support from fundamental factors, better than expected US housing data and improvement in consumer confidence data have strengthened sentiment, causing prices to improve during this period. Besides, funds continued to be bid higher at the end of the year for the highest possible close for the year. A strong equity market and technical buying at the end of the year also leant able support to the metal. A weak dollar together with technical buying and rise in energy prices saw the metal improving greatly during the period. According to Citi, zinc prices were up on short-covering and technical buying, while rise in crude oil prices also helped boost the metal.

The rise in metal prices was on the back of overall positive economic cues and absence of any major negative jerk. Cheap availability of funds after Fed’s decision to keep interest rates near zero also supported metals and market bounced. Zinc prices were also supported by CTA buying, also the CTA interest is expected to sustain as the technical picture looks strong. But there are certain genuine areas of concern as well. A strong dollar and a mixed equity market coupled with concerns about tightening of monetary policy in China and US employment data impacted the metal price during second week of the month. And if the trend is maintained, there is much to worry about.

On the supply side, Japan’s Ministry of Finance data has revealed that refined zinc exports for November rose 27.7 percent from a year earlier to 7,172 tons, with China accounting for over 30 percent. Zinc is mainly used as an anti-corrosive coating in galvanised steel production and in plating. In addition to this, China’s Minerals and Metals Group has informed that it has restarted zinc production at its Century mine in Queensland State which is likely to add to the supply in the coming weeks.

Production at the mine had been halted for 11 weeks after

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2700

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29-Dec

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$ pe

r ton

450,000

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470,000

480,000

490,000

ton

LME Cas h Of f ic ia l LME 3 Mth Of f ic ia lLME Inv entory (MT)

Zinc LME Price and Inventories

World Refined Zinc Supply and Usage 2004 - 2009 000 tons

2004 2005 2006 2007 20082008 2009 2009

Jan-Oct Jul Aug Sep Oct

Mine Production 9709 10146 10447 11129 11690 9696 9275 962.7 995.9 954.8 1035.9

Metal Production 10392 10222 10655 11360 11655 9761 9234 929.5 981.7 990.8 996.6

Metal Usage 10648 10611 11016 11307 11438 9695 8831 935.1 948.5 983.2 929

Source: ILZSG


metal prices was the US manufacturing and employment data released during the week. The US manufacturing sector grew for the fourth straight month in November. The Institute for Supply Management’s new orders index increased to 60.3 from 58.5.

Again, US job losses slowed sharply in November and the unemployment rate unexpectedly declined to 10 percent from 10.2 percent in October. Encouraging economic data and an ongoing commitment from governments to support economies served to buoy investor confidence in the base metals in general. Higher crude prices also supported the trend.

However, the second week saw the lead prices decline w-o-w at the back of hedge fund unwinding bullish positions and booking profits at the approach of year end.

The looming holiday season also had an effect on risk appetite but the greatest impact on prices was felt by a strengthening dollar. Improving outlook for the US economy lead some to believe the Federal Reserve may raise interest rates sooner than expected which boosted the US dollar. Rising equity markets and positive US economic data released during the week were not enough to offset the strengthening dollar. US retail sales rose by1.3 percent in November nearly twice as much as expected, the Commerce Department announced.

A $10 billion bailout for debt laden Dubai bolstered broader market sentiment and pressured the dollar which again pushed the lead prices up in the third week of the month. Expectations for continued signs of growth in OECD economies, China's healthy demand for metals, European equities, spot gold and crude oil prices and CTA buying also lent support.

Towards the end of the month the metal prices strengthened further as dollar continued to weaken against all major currencies and equities and crude remained high. Some short covering also helped lead prices. Positive economic data from the US also supported the metal prices. National Association of Realtors showed that used home sales rose by 7.4 percent to a 6.54 million annual rate from 6.09 million in October.

Also, the Commerce Department reported in its third GDP estimate that gross domestic product rose at an annual rate of 2.2 percent during July through September, after falling by 0.7 percent in the second quarter. Dull session of trade was seen in metals as the traders were in the holiday mood and the equity markets were steady.

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907

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915

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917

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931

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$ P

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$ Per T

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LM E Cas h O ffic ia l LM E 3 M th O ffic ia l

LME Lead Cash Official and 3 Month Price


Lead Demand To See An UpsurgeGargi Sahai

Cash official lead price on the London Metal Exchange (LME) rose m-o-m in December, 2009. Gaining by around 4.59 percent, cash official price touched $2,395

per ton on December 31, 2009 from previous month’s closing level of $2,290 per ton. The LME 3 months cash official price also gained around 4.32 percent from $2,316 per ton on November 30, 2009 and stood at $2,416 per ton on December 31, 2009. Incidentally, the LME lead inventory continued its growing trend during the period. The inventory which was 1,37,850 tons on November 30, rose by around 6.27 percent and touched 1,46,500 tons on December 31.

A weak US dollar during beginning December, China’s declaration that the Government would not be withdrawing stimulus packages, firm equity markets and easing of concern over the Dubai debt crisis triggered the price rise.

The other very important factor which helped pull up the

the failure of a pipeline that transports zinc concentrate to the Karumba port for export on October 5. On the other hand, Russia’s zinc output fell 15.4 percent during the January to November 2009 period, as compared to the same period a year ago. In other news, the World Bureau of Metal Statistics (WBMS) announced during the week that the global zinc market was in a surplus of 129,000 tons between January and October this year. The 129,000 tons surplus compares with a deficit of 73,000 tons in the same period last year. The actual global surplus is probably much more than headline figures indicate, the WBMS said.

Also, the International Lead and Zinc Study Group (ILZSG) came out with a report during the week saying that the global refined zinc market was in a 4,03,000 ton surplus in January to October. This compares with a 66,000-tons surplus in the same period a year ago. In the 2009 period, mine production fell 4 percent to 9.24 million tons (mt) compared with the first 10 months of 2008. Refined production fell by 452,000 tons to 9.27 mt with European Union countries registering a decline of 3,86,000 tons. World demand fell 5,07,000 tons from January to October 2008. Chinese apparent demand totalled 4.029 mt, accounting for 44 percent of the global total.

OutlookIn the face of weak demand from the galvanising sector amongst others the metal could move in the range bound manner although it is getting a boost from consumer restocking and a revival of speculative interest of late. However, much of the movement would be determined by global economic cues and equity market movement. There are chances that the market might witness some volatility, but the overall trend will be steady. In a nutshell, cash official zinc price is expected to move between $2250 per ton and $2605 per ton with an upward bias.



Meanwhile, comments from China's foreign exchange regulator that Beijing will keep the yuan at a reasonable and basically stable level also boosted the base metal prices in general. Dollar was week against yuan due to the stable peg.

In other news, US Geological Survey announced during the month that US domestic production of recoverable lead was 35,600 tons in September, down 0.2 percent from 35,700 tons the previous month. Average US daily lead mine production in September was 1190 tons, up 3 percent from August.

Again, the global refined lead market was in a 51,000 tons surplus between January and October this year, the International Lead and Zinc Study Group (ILZSG) announced during the month.

That compares with a 33,000 tons deficit during the same period in 2008. Between January and October of this year, global output totalled 7.350 million tons (mt) and consumption was 7.299 mt. The rise in world lead mine output during the period was primarily driven by higher production in China, ILZSG said.

Also, the China Electrical Equipment Industrial Association said in a report during the month that lead battery demand from China, the world’s largest metals consumer, may fall next year as new vehicle standards reduce electric bike output.

Rules limiting speed and size of e-bikes may lead to closures of small producers next year and curb growth at big ones. The e-bike market in China accounts for over 20 percent of the country’s lead consumption.

OutlookIt is expected that lead demand will grow from lead acid battery builders for primary and secondary lead in 2010 due to expectations of higher global automotive production. An increased demand has been forecasted by leading analysts for cars and trucks in emerging economies, as they grow to match fully industrialized world levels. Requirements from other industries like telecommunications systems, electric utilities, railroads, uninterruptible power supplies and mining is also expected to rise in the long run.

Nickel Leads Base Metals, Gains 9.68%Arnab Mallick

Nickel once again put up a magnificent show over the last one month, emerging as the best performer among its base metal peers. The metal gained by over 9.68 percent

since December 15 to rise up to $18,350 per ton on January 14. The metal appreciated greatly on the back of hope of demand recovery from the stainless steel sector together with the world economic condition and weak dollar, amongst others. Besides, the metal also got a boost by news that the Russian government is likely to introduce a 5 percent export duty on unalloyed nickel, though no date was specified as to when the new tax would come into effect. Incidentally, this tax was removed in January 2009 to help the then-struggling Russian producers.

But this is unlikely to have any immediate impact on prices as there is enough supply of the material. Other than this, the metal also got support from the positive US data which gave rise to expectation of improving global economy which would boost demand for metals in the infrastructure, construction and automobile sectors. However, the sharp rise that was seen in the first couple of weeks since middle of December slowed down a bit on certain concerns.

Among several factors, high inventories level on the exchange significantly hampered the market sentiment. LME nickel inventories have seen around 10.70 percent rise since middle of December to close at 1,61,550 tons on January 14. Decline in Chinese imports have also contributed to the rising inventories on the LME.

In addition, there were concerns that many countries might tighten liquidity and roll back stimulus packages weighed on the metal while a stronger dollar, mixed equity markets and signs of monetary tightening in China which prompted profit booking on leading exchanges might continue to hamper nickel prices in the short term. Incidentally, the People’s Bank of China increased a key inter-bank market interest rate during the week thereby raising expectations of further tightening measures. Meanwhile, as per information, Cuban nickel output is likely to be the lowest in a decade. Cuba produced 70,400 tons of unrefined nickel in 2008. Though the country has not yet announced its nickel output for this year, officials stated that it was less than the 70,000 tons planned.

On the supply front, there is mixed news as Russian miner OAO Norilsk Nickel Mining & Metallurgical Company informed that it expects to produce about 2,34,000 tons of nickel from its Russia-based operations in 2010, slightly more than 2,32,000 tons expected to be produced for 2009.

On the other hand, Russia’s state statistics service informed that the country’s nickel output fell by 3.5 percent during the January-November 2009 period as compared to the same period a year ago. Besides, BHP Billiton Ltd informed

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SOURCING INSIGHTS �� JANUARY 2010


during the week that it has no plans to exit its nickel business, countering a media report which stated that the company was considering selling mines in Australia and Colombia.

Meanwhile, China’s Jinchuan Group, the world’s fourth largest nickel producer, raised nickel prices CNY135,000 a ton from CNY132,000, according to a notice posted on the Shanghai Nonferrous Metals Market’s website. According to MF Global, “Prices are also getting a boost from the substantial narrowing of the LME-Shanghai arb, suggesting that imports could have an easier time flowing back into the Chinese market.”

As per available information, the World Bureau of Metal Statistics (WBMS), the global refined nickel market was in a 15,000-ton deficit in January to October. Inventories on the LME rose 50,700 tons during the period. Refined nickel production declined 3.8 percent during the period to 1.090 million tons (mt), largely due to production cuts in Japan. However refined nickel demand dropped just 0.5 percent to 1.105 mt. Global mine production dropped 11 percent during the January-to-October period to 1.119 mt. In October, refined nickel output was 1,08,500 tons while the demand was 1,00,200 tons.

In the meantime, Macquarie had said that sale and planned restart of BHP Billiton’s Ravensthorpe nickel mine to First Quantum Minerals brings back “into focus the justifiable optimism of many companies about the nickel market outlook, driven mainly by booming Chinese demand.”

