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1.
Disclaimer
CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report.
Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or
omissions or for the results obtained from the use of such information. CRISIL is not liable for investment
decisions, which may be based on the views expressed in this Report. CRISIL especially states that it has no
financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL
Research operates independently of, and does not have access to information obtained by CRISILs Ratings
Division, which may, in its regular operations, obtain information of a confidential nature, which is not
available to CRISIL Research. No part of this Report may be published/reproduced in any form without
CRISILs prior written approval.
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Commodity Price View
CRISIL Research
September 2011
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Methodology: Rubber .48
Price Forecast: Rubber .52
Natural Rubber .51
SBR & PBR .54
PP .60
ABS .63
Annexure .66
Re ional commodit consum tion attern
Table of contents
Price Forecast Summary .06
Methodology: Ferrous Metals .09
Price Forecast .10
Ferrous Metals
HR Steel .11
CR Steel .17
Sponge Iron .19
3.
Impact of currency on prices
Volatility in prices
Commodity duty structure
.
Pig Iron .22
Non Ferrous Metals
Aluminium .23
Copper .27
Zinc .31
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CRISIL Research: Commodity Price Outlook
CRISIL Research has prepared Commodity Price Outlook for select
commodities on a quarterly (2011-2012) and annual (2013 to 2014) basis. This will
aid decision-making with respect to purchase of raw materials or in making
strategic decisions
The commodity price forecasts factor the following:
4.
o a an omes c eman -supp y scenar o
End-user analysis based on key consumption regions
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Highlights of CRISILs Commodity Price Outlook
CRISIL Research expects commodity prices to be under pressure in the near
term due to the weakening economic situation globally, especially in many
advanced economies
While demand recovery is expected to be almost non-existent or flat in Europe
and US, China too is expected to post lower y-o-y growth
Prices are expected to moderate in Q4 2011 through 2012 due to expected
slowdown globally, before increasing in 2013
5.
Key monitorables:
Monetary policy by US Federal Reserve
Chinas continued tight monetary policy stance to tame inflation
Management of debt crisis in developed markets especially Euro member countries
Recovery of demand in developed nations
US dollar movement vis--vis other currency
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Price Forecast Summary - Ferrous Metals
Steel
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
HR Global ($) 690 - 720 680 - 710 670 - 700 660 - 690 670 - 700 670 - 700 650 - 680
HR India (Rs) 37,500 - 39,500 38,000 - 40,000 37,400 - 39,300 36,800 - 38,700 37,300 - 39,200 37,300 - 39,200 36,100 - 37,900
CR steel (Rs) 42,000 - 44,100 42,400 - 44,600 41,800 - 44,000 41,300 - 43,400 41,700 - 43,900 41,800 - 43,900 40,600 - 42,700
TMT (Rs) 39,000 - 41,000 40,600 - 42,600 40,800 - 42,800 41,800 - 43,900 40,300 - 42,300 42,000 - 44,100 39,100 - 41,100
Steel Intermediates Quarterly
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Quarterly Annual
Annual
6.
E: Estimated, P: Projected
US $ 1 = Rs 45 approximately
Note: We have assumed a constant currency rate throughout the forecast periodHR Global prices refer to fob, CIS
Source: CRISIL Research
g ron s , - , , - , , - , , - , , - , , - , , - ,
Sponge Iron (Rs) 20,500 - 21,500 19,500 - 20,500 20,000 - 21,100 21,000 - 22,100 20,000 - 21,000 20,600 - 21,600 19,600 - 20,600
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Price Forecast Summary Non Ferrous Metals & Rubber
Non Ferrous Metals Quarterly
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 PAluminium 2,350 - 2,450 2,350 - 2,450 2,400 - 2,500 2,430 - 2,520 2,450 - 2,550 2,500 - 2,600 2,550 - 2,650
Copper 9,100 - 9,500 9,000 - 9,400 8,900 - 9,300 8,800 - 9,200 8,600 - 9,000 8,300 - 8,700 7,800 - 8,200
Zinc 2,300 - 2,300 2,110 - 2,190 2,110 - 2,190 2,160 - 2,240 2,210 - 2,300 2,300 - 2,400 2,550 - 2,650
Annual
Rubber
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590
PBR 4,500 - 4,700 4,050 - 4,260 3,890 - 4,090 3,810 - 4,010 3,470 - 3,650 3,370 - 3,540 3,300 - 3,470
NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930
Quarterly Annual
7.