As per estimates, about 3,00,000 tons of global nickel capacity closed due to downturn in nickel demand, and 2009 total output is likely to be just over 1.3 mt, a decline of 5 percent on year as compared to industry capacity of 1.7 mt. Also as per the estimates, just under 7,00,000 tons of new capacity planned for 2009-2014 would eventually raise global capacity to over 2 mt. But many projects are likely to be delayed, and there is likely to be a struggle to meet output targets, as in the case of Ravensthorpe, Macquarie stated.

OutlookWith the metal losing momentum during this week, it is likely that it will move in a range bound manner during the next few sessions too. There is no concrete signal about sustainable recovery in the global stainless steel industry. Weighing on the sector is the rising levels of inventories on LME. Incidentally

according to the preliminary figures released the International Stainless Steel Forum (ISSF), global stainless crude steel production of 17.92 mt through the third quarter of 2009 decreased 15 percent compared with 2008.

Unless there is a strong support from the fundamentals, things are unlikely to improve greatly. For now the dollar and the equity market would determine the way the metal would move in the days ahead. But if the expectation about monetary tightening strengthens, it might then see base metal prices including nickel dip further. Till middle of February, cash official nickel price on LME is likely to move between $17,430 per ton and $19,960 per ton.

Aluminium Gains 4% As Inventories DropArnab Mallick

The light metal gained by around 4.03 percent to close at $2293 per ton on January 14 from $2204 per ton on December 15. A major support came from inventories

which went down by over 12,200 tons on LME during the period despite a sharp increase during first few trading days in the mentioned period. But considering the fact that the inventories level is already very high, it failed to cheer the market the way it would have otherwise done. Despite the fact that stocks are still high, its impact on prices is limited as much of the metal is tied up in financing deals. Interestingly, as a large portion of inventories are locked up in long-term financial deals, and interest rates are low, it is pushing up the premium, although the aluminium market is in overall surplus.

In the meantime, CTA buying is supporting aluminium. As per Citi analysts, “Suspect pullbacks will be well supported by shorts and consumers, with residual CTA interest likely to be sustained given the strong technical picture.” Barclays Capital has said that aluminium is the only base metal where there are signs that demand has picked up in the last few months in spite of inventory overhang, and long term financing deals mean that much of it is unavailable, keeping the spot market tight.

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Nickel LME Price and Inventories

Aluminium InventoryAs at the end of

the month of Africa north America

latin America Asia Europe Oceania total

unwrought

Aug-09 72 272 121 215 472 81 1,233

Sep-09 87 255 111 230* 450* 76 1209*

Oct-09 72 249 130 226* 449* 81 1207*

Nov-09 71 225 107 220 428 88 1,139

total

Aug-09 84 561 186 319 1052 103 2305

Sep-09 102 539 175 332* 1037* 94 2279*

Oct-09 86 519 200 332* 1032* 99 2268*

Nov-09 86 500 174 324 1008 106 2198

* = Revised Figure Source: IAI



Most of the demand strength has recently come from the auto sector, supported by government car scrapping schemes, but demand growth going forward is likely to be better balanced.

However, support also came from data released by the International Aluminium Institute (IAI) which showed that the world aluminium inventories in November have dropped 3 percent to 2.198 million tons (mt), from 2.268 mt in October.

But medium to long term expectation remains intact. Harbor Intelligence thinks that likely correction in aluminium is only a short-term phenomenon, sticking to its forecast of $2700 per ton by May despite fears over potential monetary tightening in China. It added that imported alumina prices in China are rising, while cold weather in China could impact smelter output if it persists. Although the light metal is softer, in line with copper, but is already attracting decent buying interest from macro funds and commodity trade advisors (CTA) which makes it steady in the long term.

On the supply front, the global aluminium market was in surplus by 1.418 mt between January and October as per the World Bureau of Metal Statistics (WBMS). Demand for aluminium fell 2.959 mt to 28.99 mt in the 2009 period and production fell 2.696 mt to 30.41 mt. Overall, global production in the first 10 months of the year fell 8.1 percent in the same period of 2008. Chinese output fell 8,74,000 tons and it remained a net importer of unwrought aluminium, with

imports exceeding exports by 1.403 mt. In October, primary aluminium production was 3.325 mt and consumption was 3.132 mt.

On the other hand, total world aluminium output in November fell by 59,000 tons to 1.907 mt from 1.966 mt, as per the figures released by the IAI. According to IAI, output in November 2009 was down 1,75,000 tons from the November 2008 production of 2.082 mt.

It has been understood that India produced 9,84,238 tons of aluminium in the April-November period, which was higher by 17 percent, according to data from the Ministry of Mines.

In the meantime, it has been learnt that Venezuela is likely to cut output at its smelting companies, Alcasa and Venalum, which have planned power cuts to reduce energy consumption due to falling water levels at the dam which supplies about 70 percent of the country’s electricity, informed the Basic Industry Minister Rodolfo Sanz. As per the information, government would suspend operations at two production lines at Alcasa and the equivalent of nearly two production lines at Venalum. At the Venalum aluminium smelter, production would fall by about 37 percent to 40 percent, spelling a reduction by around 14,000 tons in monthly output.

In addition to this, Russia’s primary aluminium output during the period January-November fell by 8.8 percent compared with January-November 2008, the country’s state statistics service reported recently.

OutlookThe middle of January has witnessed concerns from the investor’s community on the US employment data and possibility of monetary policy tightening in China which might impact commodity price quite sharply.

In this backdrop, the next few trading sessions will take its cue from the global equity market and fresh economic conditions. But owing to the nervousness emerging out of speculation about monetary tightening, the entire base metal complex might see some downward pressure. Over the next one month, cash official aluminium price is likely to move between $2075 per ton and $2442 per ton on LME till middle of next month.

Reported Primary Aluminum Production Thousands of TonsPeriod Africa north America latin America Asia West Europe East/Central Europe Ocenia total

Year 2007 1815 5642 2558 3717 4305 4460 2315 24812

Year 2008 1715 5783 2660 3923 4618 4658 2297 25654

Jan - Nov 2008 1,567 5,316 2,438 3,589 4,243 4,263 2,108 23,524

Jan - Nov 2009 1,535 4,362 2,299 4,014 3,415 3,769 2,019 21,413

Nov 2008 144 460 219 314 375 384 186 2082

Jul 2009 144 389 211 373 306 340 187 1950

Aug 2009 144 387 212 377 306 341 188 1955

Sep 2009 140 376 204 366 296 333 182 1,897

Oct 2009 146 393 211 380 302 346 188 1,966

Nov 2009 141 382 202 367 295 336 184 1,907

* Revised Figures Source: IAI

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Aluminium LME Price and Inventories


PRICE AND MARkET ANALySIS

General Uptrend In Steel PricesArnab Mallick & Sangeeta Roy

Domestic steel market prices headed in a northward direction, especially in the long products segment, towards the end of the year. The flat products market

remained sluggish at the beginning of the month. Market participants remained apprehensive about buying, anticipating a further fall in price. Also, with prime steel makers reducing flat steel prices by Rs 500 per ton at the beginning of December; the market sentiment remained a bit confused.

Cheaper imports, dropping Chinese export prices due to overproduction and traders destocking further affected the Indian market conditions with import prices becoming the benchmark for domestic prices. Cheaper imports kept the domestic prices low even in the second week, impacting the margins of steel manufacturers. The market, however, saw some improvement in the third week, spurred by higher landed prices of Chinese-origin HRC in the Indian market, together with rising domestic flats demand. The offers of commodity-grade HRC to India, mainly from China, rose to $530 to $535 per ton cfr and the bookings rose to $525 to $530 per ton for January shipments from Chinese mills, up from $510 to $515 per ton in the first week of December.

The fourth and fifth weeks saw further recovery in the flats market driven by improved demand along with increasing cost of the raw materials including high iron ore cost. A noteworthy fact is that, the international steel prices have been rising steadily over the past couple of weeks and market participants are expecting much higher demand in the next quarter. In the Mumbai market, HR coil prices have shot up by Rs 500 per ton over a week to prevail at Rs 27,500 per ton (basic) in the fourth week while HGI coil also witnessed a rise of Rs 500 per ton to prevail at Rs 37,500 per ton (basic).

The long products market remained stable at the beginning of the month as downstream demand saw some recovery. The domestic wire rod prices remained unchanged at around Rs 28,000 per ton to Rs 30,000 per ton (basic) in the first week of the month. A similar trend was also noticed in the raw materials section including steel ingot prices that exhibited a price improvement in the range of Rs 200 to Rs 400 per ton over a week. Melting scrap and sponge iron prices also moved in the positive direction, a weekly improvement in the range of Rs 300 to Rs 500 per ton was noticed.

TMT price kept on showing a positive trend during the month. During the second week of the month, TMT bar prices surged up by almost 4 percent w-o-w due to the increased prices of raw materials coupled with dealers’ optimistic attitude of the forthcoming market. TMT bar prevailed in the range of Rs 27,500 to Rs 28,500 per ton ($589 to $610 per ton), basic. A firm trend was also noticed in the raw materials section including steel ingot prices that exhibited a price improvement

in the range of Rs 800 per ton to Rs 1000 per ton per ton over a week. Melting scrap and sponge iron prices also moved in the positive direction, and there was a weekly improvement of around Rs 600 to Rs 800 per ton. This strengthened further and TMT price went to up to the range of Rs 32,000 to Rs 33,000 per ton (basic) during the month end. The price of wire rod surged by around 7 percent in a week to prevail in the range of Rs 32,000 to Rs 34,000 per ton basic ($688 to $731per ton).

International FlatMarkets remain largely firm During December, the international flat products segment moved on a relatively firmer note with mixed signals coming in from different crucial markets. During the first half of the month, the US market improved on the back of recovery in demand and rising scrap prices. The Chinese market was also firm. However, the transaction levels were not very encouraging. The Indian market saw some improvement in certain pockets. Traders in certain sections were more inclined towards wide discounts to trigger sales in the market.

Amidst mixed mood in some of the larger markets, some marked improvement was seen in the Saudi flat steel market as prices went up. Demand for flat rolled steel was moderate to good in the UAE, despite the negative sentiment after the financial crisis in Dubai. The South East Asian import market remained very quiet, with little buying activity. While the strong Chinese domestic market and rising raw materials prices were keeping HRC offer prices firm, regional importers were wary of booking because of uncertain demand.

As time progressed, there were some positive movements observed in the US market. The US remained firm as a number of mills inched up their prices. Further, longer lead times pushed US sheet prices. The Indian market also showed some positive movement beginning in the early second half of the month. Spurred by higher landed prices of Chinese origin hot rolled coils in the Indian market, together with rising domestic flats demand, one of the prime steel producers of the country is planning to hike its flat product prices for January bookings.

The market, however, witnessed some steady positive movements during the fag end of the month owing to rising scrap prices and some fresh buying due to the approaching year end. The Chinese flats market continued to remain firm as the traders raised their offers. Soaring input costs along with new orders pushed up US HRC prices, while CRC prices dipped slightly. This strength was however not a universal phenomenon. Some weakness was seen in the European flats market. Modest levels of imports came into southern Europe even as demand remained low. However, there were some positive signs of recovery in the market in France and wider Europe. Some improvement was also seen in the demand in Turkey.

HRC price rules firm in SE AsiaAlthough the SE Asian market witnessed a firm market in term of price, transaction volumes were surely not very

STEEL


encouraging. But despite the lack of trade, HRC export prices saw a northward movement.