E: Estimated, P: Projected
SBR grade is SBR 1502
US $ 1 = Rs 45 approximately
Note: We have assumed a constant currency rate throughout the forecast period
Source: CRISIL Research
ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180
PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410
Domestic Price
NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190
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Price Forecast Methodology - Metals
8.
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Methodology: Metals Price Forecast
Commodity Prices
Supply Cost Structure
End Use segments of each of the
regions such as Construction
,Auto, Consumer
Demand as a function of
Investment and
Investment/GDP have also
Raw materials
CostsOther Costs
Processing
Costs
Demand
9.
Source: CRISIL Research
These regions together account for a significant proportion of
the global commodity consumption (Refer Annexure I)
Durables, production of
machinery have been analysed
been analysed for arriving at
long term demand forecasts
United States
of America
IndiaEurope
Raw material price
forecast based on its
demand supply scenario
China
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Price Forecast for Metals
10.
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-
200
400
600
800
1,000
1,200
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
1Q11P
2Q11P
3Q11P
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
($/tonne) Steel price and key raw material cost
Iron & coal Cost Steel price
Steel prices to decline marginally with softening coking coal prices
Forecast
Raw material prices forecast (fob, Australia)
($/tonne) Iron ore Coking coal
3Q11 E 150-170 300-330
4Q11 P 160-180 270-300
1Q12 P 160-180 260-2902Q12 P 160-170 250-280
3Q12 P 160-170 260-290
2013 P 160-180 250-270
2014 P 160-170 240-270
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
HR Global ($) 690 - 720 680 - 710 670 - 700 660 - 690 670 - 700 670 - 700 650 - 680
11.
With coking coal supply estimated to return to normalcy (post Australian floods), we expect coking coal prices to
soften from Q4 2011 onwards resulting in lower q-o-q steel prices
Strong bargaining power of iron ore suppliers and tight demand-supply will result in firm iron ore prices through 2014
Going forward, we expect supply of coking coal to improve gradually (from new mine supply), thereby showing a
marginal decline in coking coal contract prices in 2013 and 2014
In addition, on the back of rising demand, capacity utilisation in global steel industry is expected
to improve from 2010 levels
Source: Metal Bulletin, Industry, CRISIL Research
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Steel prices rose with recovery in demand, higher raw material prices
Steel demand recovery in 2010 (13 per
cent y-o-y growth) was aided by a low
base and strong rebound in growth of
end-use segments like automobiles,
capital goods etc.
Recovery in the end-user segments can
be attributed to the timely monetary
intervention by governments of majormillion tonnes
0200
400
600
800
1,000
1,200
1,400
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
(Rs/Tonne) Steel Prices
12.
economies.
Majority of the recovery in steel demand
emanates from emerging markets like
China and India.
Despite a strong growth in 2010, steel
consumption in developed countries has
not yet recovered to pre-crisis levels.Source: Industry, IISI, Metal Bulletin, CRISIL Research
0%
20%
40%
60%
80%
100%
0
500
1000
1500
2000
2005 2006 2007 2008 2009 2010
Stee : G o a Deman Supp y
Demand Capacity Demand/Capacity
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Raw material prices increased with supply constraints and demand recovery
Coking coal prices rose in Q1 2011 mainly due
to continued supply constraints in Australia
Coking coal prices have softened from Q1 2011
levels but supply has not yet completely
normalised, thereby exerting upward pressure
on prices
Iron ore prices in H1 2011 increased on account
of a tight demand-supply situation
Steel prices increased in 2010 (~30 per cent y-
-
75
150
225
300
375
450
Q205
Q305
Q405
Q106
Q206
Q306
Q406
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
($/tonne) Raw Material Spot Prices
Iron Ore Coking Coal
13.
Source: Industry, CRISIL Research
o-y) and H1 2011 (15 per cent y-o-y) due todemand recovery and higher raw material prices
Going ahead, Iron prices are expected to remain
firm on account of tight demand- supply situation
and consolidation of suppliers
However, with the coking coal supply situation
easing, coking coal prices are expected to
soften from Q4 2011 onwards
Raw material prices (FoB, Australia)
($/tonne) 2005 2006 2007 2008 2009 2010 2011 Q2
Spot 54 70 122 152 85 153 183
Contract 39 47 51 92 61 108 149
Spot 82 91 92 269 153 221 340
Contract 125 111 92 293 129 191 330
Iron ore
Coking coal
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Demand Outlook: Moderate growth of 5-6 per cent
Source: CRISIL Research
Global steel demand is expected to grow at a modest 5-6 per cent during the next 3 years
0%
20%
40%
60%
80%
0
500
1000
1500
2000
2500
2009 2010 2011E 2012P 2013P 2014P
(million tonnes) Steel: Global Demand Supply
Demand Capacity Demand/Capacity
Steel demand-supply ratio
is expected to recover from
72 per cent in 2010 to 79 per
cent in 2014
14.
Economic uncertainty remains a specter in the industry particularly in the developed markets. The demand
from developed regions is expected to moderate in the long run as the various stimulus packages that fuelled
growth in 2010 has paved way for austerity measures
Steel demand from developing regions, especially China and India, is also expected to grow moderately during
2011 to 2014
Chinese steel demand is expected to moderate (6 7 per cent CAGR from 2011-2014) as the Chinese
government is currently undertaking measures to manage inflation
Indias steel demand is expected to grow by 8-9 per cent, driven by huge investments in infrastructure and
expected healthy growth in automobiles, oil and gas sectors
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0
200
400
600
800
1000
1200
0
13,000
26,000
39,000
52,000
65,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
($/tonne)(Rs/tonne) HR Steel Prices
HR Domestic HR Steel landed HR CIS (RHS)
Domestic HR prices to soften with global steel prices
Domestic steel demand is expected to grow by
8-9 per cent during 2011 - 14
Healthy growth expected in construction (10-
11 per cent) and automobiles (13-15 per
cent)
Robust growth expected in oil and gas
pipelines (cumulative investments of around
Rs 5 trillion over next 5 years)
Forecast
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
HR India (Rs) 37,500 - 39,500 38,000 - 40,000 37,400 - 39,300 36,800 - 38,700 37,300 - 39,200 37,300 - 39,200 36,100 - 37,900
15.
With moderate growth in steel demand,demand-supply ratio is expected to remain
above 80 per cent (lower than pre-crisis levels
of ~90 per cent)
Domestic steel prices in Q4 2011 are expected
to be marginally higher on account of upward
pressure on domestic iron ore prices due to a
ban on illegal mining in Karnataka
Domestic steel prices are expected to moderate
from Q1 2012 onwards due to
Expected weakness in global prices
Source: CRISIL Research
0%
20%
40%
60%
80%
100%
020
40
60
80
100
120
140
2010-11E 2011-12P 2012-13P 2013-14P 2014-15P
(million tonnes)
Steel: Domestic Demand-Supply
Demand Capacity Demand/Capacity (RHS)
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Domestic HR prices increased in line with landed cost
Domestic steel prices have followed landed
cost of global steel prices
Domestic steel demand grew by a 13 per
cent CAGR during 2005-06 to 2010-11
Demand was driven by continuous
increase in infrastructure andconstruction related investments, strong
growth in capital goods and automobile
sales
0
300
600
900
1,200
1,500
0
14,000
28,000
42,000
56,000
70,000
84,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
($/tonne)(Rs/tonne) Domestic Steel Prices
Landed Domestic Global (RHS)
(million tonnes)Steel: Domestic Demand-Su l
16.
-
increased by 12-14 per cent supported by
an increase in global prices and healthy
domestic demand growth
Domestic demand in 2010-11 grew by
10 per cent (y-o-y) due to strong growth
witnessed in key end-user sectors like
infrastructure, pipes & tubes and
automobilesSource: Metal Bulletin, Industry, JPC, CRISIL Research
0%
20%
40%
60%
80%
100%
0
10
20
30
40
50
60
7080
90
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11E
Demand Capacity Demand/Capacity (RHS)
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0
10,000
20,000
30,000
40,000
50,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
(Rs/tonne) Steel Prices
HR Domestic CR Domestic
CR steel prices to decline with HR prices and moderate auto demand
Automobile industry, a key end-user, to
grow moderately by 13-14 per cent over
the next 2-3 years
In 2010-11, Cars & UVs industry
witnessed a strong growth of over 30
per cent. However, going ahead we
expect the growth to moderate amid
Forecast
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
CR steel (Rs) 42,000 - 44,100 42,400 - 44,600 41,800 - 44,000 41,300 - 43,400 41,700 - 43,900 41,800 - 43,900 40,600 - 42,700
17.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000('000 units) Automobile Production in India
concerns over rising cost of owning a
vehicle
While, sustained growth in economic
activity, rise in consumption and
healthy freight traffic is likely to
continue to drive the demand for
commercial vehicles
Moderate automobile demand growth
and lower HR steel prices will ensure a
fall in CR steel prices
Source: CRISIL Research
Forecast
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CR steel prices traced HR steel price movement
CR prices largely follow the pricetrend of HR steel, which is a key
cost component
The automobile industry, which
accounts for around 60 per cent ofCR consumption in the country,
has grown at a CAGR of 15-16 per
cent during 2005-06 to 2010-11
0
10,000
20,000
30,000
40,000
50,000
60,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
(Rs/Tonne)
Domestic Prices
HR CR
('000 units) Automobile Production in India
18.