While the strong Chinese domestic market and rising raw material prices were keeping HRC offer prices firm, regional importers were wary of booking because of uncertain demand. Domestic CRC prices nudged up on strong demand from the automotive industry and low market inventory.

Meanwhile, higher Chinese CRC prices put pressure on white goods prices. However, there was no sign that white goods prices will increase, and as the New Year holiday was approaching, many companies were offering discounts in a bid to promote sales. Most white goods manufacturers were still using steel stock from the first half of 2009, which cost less than current prices.

Tapping the current optimism in the market, Baosteel raised its January ex-works prices for commercial HRC prices by RMB 300 per ton ($44 per ton) and CRC prices by RMB 550 per ton. As a result, Baosteel’s SS400 5.5mm HRC price went upto RMB 3,942 per ton ($580 per ton), while the SPCC 1.0mm CR sheet price went to RMB 5,526 per ton ($809 per ton), excluding VAT.

The Chinese market got even stronger during the last week of December. Amidst the optimism, after Baosteel and Wuhan Iron & Steel raised their January ex-works prices of products, northern China’s Anshan Iron & Steel (Angang) was also expected to increase its January HRC and CRC ex-works prices by a range of RMB 200 to RMB 500 per ton ($24 to $74 per ton).

Moving quite in line with market expectation, Angang raised its HRC prices by RMB 200 per ton ($29 per ton) and CRC prices by RMB 600-650 per ton. The mill also increased its plates prices by RMB 150 per ton.

Driven by Angang’s higher January prices, Chinese domestic HRC and CRC prices saw an immediate increase. The price rise was in line with the expectations that Angang would follow Wuhan Iron & Steel and Baosteel’s lead to increase its January ex-works prices. The higher ex-works prices indicate that those major mills have confidence in January’s steel market, which also improved most traders’ sentiments.

Traders have delayed their sales as prices for the mills’ January CRC deliveries were expected to be much higher than the current spot market prices. CRC traders were more optimistic about the market than the hot rolled coil traders. The CRC market inventories, unlike the record high HRC inventories, were still at a manageable level. Also, the mills were intending to expand their direct deliveries next year to end users such as auto manufacturers.

Meanwhile, Chinese HRC production continued to decline due to maintenance work conducted by mills. Market observers, however, believe that China’s HRC production will soon be back to full capacity once mills finish their maintenance periods. As there is an upward trend, mills have no reason to cut production. The steel mills are optimistic about the demand for next year which would lead to rising steel prices.

In the meantime, it was reported that in the Chinese market, northern China’s Hebei Iron & Steel (Hegang) increased its January ex-works prices of HRC by RMB 200 per ton ($29 per ton) and CRC by RMB 430 per ton ($63 per ton). This has further improved traders’ expectations of market conditions in January.

US markets firm up The US market has been showing decent strength throughout the month. Prices showed firmness on the back of some recovery in demand and soaring input cost. The US scrap market was up again in big way, pushing surcharges for January 2010 deliveries of many steel products up by $65 per short ton. However, stockists were puzzled over year-end price increases from mills such as Nucor, AK Steel and Severstal NA. Amidst this market condition, AK Steel increased spot market prices for its carbon sheet products by $30 per short ton for all new orders accepted for shipment on January 1, 2010 and later. This was in response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.

Other domestic mills also announced sheet price increase. Steel Dynamics Inc (SDI) increased its HRC to $550 per short ton. The inventory levels at many service centres were low and distributors and scrap and other input costs continued to rise.

The strength continued with time. Moving in line with the positive sentiment, Severstal North America (SNA) again raised its spot sheet prices, during middle of the month. Consequently, HR products were listed at $570 per short ton and CR at $670 per s.t. The increases were primarily due to increased raw materials costs, as well as an improving order book. Interestingly, this did not surprise the stockists as other mills have raised their prices in the wake of the company’s initial hike.

Soaring input costs and new orders kept providing solid support to the US HRC prices, while CRC prices dipped slightly during the fag end of the month. There was an influx of new orders from buyers seeking to beat recent price increases. Further, rising scrap prices and apparent difficulty for some in procuring sufficient scrap resulted in price escalation. The strength was quite apparent in the futures market as well.

PRICE AND MARkET ANALySIS STEEL

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Steel Benchmarker HR Band Price



Middle East markets in mixed moodThe Middle East market has been showing mixed movement during December. Some amount of sluggishness was seen in the Turkish market during middle of the month. Trading was also slow.

Erdemir announced that it will be taking bookings for January deliveries until December 10 at lower prices. The company’s prices for strip products were $20 to $75 per ton lower than previous bookings for forward payment sales. HRC prices dropped by $75 per ton to $545 per ton fob whereas CRC prices went down by $35 per ton to $695 per ton. Erdemir also increased the cash down payment to 20 percent from the previous 10 percent for forward payment sales.

The market expected a reduction in prices. Flat steel trading in Turkey was slowing as the year end approached. After the biggest producer Erdemir cut prices, imported material prices were more or less at the same price levels, so buyers preferred to order from Erdemir.

Interestingly, there was some improvement in the demand for plates in Turkey. Most plate consuming sectors, like machinery production, were still slow in the country; but there was a little upward movement. Buying was scarce also because of the seasonal slowdown.

Demand for flat rolled steel was moderate to good in the UAE, despite the negative sentiment after the financial crisis in Dubai. Producers, traders and end users were facing some difficulties in getting credit from banks. People were worried about the financial situation but some amount of optimism was also seen in the market. But the sentiment was showing positive movement as time progressed. Prices of locally produced flat rolled steel nudged up.

The demand in both local and export markets was stronger than expected, especially since the positive sentiment came back to the market, after Abu Dhabi stepped in to support the Dubai economy.

International Long ProductsThe international long products market witnessed some strength this December, although support from real demand

was not overwhelming. The price rise was primarily triggered by soaring scrap prices. In spite of the demand being sluggish, the producers were forced to raise their prices to reduce pressure on their margins. The situation was similar in the US, Europe and Turkey.

However, in China, prices firmed up quite a bit, thanks to the optimistic outlook and spurring price on the futures market. But the overall buying interest was relatively low. Thus, this resulted in a slowdown of both imports as well as exports. The buyers adopted a wait-and-watch attitude as the direction of the market was not clear. However, the rise is unlikely to last for long as the demand is not strong enough to support the rise.

China raises offer pricesInterestingly, China began the month on a firm note. However, the market softened around the third week of the month and recovered at the end. December beginning saw Shagang announcement of its new rebar and wire rod prices for deliveries before 10 December. The price for 16-25mm HRB335 increased by RMB 50 per ton ($7 per ton) to RMB 3730 per ton ($546 per ton), while its 6.5mm wire rod price remained unchanged at RMB 3750 per ton, both with 17% VAT.

Encouraged by Shagang’s higher rebar prices, traders in Hangzhou markets also raised their offers slightly by RMB 30 to RMB 50 per ton to RMB 3680 to RMB 3700 per ton. But this move was not well received by the consumers. In both Shanghai and Beijing, prices remained flat despite Shagang’s price change.

The markets were lukewarm, with very low buying. Although the market entered into a low demand season, some of the major producers did not show any intentions to cut prices in a bid to encourage bookings.

The rise was also seen in eastern China. Hangzhou prices for 16-25mm HRB335, sourced from Shagang, increased by about RMB 40 per ton ($6 per ton) on December 11 to about RMB 3650 per ton ($535 per ton), with 17% VAT.

Traders felt that the price increases were triggered by increasing futures prices on Shanghai Futures Exchange (SHFE). Baosteel announced an RMB 300 per ton increase for January HR strip prices on December 10, which received strong reaction from futures markets. However, the market transaction levels remained low despite the price rises. There was an uncertainty pertaining to the longevity of the price rise.

However, the middle of the month saw some weakness in the rebar market as the domestic rebar market lacked support for sustainable price increases. In the Hangzhou market, prices for Shagang-sourced 16-25mm HRB335 rebar decreased by RMB 30 per ton ($4 per ton) to RMB 3660 per ton ($536 per ton).

Meanwhile, Shagang kept mid-December prices for 16-25mm HRB335 rebar and 6.5mm Q235 wire rod unchanged at RMB 3730 per ton and RMB 3750 per ton respectively, including 17% VAT. Despite this, Shagang’s ex-works prices

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Steel Benchmarker Rebar Prices


Supply Concerns To Push Up Iron Ore Prices FurtherNudrat Alim

The iron ore market has been witness to an unexpected rise in the last one month. If considered individually, the reasons responsible for this hike would not have

had the same severe impact on prices. But for buyers, issues related to procurement of the raw material intensified further as all the developments which led to the phenomenal rise took place around the same time.

It was in fact the first week of January which took the cake when prices shot up thrice in a span of seven days. Correction in steel prices in China was not enough to arrest the iron ore price rally during the week gone by. However, as per market information a slowdown in buying activity is surely on the cards. A further correction in steel prices is expected soon after the Chinese New Year, which is likely to make imported iron ore cheaper in the spot market.

were higher than market levels. This encouraged the traders to raise their offer prices to reduce the price difference. But the increases were not being accepted by the market. Most traders found it hard to push prices higher and retained their offer prices on December 15.

US prices move upThe US long products market moved northward this month. However, the drive was not from the demand front. Rather, it was soaring scrap prices which triggered the rise. This resulted in some tightening in the wire rod market in the initial days.

There was some downward pressure in the rod market in early November as a result of the decrease in scrap, but that subsided since scrap started to move back up.

The fluctuating US scrap market pushed surcharges for January 2010 deliveries of many steel products up by $65 per short ton.

The benchmark shredded scrap price used to set surcharges on spot sales of plate, rebar, merchant bar, light sections and wide-flange beams towards the end of the first week rose to $300 per long ton from $235 per long ton.

During this time, Nucor announced that it will increase prices for rebar and merchant bar by $65 per short ton. The move was due to increased raw material costs. Nucor increased prices by $40 per short ton on wide flange beams, after partially offsetting the surcharge increase. The increased scrap prices squeezed margins, making the increase a necessity. The full surcharge pass indicated that scrap is likely to continue its upward trend next month.

However, it was not clear if the increase will remain at that level. A section of the market felt that the purchasers would withdraw from the market to every extent possible and work off inventories through January or February as opposed to paying the higher transaction prices sought by the steel mills. Downstream markets would not support any pass-through attempts in view of extreme cyclical and seasonal weakness. Moreover, the rod purchasers were not in a position to absorb increases.

Egypt demand props up TurkeyThe Turkish market was also plagued by the soaring scrap prices. However, the demand was not significant. The month began on a positive note as the Turkish rebar exporters were receiving more demand from Egypt after the price increases announced by Egyptian local producers. Turkish offers to Egypt were at $480 per ton cfr, whereas otherwise Turkish offers were mainly around $470 per ton fob.

Demand from Egypt brought in more liquidity to the Turkish rebar exports market. However, the scrap bookings at higher price levels squeezed Turkish steel producers’ profit margins. Turkish producers preferred to lose money rather than stopping their mills. Some producers were working at full capacity, whereas most preferred to stop production during Eid holidays and some even extended the holiday.

Meanwhile, Turkey’s domestic rebar market strengthened and producers from the Marmara region sought higher prices. The producers had to keep the prices higher, to cope with high production costs.

In Izmir region, prices recovered from TL 805-810 per ton ($542-545 per ton) to TL 820-825 per ton ($551-555 per ton) after the announcement of the producers from Marmara region. But domestic rebar prices were below Turkish export prices.

Following the price trend, Kardemir announced a TL 9 per ton ($6 per ton) price increase for its rebar sales effective from December 4.

The Dubai market did not want to take any risk by booking material at this price level, thinking that prices might come down. In the UAE local market rebar prices were already down to $505 per ton ex-works. Further, locally there was not much demand and there was an oversupply situation. Egypt refrained from importing as local production met the demand in the country. Turkish billet exports were available at around $455 per ton fob.

Turkish rebar domestic market prices continued to rise to reflect the increasing raw material prices. Producers were determined to keep the prices in balance with the costs, despite the low demand level. Kardemir increased its rebar price by TL 8 per ton ($5/t) effective from December 22, and this crept up since the beginning of the month. Kardemir offered its 12-22mm rebar for TL 746 per ton ex-works. The total increase for Kardemir’s rebar during December was TL 25 per ton ($16 per ton).

Buyers hesitated to make any deals as they were not expecting prices to go as high as this. They kept delaying their bookings and were expecting producers to lower their offers due to little demand. However, the offers showed a steady increase following increasing cost of raw material.




Reasons for such a rise range right from the Indian government’s imposition of export duty on iron ore to China’s stand on signing benchmark price contract for the year 2010-11. The shutting down of mines in India after the government directive brought about the closure of several illegal mines in the country also affected the supply of iron ore from India to China in a big way, thereby pushing up prices in the Chinese spot market. The Indian government, citing the problem of iron ore availability to domestic steel producers imposed a 5 percent export duty on iron ore fines and raised the duty on export of iron ore lumps from the earlier 5 percent to 10percent on December 24, 2009.

Indian suppliers of the raw material did not waste much time on passing on this hike to the buyers in China and offer prices for iron ore fines characterised by 63.5 percent Fe content managed to touch the $125 per ton cfr as on January 2, 2010. As on January 5, offer prices moved up to $130 per ton cfr and rose further to approximately $140 per ton cfr a couple of days later, though no transactions were heard at this price.

Market experts feel the recent tax imposition by India may result in a 4.5percent drop in total estimated exports for the year. This may be true to a certain extent, but the fact that the movement of ore from the Indian ports has also been slow over the past couple of months, is yet another reason why annual estimated exports could witness a dip.

Moreover, the demand for lower grade ore has gone down in the Chinese market and buyers now prefer to purchase medium to high grade ore, because of the rising cost of energy, since coking coal prices have also shot up.

Meanwhile, there was a 22percent m-o-m hike in Chinese iron ore imports during the month of December. According to customs data, this surge has resulted in making the total imports for calendar year 2009 reach 627.78 million tons (mt). This also meant a 42percent rise in imports as compared to the year 2008. As far as the import volume for December is concerned, it almost matched the record levels achieved during September. While in September China imported 64.55 mt of iron ore, during December the imports were recorded at 62.16 mt.

Market experts are expecting January imports to be around 60 mt. This is because, despite prices hitting the roof, a number of Chinese steel mills went ahead and procured the raw material ahead of the Chinese New Year.

While buyers are trying to communicate the feeling that they are not interested in the ore at such high prices, some India based exporters continue to remain upbeat and are expecting a further escalation in prices.

Some traders from eastern India have indicated that a rail freight hike is on the cards, which is why Indian iron ore exporters have raised their offer prices. Supplies from Australia and Brazil too have dwindled since the annual price negotiations are to take place. Another reason which affected the iron ore supply from Australia to China, although temporarily, was the shutting down of one of the major ports in the iron ore supplying nation, owing to a passing cyclone. But loading activities have resumed now, but it still unclear whether Australia would be interested in shipping out large volumes of iron ore to China just as yet.

The China Iron & Steel Association (CISA) has said that it is finding it difficult to set prices for 2010-11 since miners are demanding a price hike of 20-30percent. For the year gone by CISA which was leading the price talks failed to reach a formal agreement with the leading iron ore exporters, such as Rio Tinto, BHP Billiton and Vale, which is why for this year’s contract Baosteel has acquired a stronger position and is expected to lead the talks.

As per reports, tightness in the market is slated to intensify over the next two years and prices of seaborne material will only move up. Keeping this in mind, it is felt that China should soon resolve issues related to benchmark price settlement.

In the meantime, prices of Indian iron ore fines characterised by 63.5 percent Fe content shot up from $110 to $114 per ton cfr in the last week of December to prices which ranged between $133 and $135 per ton cfr, as on January 12, 2010. On January 5, Indian origin iron ore fines (Fe 63.5 percent) was fetching prices ranging between $126 and $128 per ton cfr in the Chinese spot market. These prices shot up further on January 7 and were recorded in the range of $130 and $133 per ton cfr. There was yet another hike experienced on Jan 9, when prices ranged between $133 and $137 per ton cfr.

The marginal dip is largely owing to the resistance from Chinese buyers against such high prices.

The Chinese steel industry is in a bit of a difficult spot with iron ore price negotiations and market scenario not moving in its favour. It is clear that demand in 2010 will remain high and Chinese steel production for this year is expected to reach 565 million tons.

Moreover, market participants are expecting a hike in Baosteel prices by February. This rise in steel prices is being estimated in the range of $29 to $44 per ton. Once Baosteel raises its price, it is likely that other players too would follow suit.

In the near short term prices are expected to remain high with limited supply from India and the absence of Australian and Brazilian iron ore from the Chinese spot market.

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Scrap Price Witnessed Strength In Recent PastNudrat Alim

Supplies from the US and the EU have started trickling in after the Christmas and New Year break. The last month saw prices being on the higher side despite very low

transaction levels. For most part of the month, Turkey which is the largest importer of ferrous scrap continued to remain out of the market because of low demand for finished products and overall production cuts in the country.

The few transactions which are taking place from Turkey are mostly with EU suppliers, because currently their prices for lower quality scrap are cheaper as compared to the US based suppliers. On December 31, 2009 one deep sea cargo for HMS 1&2 70:30 mix was booked by Turkish buyers from EU suppliers at $318 per ton cfr.

Most Turkish producers have pulled down production by as much as 35 percent and some have had to close down the mills since scrap purchase at these prices is an expensive proposition. Market sources feel prices in Europe are expected to continue the upward march even though they have not been fixed yet for the February shipments. Strong domestic demand will keep prices from falling in the US in the near future. However, the US continues to be a preferred source for ferrous scrap for buyers located in some of the Far East Asian countries.

Offer prices to East Asia for HMS 1&2 80:20 mix moved up during the first week of January. As per few market reports, Chinese buyers are being offered bulk order for the same grade at prices ranging between $380 and $390 per ton cfr. The recent surge in ferrous scrap import prices in East Asia has caught a number of market participants by surprise since such a rapid rise was not being expected by most. Few scrap deals were heard during most of last month owing to high prices and tight supply.

Towards the end of December, Chinese buyers of ferrous scrap began to show greater interest in Japanese scrap. This was triggered largely because prices of domestic scrap in China are expected to shoot up in the near future. Hence, buyers are now working towards securing their scrap supplies from Japan. Till about a month ago, Japanese scrap supplies to China had witnessed a sharp dip, because of domestic demand in Japan rising considerably.

The price difference between Japanese and US ferrous scrap is what is making the former the preferred choice for now. Melting scrap from Japan is being offered to Chinese buyers at around $350 per ton cfr. However, prices of US origin heavy melting scrap is being offered in the Chinese market at prices ranging between $365 and $368 per ton cfr.

Chinese rebar price surge is expected to make prices of ferrous scrap shoot up during the month to as much as $440 per ton. Usually the price difference between ferrous scrap and rebars is restricted between 800 and 1000 Yuan per ton.

However, currently the prices of heavy melting scrap in China are reported in the range of 2700 and 2800 Yuan per ton, whereas rebar prices have touched the 4010 Yuan per ton. Since, the gap between the two prices have widened and crossed 1000 Yuan per ton, scrap prices in China are expected to move up as well in the near future.

Scrap import to East Asia in general has become costlier. In fact, as per available market reports, a leading steel company in Korea was heard of booking two cargoes of HMS 1 scrap coming in from the US, West Coast. The consignment which is due to arrive in March was priced at $355 per ton cfr. With this a hike of as much as $20 to $25 was recorded between these current prices and the prices which prevailed earlier during last month.

J P Morgan has forecasted a 15 percent increase in scrap costs. The report by J P Morgan also states that there will be an overall rise in raw material costs in 2010. Speaking on the domestic front, in the first week of January, furnace owners in the Mandi Govindgarh market of Punjab were buying scrap at Rs 21,500 per ton compared to Rs 17,000 per ton bought on December 9, an ingot manufacturer said. “New scrap, which has arrived recently, is now being sold at a premium at Rs 23,500 per ton,” he added. Supply of new scrap from Gujarat has also become inconsistent and availability is driving the price of ingots, said a scrap trader.

A Gujarat based buyer recently concluded a deal for import of 10,000 tons of mild steel scrap (80:20 mix) from a Middle East based party which translates into a basic rate of Rs 18,270 per ton with a commitment of immediate delivery.

Currently, rolling scrap was moving in a price band of Rs18,000 to Rs19,000 per ton. The upward movement in prices of ferrous scrap in India is backed by rising HBI prices as also the growth in production for longs.

Global prices have moved up. HMS 1&2 (80:20) mix, at Rotterdam currently ranges between $292 and $297 per ton fob up from the earlier prices which were in the range of $283 and $290 per ton fob. Prices for the same grade at the US East Coast too, have gone up and ranges between $292 and $297 per ton fob up from the previous prices which were recorded in the range of $280 and $285 per ton fob.


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Average HMS Price



PRICE AND MARkET ANALySIS NON-METALS

Rubber Prices To Shoot Up Further In February Nudrat Alim

Natural rubber prices continued their upward march throughout December and touched record highs by the second week of January. The price movement was

in same line with the international price. Prices gained by as much as 120 percent in December 2009 as compared to previous year’s comparable prices. The trend which is observed this year is different from usual seasonal pattern. Between the period October to January, when supply is up, prices usually get pulled down, which has not been the case this year.

During the last week of December 2009 prices of RSS 4 grade touched the record high of Rs 147 per kg in the Kottayam market but declined to Rs 138 per kg during the first week of January 2010. But the high levels are expected to continue through the month of January.

Market experts feel prices during February would shoot up further with the commencement of the lean period which goes up right up till October each year. A report, citing the views of a Rubber Board official stated that if the current economic condition prevail then prices may continue to remain bullish for the next two to three years. There is a production shortfall being experienced in most of the major rubber producing countries. According to the annual data available with the Association of Natural Rubber Producing Countries, up to September 2009 Thailand recorded a shortfall of 5.5 percent, Indonesia 3.9 percent, Malaysia 19.3 percent and India recorded a shortfall of 7.4 percent.

In fact during December 2009, India’s total natural rubber production stood at 98,000 tons, as against 1,00,225 tons which was recorded during the corresponding month of the previous year. Consumption, however, increased by 16.41 percent during December 2009 owing to enhanced demand for truck and bus tyres. While in December 2009 India consumed 79,500 tons of rubber, during December 2008 consumption was recorded at

68,290 tons. Analysis of cumulative production figure for the period April-December 2009 reveals there was yet another shortfall. The April-December 2009 production dropped to 6,28,900 tons from 6,76,005 tons produced during the period April-December 2008. The Rubber Board production estimate for January is lower than 95,000 tons.

Imports too have jumped by as much as 118 percent during the period April-December 2009. But this sharp jump is the effect of imports that took place during the first half of the year, rather than imports during the latter half. Total imports were recorded at 1,38,486 ton as against 63,452 tons which took place during April-December 2008.

It was mostly the first and the second quarter of 2009-10 when imports were way beyond the levels achieved during the corresponding periods of the previous year. In comparison to 44,093 tons and 73,805 tons of natural rubber imports which took place during the first and the second quarter of 2009-10, respectively, in the third quarter, India imported only 20,588 tons. The reason why large scale imports were recorded earlier is because domestic prices were much higher than the international prices. Hence, most buyers saw imported natural rubber as a more economical and feasible option. Ever since the gap between the two has become almost negligible imports too have been curtailed.

During December 2009, India imported only 4,890 tons of rubber, as against 3,426 tons in the corresponding month of the previous year. Keeping this slowdown of imports in mind, the earlier wide expectation of imports crossing the 1,80,000 tons mark can be put to rest. In fact some estimates even suggested that imports had the potential of crossing 2,00,000 tons during 2009-10. The current slow pace is likely to make imports reach anything between 1,50,000 to 1,60,000 tons, experts feel. This too is a reasonably high figure in comparison to 79,927 tons of natural rubber imported during the year 2008-09.

Cement Prices Largely Flat In DecemberRakesh Dubey

Cement prices in India, except Mumbai was under pressure in December despite surge in despatches on higher demand. However, the prices strengthened in

January on expectation of increased demand.“Some kind of adjustment in demand following addition

of fresh capacities till October was expected and that took place between November and December and as such prices remained largely weak. However, situation is likely to improve now as demand is expected to outsmart production in coming months,” an official of a cement manufacturing company told Sourcing Insights. In December issue, Sourcing Insights predicted that the cement prices are likely to remain under pressure without any dramatic change, especially in

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RSS-4 Grade

Source: Rubber Board of India



Southern and Northern India owing to the addition of new capacities. Despite a weak price trend, overall despatches in November and December continued to remain buoyant indicating continued demand for cement from infrastructure and construction sector. -“With no major capacity additions likely in any part of the country in coming months, it is widely expected that cement prices will go up from now till March,” the official said. Now it appears that the situation developed due to excess supply has been adjusted to great extent by producers and there will be improvement in prices, he noted.

Mumbai region recorded a margin increase in prices in December, while all other regions of the country witnessed slight weakness in prices. For example, in Mumbai wholesale

cement prices surged to Rs 240.90 per bag of 50 kilogram on December 26 from a low of Rs 232.20 on November 28.

The prices remained stable at Rs 222 per bag in Ahmedabad region, but whole sale price in Delhi regions fell to Rs 222.80 per bag as on December 26 from Rs 231.80 per bag recorded on November 28. In Chandigarh, the wholsale price fell to Rs 245 per bag from Rs 247, while in Kolkata region, wholesale prices fell to Rs 264.35 per bag on December 26 compared with Rs 267.65 per bag on November 28.

Chennai region continued to witness a weak trend with wholesale prices falling to Rs 226.65 per bag from a high of Rs 255.55 per bag even though wholesale prices remained unchanged at Rs 243.45 per bag in Bangalore region. Despite a weakness in wholesale price, the retail price in Bangalore region remained unchanged at Rs 264.80 per bag during the period.

Production and exports dipAccording to a data of Cement Manufacturers Association (CMA), in November, cement production by large plants of the country stood at 12.51 million tons (mt), registering a growth of 11.60 percent as compared to 11.21 mt in November 2008. The production grew by 1.13 percent in November on month on month basis. The CMA said that cement exports during November stood at 0.10 mt, down by 60 percent as compared to 0.25 mt in November 2008. On month-on-month basis cement export was down nearly 38 percent duirng November.

Clinker export in November at 0.24 mt witnessing a year on year decline of 20 percent and month on month dip of slightly more than 11 percent. Meanwhile, CMA noted that no major capacity addition in cement took place in the country in November. The installed capacity(large plants), except ACC, at the end of November stood at 192.32 mt, same as October.

Thermal Coal Price Rises On Chinese DemandSarbani Haldar

Global thermal coal prices improved substantially throughout December on the back of strong demand for thermal coal due to the winter season. Though

prices did decline slightly in the first week of the New Year, it recovered strongly in the following week to reach levels seen last in November 2008.

According to benchmark globalCOAL NEWC Index, thermal coal prices in Asia improved more than 18 percent since December as prices climbed to $95.61 per ton for the week ended January 8 as compared to $ 80.43 per ton for the week ended December 4.

Nearly the same trend was seen in South African coal price. But price rise in this regions has been much more and stable than its Asian counterparts. According to the globalCOAL RB Index, thermal coal price improved more than 30 percent since

Cement production up in December

The cement production by ACC Ltd, India’s largest manufacturer, fell marginally to 1.86 million tons (mt) in December 2009 as against 1.91 mt in the corresponding month of previous year. The company’s despatches during the month were down at 1.88 mt from 1.90 mt in November 2008. ACC’s cumulative cement production between January and October 2009 rose to 21.38 mt as compared with 20.84 mt last year and despatches increased to 21.36 mt from 20.86 mt. Ambuja Cements Ltd’s despatches during December increased by 11.55 percent to 1.729 mt compared with the reported figure of November, the company said. The production during the month stood at 1.737 mt, up 14.88 percent compared with 1.512 mt produced in November.

The production of Ambuja Cements in December was 6.70 percent more than 1.628 mt produced in the corresponding month of 2008, while despatches were up 4.03 percent. The company’s cement production in 2009 stood at 18.837 mt, up 6.13 percent compared to 2008, while despatches of 18.833 mt were up by 6.07 percent compared to 2008.

Dalmiya Cement (Bharat) Ltd reported 26.29 percent increase in production and despatches jumped by 37.54 percent in December. The company’s December production stood at 0.317 mt compared to 0.251 mt in the previous year, while despatches jumped to 0.348 mt from 0.253 mt in December 2008. J K Lakshmi Cement’s production figures for December were not available, but its despatches increased by 28.41 percent to 0.452 mt.

Similarly, Jaiprakash Associates reported 60.07 percent increase in December despatches to 1.06 mt compared with 0.662 mt in the same month of 2008, while Shree Cement Ltd, the largest cement manufacturer of North India, despatched 0.858 mt cement in December, registered a growth of 22.40 percent over the corresponding month last year.


December as price appreciated to $90.51 per ton for the week ended January 8 as compared to the earlier $69.19 per ton for the week ended December 4.

Typically demand for thermal coal improves in the winter months as countries start restocking. While India continues to import thermal coal to meets its own shortfall, China which is facing its worst winters in the last 60 years has been importing more coal to feed its requirement. Infact, Chinese thermal coal market has tightened after heavy snow in northern China hit mining operations and railway transportation.

Heavy snowfall and freezing temperatures have forced Beijing, Shanghai and others regions in China to limit the use of electricity to ensure power needed for heating. The country continues to suffer from coal shortage due to cold weather as electricity rationing continued in five provinces and municipalities, including Shanxi Province.

Reports stated that coal reserves at the 598 major power plants were decreasing and would last for the next nine days. According to the National Power Dispatch and Communication Center, coal storages in 205 power plants would not last for seven days. The situation is worst in 11 percent of the power plants which might shut production at any time as coal reserves would not support for three days of power generation.

Reports quoted Mike Newman, an analyst at McCloskey as saying, “It’s a knock-on effect. Chinese prices rise, which makes Australian coal more expensive, and Australian prices are dragging up Richards Bay prices because they are going into the same market, which is India and China.”

However the country's supplies were already low before the weather problems hit as there was clampdown on illegal and unsafe mining which forced the closure of hundreds of small mines in Shanxi province, the key producing area.

As a result coal traders informed that to tide over its domestic shortages, the country is purchasing its supplies even from far away countries like Colombia for the first time apart from its traditional supply base of Australia, Indonesia and Vietnam.

In the meantime this rise in the demand has resulted in price to cross the $100 per ton barrier for the first time in

more than a year as China shifts to become an importer from exporter.

"Desperation buying by Chinese utilities has caused the spot price to leap," said Alan Heap, commodities analyst with Citigroup stated reports. Besides Richard Navarre, president of US-based Peabody Energy said “We think that China is going to continue as a net importer of coal," he says, adding that consumption in the Asia-Pacific basin "is continuing to strengthen".

As per analyst’s estimates, China had net imports of more than 50 million tons (mt) last year. It is likely that China would continue to buy significant quantities of thermal coal overseas and the price rally could continue during the first quarter as Chinese electricity demand would rise amidst supply constrains.

Meanwhile Australia & New Zealand Banking Group Limited have raised their forecasts for thermal coal price for this year by 19 percent due to rising demand from China owing to the stimulus provided by the government and the extreme cold winter that the country is experiencing.

Recent media reports noted that according to Melbourne-based head of commodity research, Mark Pervan, Australia’s fourth-biggest bank has increased its forecast for contract coal price for the year beginning April 1 to $95 per ton from the earlier forecast of $80 per ton.

In the meantime, waiting time at the Australia’s Newcastle Port have increased slightly to 15.3 days for the week ended January 11 as compared to the waiting time of 13.16 days for the week ended December 21. However the congestion at the port has seen an improvement as there were 53 vessels waiting off the port to load coal for the week ended January 11 as compared to 60 vessels that were waiting outside the port for the week ended December 21.

RBTCSouth Africa’s Richards Bay Coal Terminal (RBTC) has informed that overall exports decline in 2009 as rail services deteriorated and it exported 61.14 mt of coal in 2009 as compared with previous year’s comparable figure of 61.7 mt .

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As per available reports, Transnet Freight Rail delivered 61 mt in 2009, less than the terminal’s 76 mt capacity. In these regards RBTC informed that new agreements were reached at the end of 2009 to rail extra coal with South African diversified miner Exxaro and other companies while more deals were near conclusion.

Meanwhile RBTC, which handles almost all of South Africa’s coal exports, might see a significant shift in its exports destination as share of exports to the Asian markets is likely to be more than double in 2009. Although the port is the biggest source of coal for European power plants, Asian buyers have been increasing purchases, including lower-quality fuel.

As per the information from the port last year, 41 percent of the 61.14 mt exported went to Asia, up from 18 percent of 61.7 mt the year before. The share of exports shipped to Europe fell to 46 percent from 63 percent. India received 29 percent of total shipments, as compared to the11 percent seen a year earlier, and 2 percent went to China.

Incidentally exports of thermal coal into India are likely to increase as the country would have to import 28.7 mt of coal for the year ending in March to meet its shortfall.

Caustic Soda To Get DearerGargi Sahai

The caustic soda prices saw decent decline in the month of December, 2009 in the Mumbai and Delhi chemical markets. The caustic soda lye price lost around 2.78

percent from November end price of Rs 18,000 per ton and stood at Rs 17,500 per ton on December 26, 2009 in the Mumbai chemical market.

The caustic soda flakes prices also lost around 6.25 percent, from November end price of Rs 23,200 per ton and went down to Rs 21,750 per ton on December 26, 2009 in the Delhi

chemical market. Demand softened in the Asian region both for domestic and export market due to seasonal factors.

It was also known that sellers were having a problem in getting vessels for shipment from North East Asia to US West Coast and South East Asia. Meanwhile, due to the shortage of vessels freight rates have moved up. Market did not show any strength in the American region as well. Interestingly enough, the producers were not letting customers to buy stocks in advance before implementation of the next price increase. Only the existing contracts were being exercised.

European caustic soda market was more or less balanced during the period. Meanwhile, although production issues faced in the last few months have been resolved and force majeures lifted, some producers are yet to ramp up their production. Market experts are of the opinion that as demand for chlorine is weak at the moment, there is relatively less incentive for producer to increase their caustic soda production as chlorine is a crucial co-product obtained in the process of manufacturing of caustic soda.

The demand for caustic soda on the other hand softened during the second half of the month due to the holiday season. In the mean time it has been reported that the Indian government is likely to decide on a safeguard duty imposition on caustic soda imports by the end of February 2010. As per a recent media report, the ministry of finance held a public hearing on the case on December 8. The local chlor alkali association had filed a petition in July 2009 for the same. A provisional 15 percent safeguard duty has been imposed on December 4, until March 3, 2010, as per the report. Major exporters including Europe, China, South Korea, Thailand, Indonesia and the US would be effected if this safeguard duty is imposed.

OutlookIn response to the rising feedstock, escalating electricity cost and pick up in demand from consuming industries coupled with tight supplies from producers, caustic soda market is likely to strengthen in the Asian region in the short term. The US and European regions too are expected to see a balanced to rising market in the near future.


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Rs

Per K

G

Caustic Soda Prices For Flakes In Delhi

Source: CMIE


Freight rates for movements of dry cargo across the various routes declined in December. Though rates did see improvement in the beginning of the month, the

trend failed to continue as less fixing activity during global holidays contributed to the weakness.

It was not been a very good month for the Capesize sector which after witnessing strong improvement, declined steadily during end of the month. Thus, demand for Capesize vessels saw a downturn ahead of Christmas as chartering activity mainly for the building iron ore inventory slowed down.

According to data available from the Tex Report, freight rates for transporting ore in a Capesize vessel declined in December. By the end of December spot rates in the Brazil to China route had declined.

For transporting 1,60,000 tons of iron ore from Tubaro, Brazil to Qingdao, China the freight rate was $27 per ton for a laycan scheduled for January 17 to 30. Earlier in November in the same route to transport for160,000 tons of iron ore from Tubarão, Brazil to Qingdao, China the freight rates was $36 per ton for a laycan scheduled for December 20 to 30.

Freight rates for transporting iron ore in the Western Australia to China route also declined. To ship 1,70,000 tons of iron ore from Port Hedland to Qingdao, China the freight rate was $12.50 per ton for a laycan scheduled for

January 5 to 25. Earlier in November for the same route BHP Billiton had voyage chartered a vessel to ship 1,70,000 tons of iron ore from Port Hedland, Western Australia to Qingdao, China for $20.50 per ton for a laycan scheduled for December 10 to 15.

Though the initial weakness that the sector saw began primarily due to the holidays in some parts of the world, by the end of the month less fixing activity due to the Christmas and New Year caused rates to slide.

At the beginning of the month, the holiday in the western countries due to the Thanksgiving Day weighed on the sector as there was little activity in the market. But the market saw a revival and bounced back later.

Initially spot charter rates were estimated to be around $17 per ton for a voyage from Western Australia to China and slightly below or above $44 per ton for a charter from Tubarao to China. But owners were resisting attempts of charters to push down the Capesize market even lower.

Meanwhile, Vale’s recent vessel-buying frenzy would hit the Capesize sector hard. Vale will now be utilising its own vessels for transportation, which would mean that the Brazil-China route will be out of the game, leaving only Australia-China, and two producers, BHP Billiton and Rio Tinto, serving the Capesize sector.

The Capesize rates on all the major routes have declined heavily during the month as activity declined. Initially Capesize owners had held on to their cargoes with the expectation that rates will decline further. When the rates did decline, it only validated their expectation.

Nevertheless, with slowdown of activity, more vessels are becoming available, putting pressure on the already low rates as no major demand is being seen from any of the routes.

Though Australian iron ore producer Rio Tinto did fix a few vessels around the middle of the month, it did nothing to improve the rates. Meanwhile, this heavy decline in the rates has totally destroyed period activity as there were no fixtures being reported.

However, rising demand for thermal coal from south China boosted the Pacific Supramax market ahead of the winter months. Besides lack of tonnage in

0100020003000400050006000700080009000

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2-Jan

Baltic Dry Index Baltic Caps iz e IndexBaltic Supramax Index Baltic Panamax Index

Daily Chart For Cape/Panamax/Supramax

Source: Mjedge Research

PRICE AND MARkET ANALySIS FREIghT

Iron Ore And Coal Demand To PullUp Freight Rates

Sarbani Haldar


PRICE AND MARkET ANALySIS FREIghT

Southeast Asia, close to major coal exporter Indonesia has also helped boost charter rates for smaller bulk carriers taking coal to China and also India. Rates are likely to rise further ahead of the winter months. Chinese demand for Indian iron ore also supported the Pacific market, as rates on the Baltic Exchange’s east coast India to China route climbed over the week to $26,208 per day.

Though iron ore fixing activity had not been at its best over the month, imports from India saw an improvement. However one good sign was declining inventories at the different Chinese ports. Iron ore inventories in China have dropped to 2.6 million tons from the earlier 67.1 million tons.

By the end of the month, rates in the Panamax sector climbed as volume of tonnage in the spot market maintained balance with the amount of cargo available.

As per information Baltic Exchange front haul route rates for Panamaxes shipping commodities like coal and iron ore from the Atlantic to Asia, rose to $41,536 per day. In addition continued strong demand for thermal coal from Australia to Asia has supported that market.

Meanwhile strict lending terms by banks in China could slow down imports of material including iron ore and steel products in the coming months which might not be very good news for the sector.

Freight rates have seen an improvement in the beginning of January as demand for both iron ore and coal improved with the end of the year end holidays. The rates are likely to continue to rally as India and China are going to consume more of these commodities. China is likely to consume more coal in the short term as the coal shortage in the country is likely to squeeze power supply as the country tackles one of its severe winters.

As per information from brokers, Chinese power utilities were desperately trying to secure coal supplies in as the country faces the worst winters. In addition to this the Chinese would be looking to secure ore and coal ahead Lunar New Year holiday in China, which starts on February 14. Going by the indications rates would improve in the next few weeks.

Baltic Dry IndexIt was quite a volatile month for the Baltic Dry Index. Though, the Baltic Dry Index which was at 3836 points on December 1 sharply imporoved to 4107 points on 4 December, it declined later on to end the month to 3005 on December 24.

The Capesize Index too declined heavily during the month. After beginning on 6127 points on December 1, it improved strongly to 6655 points on December 4 and later declined steadily to end at 3887 points on December 24. In comparison to this, decline in both the Baltic Supramax Index and the Panamax Index was less severe. After beginning on 2376 points on December 1 it ended the month on 2224 points on December 24.

The Baltic Panamax Index, which began the month at 3635 points on December 1 improved to 3989 points on December 8 and declined later to 3567 points on December 24.


Kandla Port Strives To Boost EfficiencySourcing Insights Bureau

Gujarat’s Kandla Port, which handled 72.22 million tons (mt) of cargo in 2008-2009, is likely to see an improvement in its cargo volumes this year due to

various measures taken to improve its efficiency. As a result, the port is likely to handle 76 mt during 2009-10 which would improve further to 78 mt in 2010-11.

Keeping this target in mind, the port has closely monitored its performance on three important parameters. While some amount of improvement is already underway there are plans to improve them further so that it is able to compete with other ports in its vicinity.

According to the deputy chairman of Kandla Port Trust, M.A. Bhaskarachar, as of September 2009 the average turnaround time for ships is 2.98 days as against the earlier 3.15 days. Turnaround time indicates the time taken after the ship is berthed to unload it completely. Faster turnaround would help to unload more number of ships, thus increasing the volume handled by the port.

Besides the port has also seen an improvement in its pre berth detention time which has improved to 1.08 days from the

earlier 1.17 days last year. This would ensure that the waiting time of ships has come down and encourage big liners to bring their ships to Kandla port.

In addition to this, the average rate of handling cargo per ship per berth day has also improved to 13,098 tons from last years 12,998 tons. This indicates the efficiency of the workers employed by the port is increasing.

While the port is planning to improve its existing facilities by mechanisation, it is also planning to bring in more pilots to improve the overall working of the port. All these measures would help Kandla Port to overcome the disadvantages of a tidal port as the ships coming to the port generally have to wait for about five to six hours to get the required draft to enter the port.

Other than this, the container terminal at the port has been privatised with a 30-year licence given to ABG KCTL. The contract terms are such that throughput to the container terminal and revenue is expected to be increased for better coordination by the outsourced agency, Bhaskarachar felt.

The port also plans to improve the communication system between the port users and the customs officials for improving the overall efficiency, the deputy chairman added.

LOgISTICS

road Freight December 2009From to Approx distance (Km) item Carried Rate per ton (Rs.)

Kolkata Hydrabad 1500 Engg good, paint 1600

Haldia Hydrabad 1550 Petrochemical 1650

Cuttack Hydrabad 1100 Engg. Good, Carbon black 1400

Kolkata Mumbai 2050 Engg good, chemical 1700

Haldia Mumbai 2100 Petrochemical 1950

Rourkela Mumbai 1576 Steel products 2300

Kolkata Cuttack 500 Engg. Good, Carbon black 600

Kolkata Angul 550 Carbon black 650

Haldia Cuttack 520 Petrochem 700

Kolkata Sambalpur 600 Aluminium, steel scrap 750

Haldia Sambalpur 630 Vegetable oil 800

Kolkata Ahmedabad 2200 Jute goods, Chemical 2000

Haldia Ahmedabad 2250 Chemicals 2100

Kolkata Daman 1980 Chemicals 1700

Haldia Daman 2000 Chemicals 1800

Hydrabad Kolkata 1500 Paints, medicine, edible oil 2600

Mumbai Kolkata 2050 Consumable goods 3800

Cuttack Kolkata 500 Pig Iron, mine products 800

Angul Kolkata 550 Sponge Iron 900

Rourkela Kolkata 600 FerroManganese,firebrick 1300

Ahmedabad Kolkata 2200 Cloth 4200

Daman Kolkata 1980 Chemical, plastic 3800

For multi-axle 16 tonne with 15 tonne load guarantee. Please note transporters freight would be 8 – 10 per cent higher to factor in establishment cost, risk factor, bank interest, investment and profit.

M.A. Bhaskarachar, Deputy Chairman, Kandla Port Trust


PRICE TREND

Commodity Price TrendsSourcing Insights Bureau

aLuMiniuMNalco (Prices in Rs per ton ex-works)

wef Change

1 January 2010 1 December 2009 30 June 2009 M-o-m (Jan v/s Dec)

Nalco Ingot price IE-10 127,650 116,150 98,150 10%

Source: Nalco Price list

Aluminium at the LME

As on Change

31 December 2009 30 november 2009 30 June 2009 M-o-m (Dec v/s nov)

Spot quotations ($/ ton) 2,206 2,006 1,616 10%

3 - months quotation ($/ ton) 2,241 2,034 1,650 10%



Inventory (in tons) 4,624,425 4,599,700 4,394,825 1%

Source: London Metal Exchange

Aluminium at Mumbai Market (Prices in Rs per kg )As on Change


Aluminium CG Ingots 116 107 93 8%

Aluminium Utensil scrap 92 83 75 11%

Source: Metal Trade Intelligence

MCX Aluminium

DateSpot Prices

Contract Expiry

29 January 2010 26 February 2010

Open (Rs) Close (Rs) Open (Rs) Close (Rs) Open (Rs) Close (Rs)

1 December 2009 94.20 94.20 95.40 97.15 97.90 97.75

2 December 2009 96.20 96.20 97.10 99.30 100.30 100.45

3 December 2009 98.10 98.10 99.60 98.20 100.00 100.00

5 December 2009 – 97.40 99.20 100.15 0.00 100.00

7 December 2009 98.25 – 99.50 100.70 100.00 100.50

8 December 2009 99.45 – 100.60 100.80 102.35 101.65

11 December 2009 96.85 – 102.50 105.60 105.50 105.60

12 December 2009 – 102.80 105.95 105.75 107.10 106.60

16 December 2009 – 102.80 104.10 105.35 106.50 106.40

17 December 2009 104.10 104.10 105.10 104.10 105.65 105.45

18 December 2009 103.10 – 103.90 104.55 105.30 105.40

19 December 2009 – 103.70 104.85 104.90 106.30 106.10

21 December 2009 104.00 – 104.75 105.60 105.00 106.35

22 December 2009 104.60 104.60 105.70 104.50 106.25 106.35

23 December 2009 103.75 103.65 104.60 105.15 105.80 106.10

24 December 2009 104.25 – 105.40 105.35 106.90 106.20

28 December 2009 – 102.90 106.10 105.70 107.10 106.95

29 December 2009 105.10 104.85 106.10 105.95 107.20 106.80

30 December 2009 105.35 104.50 106.15 105.20 105.30 106.50

31 December 2009 105.65 – 105.40 104.25 106.30 105.20


PRICE TREND

CoPPerHindustan Copper Limited (Prices in Rs per ton inclusive of excise duty and education cess)

wef Change


Cathodes - cut 360,225 344,583 270,147 5%

Cathodes - full 358,755 343,083 268,647 5%

CC rods 8 mm, std coils [all India] 364,729 349,049 274,826 4%

CC rods 8 mm, non-std coils [all India] 364,329 348,649 274,426 4%

CC rods 11mm/12.5 mm, 16 std coils [all India] 366,720 351,038 276,886 4%

Source: Metal Trade Intelligence. The above price indicate the financial agreement only.

Copper at the LMEAs on Change






Inventory (in tons) 502,400 441,000 265,725 14%

Source: LME official website

Copper at Mumbai Market (prices in Rs per kg)As on Change


Copper Wire Bars 384 360 305 7%

Copper Heavy Scrap 350 327 274 7%

Copper Utensil Scrap 326 297 257 10%


MCX Copper

DateSpot prices

Contract Maturity Date

26 February 2010 30 April 2010

Open (Rs) Close (Rs) Open (Rs.) Close (Rs.) Open (Rs.) Close (Rs.)

1 December 2009 322.65 322.65 324.30 328.75 325.95 330.75

2 December 2009 330.85 330.85 328.85 332.60 330.10 334.55

3 December 2009 332.40 332.40 332.50 330.40 334.40 332.35

4 December 2009 330.65 – 329.40 331.65 331.55 333.45

5 December 2009 – 330.10 330.75 330.25 331.80 332.25

11 December 2009 319.60 – 320.05 323.50 323.40 325.50

16 December 2009 – 323.00 323.50 329.25 326.30 331.25

17 December 2009 329.90 329.90 328.95 324.30 330.10 326.35

18 December 2009 322.60 – 324.60 324.65 327.90 326.65

19 December 2009 – 324.15 324.70 324.85 325.90 326.90

21 December 2009 324.15 – 324.75 326.60 327.40 328.55

22 December 2009 325.90 325.90 326.25 324.40 328.10 326.45

23 December 2009 323.75 323.75 324.80 329.65 326.00 331.55

24 December 2009 330.90 – 330.00 338.30 332.20 340.25

28 December 2009 – 339.40 339.00 342.50 344.30 344.45

29 December 2009 343.95 343.95 342.00 341.05 342.90 342.95

30 December 2009 341.05 341.05 341.70 344.65 344.70 346.70

31 December 2009 344.60 – 344.95 344.00 347.50 346.10


PRICE TREND

ZinCHindustan Zinc, Kolkata (Prices in Rs per ton exclusive of excise duty and sales tax)

Wef Change


Super High Grade Zinc 99.99% 143,200 127,700 95,000 12%

High Grade Zinc 99.95% 142,200 126,700 94,000 12%

PW Zinc 98.5% 140,700 125,700 93,000 12%


Zinc at the LMEAs on Change






Inventory ( in tons) 489,125 455,275 353,375 7%


Zinc at Mumbai Market (Prices in Rs per kg)As on Change

30 november 2009 30 June 2009 M-o-m (Dec v/s nov)

Zinc Slabs 118 94 -100%


MCX Zinc

DateSpot prices

Contract Expire Date



1 December 2009 105.60 105.60 106.35 109.45 105.50 105.50

2 December 2009 109.25 109.25 109.45 112.05 0.00 109.70

3 December 2009 111.30 111.30 112.10 110.90 111.70 111.80

4 December 2009 109.70 – 110.50 109.80 109.90 110.05

5 December 2009 – 108.85 109.65 110.15 0.00 110.05

8 December 2009 107.35 – 108.30 108.30 109.60 109.20

10 December 2009 105.70 – 106.70 106.15 107.55 106.55

11 December 2009 109.80 – 106.50 107.55 107.35 107.90

12 December 2009 – 106.35 107.50 107.60 0.00 107.90

15 December 2009 – – 108.90 108.50 109.50 108.50

16 December 2009 – 107.50 108.45 112.70 109.30 112.80

17 December 2009 111.20 111.20 112.00 111.85 112.30 112.85

18 December 2009 111.10 – 111.85 112.40 112.30 112.45

19 December 2009 – 112.30 112.55 112.70 113.15 113.10

21 December 2009 112.40 – 112.70 113.70 113.50 114.30

22 December 2009 112.70 112.70 113.10 113.50 113.70 113.65

23 December 2009 113.00 114.30 113.20 116.75 113.70 116.85

24 December 2009 117.30 – 116.55 116.40 117.00 116.70

28 December 2009 – 116.45 117.60 117.30 118.00 117.20

29 December 2009 118.50 117.10 117.45 118.20 118.00 118.40

30 December 2009 119.25 119.05 118.60 119.05 119.00 119.30

31 December 2009 120.20 – 119.30 118.30 119.70 118.45


PRICE TREND

niCkeL

Nickel at the LME

As on Change

31 December 2009 30 november 2009 31 July 2009 M-o-m (Dec v/s nov)

Spot quotations ($/ton) 18475 16025 17,638 15%

3-months quotation ($/ton) 18550 16075 17,750 15%



Inventory (In Tons) 158,424 140,646 105,864 13%


MCX Nickel (unit Rs/Kg)

DateSpot Price

Contract Expiry Date



1 December 2009 760.10 760.10 764.40 764.70 773.30 768.60

2 December 2009 761.60 761.60 768.00 767.20 771.30 773.90

3 December 2009 758.50 758.50 771.40 748.70 775.00 754.20

4 December 2009 740.30 – 747.50 754.70 750.00 758.30

5 December 2009 – 735.50 752.00 755.90 760.00 760.50

7 December 2009 746.00 – 753.90 760.50 756.60 762.20

8 December 2009 753.40 – 758.20 763.60 764.20 770.10

9 December 2009 754.60 – 762.30 772.70 764.40 778.30

10 December 2009 769.30 – 773.00 772.00 780.20 775.30

11 December 2009 762.60 – 774.40 784.30 781.00 788.60

12 December 2009 – 768.20 783.00 787.50 793.00 793.30

14 December 2009 – – 783.30 793.70 786.50 798.00

15 December 2009 – – 795.40 795.50 802.40 800.30

16 December 2009 – 791.80 796.40 815.90 800.70 820.80

17 December 2009 809.50 809.50 812.90 807.80 818.40 813.30

18 December 2009 798.80 – 806.30 811.60 809.40 816.90

19 December 2009 – 798.70 812.00 814.50 821.10 819.80

21 December 2009 814.00 – 815.10 843.60 824.00 847.60

22 December 2009 835.40 835.40 840.00 838.70 844.10 842.60

23 December 2009 833.80 841.10 839.60 859.60 843.30 865.00

24 December 2009 862.40 – 865.80 886.20 869.50 891.20

26 December 2009 – – 887.00 893.50 900.00 898.30

28 December 2009 – 871.40 893.50 908.60 906.20 914.60

29 December 2009 890.00 884.80 903.20 899.90 907.10 905.90

30 December 2009 899.10 881.00 901.00 888.50 908.10 892.80

31 December 2009 886.40 – 889.40 878.50 894.80 882.90


PRICE TREND

CruDe oiLMCX Crude Oil (Unit Rs/ Barrel) 1 ton = 7.33 barrel (approx.)

DateSpot

Contract Expiry

19 January 2009 19 February 2010 19 March 2010

Open Close Open Close Open Close Open Close

1 December 2009 3592 3592 3642 3711 3696 3749 3705 3742

2 December 2009 3640 3640 3708 3633 3728 3682 3699 3758

3 December 2009 3544 3544 3640 3626 3685 3686 3724 3737

4 December 2009 3534 – 3615 3612 3668 3675 3750 3750

5 December 2009 – 3490 3600 3618 3690 3681 0 3750

8 December 2009 3433 – 3547 3533 3620 3613 3655 3664

10 December 2009 3305 – 3410 3371 3485 3445 3538 3557

11 December 2009 3296 – 3382 3377 3464 3441 3520 3531

12 December 2009 – 3250 3370 3363 3440 3435 0 3531

15 December 2009 – – 3380 3408 3444 3477 3514 3532

16 December 2009 – 3297 3415 3484 3498 3540 3545 3558

17 December 2009 3392 3392 3478 3462 3530 3509 3590 3559

18 December 2009 3399 – 3475 3504 3540 3550 3625 3599

19 December 2009 3437 3481 3504 3530 3551 3630 3630

21 December 2009 3437 – 3491 3469 3550 3521 3600 3607

22 December 2009 3450 3450 3461 3492 3509 3534 3565 3566

23 December 2009 3482 3482 3488 3578 3532 3611 3587 3633

24 December 2009 3592 – 3587 3614 3617 3648 3674 3669

28 December 2009 – 3676 3641 3681 3674 3714 3720 3739

29 December 2009 3683 3678 3672 3684 3704 3723 3735 3760

30 December 2009 3682 3686 3685 3725 3723 3758 3762 3786

31 December 2009 3705 – 3720 3727 3745 3759 3785 3787

rubberRubber Domestic (Unit Rs/100 kg)

KOttAyAMAs on Change


RSS - 4 13,900.00 12,100.00 9,950.00 15%

RSS -5 13,275.00 11,600.00 9,700.00 14%

ISNR - 20 13,050.00 11,550.00 8,975.00 13%

Latex ( 60% drc) 8,575.00 7,260.00 8,735.00 18%

Source: Rubberboard.org

Rubber International (Unit Rs/100 kg)

BAnGKOKAs on Change


RSS - 1 13,594.00 12,917.00 8,213.00 5%

RSS - 2 13,511.00 12,832.00 8,128.00 5%

RSS - 3 13,434.00 12,755.00 8,051.00 5%

RSS - 4 13,392.00 12,713.00 8,008.00 5%

RSS - 5 13,329.00 12,649.00 7,944.00 5%

Source: Rubberboard.org


PRICE TREND

PoLyMerterms unit Origin December 2009 november 2009 October 2009 Change

M-o-M (Dec v/s nov)

LLDPE - 20FA010 Landed Rs/Kg IPCL 72.62 69.62 65.62 4.3%

HDPE - F46003 Landed Rs/Kg Reliance 69.31 66.81 63.81 3.7%

HDPE Film CNF USD/MT Singapore 1265 1230 1130 2.8%

LLDPE Film CNF USD/MT Singapore 1305 1260 1165.00 3.6%

PP-Raffia Basic Rs/Kg Domestic 73.25 68.6 71.93 2.8%

PP-Raffia CNF USD/MT Singapore 1185 1140 1080.00 3.9%

HDPE - E5201 Basic Rs/Kg HPL* 70.3 70.3 64.30 0.0%

LLDPE - 71601S Basic Rs/Kg HPL* 70.45 70.95 66.95 -0.7%

PP - F110 Basic Rs/Kg HPL* 66.85 66.85 59.85 0.0%

HDPE 5400 Basic Rs/Kg HPL* 72.25 72.25 66.25 0.0%

LDPE - 1020 FA20 Landed Rs/Kg IPCL 77.89 73.89 67.89 5.4%

Brent Crude Oil Average $/bbl 74.28 76.66 72.76 -3.1%

* Prices are as prevailing on 1st of next month.

PoLyeSter FiLMterms unit Origin December 2009 november 2009 October 2009 Change

M-o-M (Dec v/s nov)

Pet 10 micron Landed Rs/Kg Domestic 104 102 95 2.0%

Pet 12 micron Landed Rs/Kg Domestic 94 92 87 2.2%

Met Pet 12 micron Landed Rs/Kg Domestic 129 117 103 10.3%

Chemically Treated Pet 10 micron Landed Rs/Kg Domestic 114 117 105 -2.6%

Chemically Treated Pet 12 micron Landed Rs/Kg Domestic 104 102 95 2.0%

boPPterms unit Origin December 2009 november 2009 October 2009 Change

M-o-M (Dec v/s nov)

BOPP 18/20/25µ PCT ½ Natural Landed Rs/kg Domestic 105 97 97 8.2%

BOPP 18/20/25µ HST 1 White Opaque Landed Rs/kg Domestic 115 101 102 13.9%

BOPP 18/20/25µ HST 1 Natural Met Landed Rs/kg Domestic 117 101 109 15.8%

BOPP 40µ LTS Landed Rs/kg Domestic 105 95 95 10.5%

BOPP 15µ HST 1 White Opaque Landed Rs/kg Domestic 115 108 102 6.5%

CPPterms unit Origin December 2009 november 2009 October 2009 Change

M-o-M (Dec v/s nov)

Transparent 20/25 micron Landed Rs/kg Domestic 117 109 96 13.5%

White opaque transparent 20/25 micron Landed Rs/kg Domestic 123 119 101 17.8%

Metallisable CPP 22/25 micron Landed Rs/kg Domestic 127 121 113 7.1%


PRICE TREND

Ferro Alloys and Metals Price TrendsSourcing Insights Bureau

Ferro alloys & Metals December 2009 november 2009 July 2009Domestic ex-works price

Export trends import trendin 1st week of Jan

HC Ferro Chrome (Cr - 60 %)Ex-works Rs/ ton

Rs 61 - 62 per kg Stable –57,000 51,000 58000

LC Ferro Chrome (C - 0.1%, Cr - 65%)CIF in US$/lb of cr

Rs 140 - 145 per kg – Lower1.60 1.65 1.70

Ferro Silicon (Si - 75% ) Russian makeCIF in US$ / ton

Rs 60-61 per kg (70% grade) – Rising1,340 1200 1020

HC Ferro Manganese (Mn - 70%)Ex-works Rs/ ton

Rs 59 - 60 per kg – –58,000 50,000 41,000

Silico Manganese (Mn - 60%, Si - 15%)Ex-works Rs/ ton

Rs 61 - 62 per kg Rising –57,000 49,000 41,500

MC Ferro Manganese (Mn - 70% ,C-1.5)Ex-works Rs/ ton

Rs 84 - 85 per kg – –75,000 74,000 60,000

LC Ferro Manganese (Mn - 70%, C - 0.1)Ex-works Rs/ ton

Rs 93 - 94 per kg – –93,000 90,000 85,000

Manganese metal (Mn - 95% lump)CIF in US$ / ton

– – Rising2,820 2,600 2,450

Ferro VanadiumEx-works Rs/ kg

Rs 650 per kg – Stable590 590 910

Moly Oxide ( Mo - 57% min)CIF in US$/lb of moly

– – Stable11.6 10.8 15.5

Ferro Titanium (Ti - 30%)Ex-works Rs/ ton

Rs 125 per kg – –1,13,000 95,000 85,000

Calcined petroleum coke (C - 98%, S - 0.5%)CIF in US$ / ton

Rs 18 - 19 per kg – –450 320 350

Aluminium shots /Cubes ( Al - 93%)Ex-works Rs/ ton

Rs 103 per kg – –103000 81000 83000

Aluminium ingots (Al - 99.9%)Ex-works Rs/ ton

Rs 128 per kg – –127650 113150 103150

Aluminium scrap (Taint - a - bore)CIF in US$ / ton

– – Rising1800 1450 1500

Aluminium scrap (Talic - 6000 series)CIF in US$ / ton

– – Rising1570 1320 1300

Aluminium scrap (UBC)CIF in US$ / ton

– – Rising1700 1400 1400

Zinc ingots (HG)Ex-works Rs/ ton

Rs 142.80 per kg – –134500 128000 101100

Copper bar (Bombay Metal Exchange)Ex-works Rs/ kg

Rs 385 per kg – –378 358 315


INDEX

INDEX OF INDUSTRIAL PRODUCTION (Growth at 2-digit level)

industry code Description Weight

index Cumulative index Percentage growth

nov 2008 nov 2009Apr - nov

nov 2009 Apr - nov(2009-2010)2008-2009 2009 - 2010

20-21 Food Products 90.8 175 190.6 149.8 139 8.9 -7.222 Beverages, Tobacco and Related Products 23.8 582.7 567.3 575 562.4 -2.6 -2.223 Cotton Textiles 55.2 156.9 168.9 161.7 166.9 7.6 3.224 Wool,Silkandman-madefibretextiles 22.6 276.5 299.7 273 308.6 8.4 1325 JuteandothervegetablefibreTextiles(exceptcotton) 5.9 120.2 106.5 114.4 95.9 -11.4 -16.226 Textile Products (including Wearing Apparel) 25.4 323.2 337 308.3 338.9 4.3 9.927 Wood and Wood Products; Furniture and Fixtures 27 111.3 133.5 119.6 132.2 19.9 10.528 Paper & Paper Products and Printing, Publishing & Allied Industries 26.5 257.2 275.6 262.1 267.6 7.2 2.129 Leather and Leather & Fur Products 11.4 154.6 147.7 158.1 159.5 -4.5 0.930 Basic Chemicals & Chemical Products (except products of Petroleum & Coal) 140 300.4 351.5 326.3 359 17 1031 Rubber, Plastic, Petroleum and Coal Products 57.3 238.7 284.4 236.4 268.4 19.1 13.532 Non-Metallic Mineral Products 44 313 336.3 320.7 341.1 7.4 6.433 Basic Metal and Alloy Industries 74.5 324.2 337.6 324.1 339.7 4.1 4.834 Metal Products and Parts, except Machinery and Equipment 28.1 146.3 187.8 165.4 172 28.4 435-36 Machinery and Equipment other than Transport equipment 95.7 427.8 482.9 414 463.9 12.9 12.137 Transport Equipment and Parts 39.8 354.6 490.5 394.1 448.8 38.3 13.938 Other Manufacturing Industries 25.6 360.7 425.7 335.8 377.1 18 12.31 Mining & Quarrying 104.7 175.4 192.9 167.8 181.8 10 8.32-3 Manufacturing 793.6 286.3 322.6 288.4 310.7 12.7 7.74 Electricity 101.7 216.4 223.5 222.5 236 3.3 6.1

General Index 1000 267.6 298.9 269.1 289.6 11.7 7.6

Source: GoI, MOSPI Base: 1993-94 = 100

INDEX OF INDUSTRIAL PRODUCTION – SECTORALMonth

Mining (104.73) Manufacturing (793.58) Electricity (101.69) General (1000.00)2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010

Apr 171.1 176.9 285 286.1 218.2 233.6 266.3 269.3May 177.4 183.4 293.1 298.5 230.1 237.6 274.6 280.3Jun 158.8 181.4 290.4 313.5 217.1 234.4 269.2 291.6Jul 161.4 175.5 291.6 313.1 225.9 235.4 271.3 290.8Aug 160.4 178.1 284 314 221.6 245.1 264.7 292.8Sep 162.9 174.9 298.4 328.1 219.3 236.6 276.2 302.8Oct 175.1 190.9 278.6 309.4 231.2 242 262.9 290.1Nov* 175.4 192.9 286.3 322.6 216.4 223.5 267.6 298.9Dec 188.1 304.5 223.1 284Jan 188.1 304.8 227.9 284.8Feb 183.2 297.4 212.7 276.8Mar 209.8 326.9 241.3 305.9Average Apr-Nov 167.8 181.8 288.4 310.7 222.5 236 269.1 289.6Growth over the corresponding period of previous yearNov 0.7 10 2.7 12.7 2.6 3.3 2.5 11.7Apr-Nov 3.4 8.3 4.2 7.7 2.8 6.1 4.1 7.6’

* Indices for Nov 2009 are Quick Estimates. Note: Indices for the months of Aug ’2009 and Oct ’2009 incorporate updated production

INDEX OF INDUSTRIAL PRODUCTION : USE-BASEDMonth

Basic Goods (355.65) Capital Goods (92.57) intermediate Goods (265.14) Consumer Goods (286.64) Consumer Durables (53.65) Consumer non-Durables (232.99)2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010 2008-2009 2009-2010

Apr 221.3 231.3 313 294.4 256.9 277.2 315.6 301 352.9 415 307 274.8May 230.4 239.2 349 336.5 269.1 286.9 310.3 306.9 391 442.5 291.7 275.7Jun 220.5 244.1 386.3 438 267.5 288.5 293.2 306.2 374.4 435 274.5 276.5Jul 228.2 238.9 374.3 380.8 271.9 298.6 290.8 318.9 400.5 489.1 265.6 279.7Aug 226 243.3 372 406.4 258.3 295.6 283.9 314.8 394.5 491.8 258.4 274.1Sep 224.8 239.5 470.2 532.6 258.2 287.2 293.7 321.4 445.9 545 258.6 269.9Oct 234.4 245.2 365.7 405.9 249.1 287 278.1 311.2 424.8 510.5 244.3 265.3Nov* 225.6 239.1 394 442.1 245.7 293.3 299.2 332.3 369.5 507.5 283 291.9Dec 234.6 448.1 247.5 326.1 338.9 323.2Jan 233.6 394.2 247.5 347.2 391.3 337.1Feb 226.2 398.9 251.6 323.3 412.9 302.7Mar 251.1 508.9 284.5 328.1 442.9 301.7Average Apr-Nov 226.4 240.1 378.1 404.6 259.6 289.3 295.6 314.1 394.2 479.6 272.9 276Growth over the corresponding period of previous yearNov 2.2 6 0.5 12.2 -3.9 19.4 9.4 11.1 0.3 37.3 12.4 3.1Apr-Nov 3.6 6.1 8.4 7 -0.7 11.4 6.8 6.3 5.1 21.7 7.3 1.1

* Indices for Nov 2009 are Quick Estimates. Note : Indices for the months of Aug ’2009 and Oct ’2009 incorporate

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8 Apr 2010