thereby supporting prices of CR
steel in India
Source: Industry, CRISIL Research
-
1,000
2,000
3,000
4,000
5,000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Comm Vehicles Car & UV Tractor
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0
100
200
300
400
0
5000
10000
15000
20000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
(index)(Rs/tonne) Sponge iron prices
Sponge iron Iron ore prices (RHS)
Sponge iron prices to remain firm at current levels
Forecast
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Sponge Iron (Rs) 20,500 - 21,500 19,500 - 20,500 20,000 - 21,100 21,000 - 22,100 20,000 - 21,000 20,600 - 21,600 19,600 - 20,600
19.
CRISIL Research expects sponge iron prices to remain firm over the next 2-3 years as
Sponge iron demand will grow at a slower pace than growth in long steel industry as large
integrated players are increasing production of long products through blast furnace route
Upward pressure on domestic iron ore prices on account of measures taken to curb illegal mining
of iron ore in near term
However, increased supply of scrap to limit the rise in sponge iron prices
Increased ferrous scrap supply in the global market is expected to exert downward
pressure on scrap prices in the medium term
Source: Industry, CRISIL Research
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Sponge iron prices followed landed cost of scrap
Source: Industry, CRISIL Research
0
8,000
16,000
24,000
32,000
40,000
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
(Rs/tonne) Sponge iron prices in India
Sponge iron prices Landed cost of scrap
20.
Ferrous scrap is a substitute for sponge iron and hence, the landed cost of scrap acts as aceiling for domestic sponge iron prices
Domestically, sponge iron prices have moved in line with iron ore and scrap prices
As a raw material, scrap is preferred to sponge iron as the Fe content in scrap is higher
Due to constraints in availability of domestic scrap, secondary steel manufacturers import
scrap. In 2010-11, scrap imports have been around 3.5 million tonnes
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Construction demand to drive TMT prices
Demand from construction sector, a key
end-user and sponge iron prices, a key
raw material, drive TMT prices
CRISIL Research expects TMT prices to
remain firm at current levels due to
healthy construction demand
Total construction investments
-
10,000
20,000
30,000
40,000
50,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
(Rs/Tonne) Sponge Iron and TMT Prices in India
Sponge TMT
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
TMT (Rs) 39,000 - 41,000 40,600 - 42,600 40,800 - 42,800 41,800 - 43,900 40,300 - 42,300 42,000 - 44,100 39,100 - 41,100
21.
0
10000
20000
30000
40000
50000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
(Rs/tonne) Sponge Iron and TMT prices
Sponge iron TMT Domestic
(industrial and infrastructure) toincrease from Rs 10,172 billion
during 2006-07 to 2010-11 to Rs
18,209 billion during 2011-12 to
2015-16
Seasonality of construction demand
and its impact on TMT prices have been
factored in to our quarterly price
forecast
Source: Industry, CRISIL Research
Forecast
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Pig iron prices to fall with decreasing input costs in the near term
Pig iron prices have moved in line with
domestic iron ore and coke prices
Of the total demand for pig iron, the
castings segment accounts for around
70 per cent and the balance is
contributed by the steel making
segment
0
7,000
14,000
21,000
28,000
35,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
(Rs/tonne)Pig iron prices in India
(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Pig Iron (Rs) 28,300 - 29,800 27,800 - 29,200 27,400 - 28,800 28,300 - 29,700 28,600 - 30,100 28,800 - 30,300 27,300 - 28,700
22.
100
200
300
400
500
600
700
800
5,000
12,000
19,000
26,000
33,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
($/tonne)(Rs/tonne) Pig iron prices
Pig iron prices Iron & coal cost (RHS)
industries, the key end-users of
castings, are estimated to show
healthy growth over the next 2-3
years
Coke prices are estimated to declinein near term, however healthy demand
growth and upward pressure on
domestic iron ore prices will lead to
firm pig iron prices in the long term
Forecast
Source: Industry, CRISIL Research
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Price Forecast for Aluminum
23.
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0
700
1400
2100
2800
3500
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
($/tonne) Aluminium prices
Aluminium prices to rise modestly with moderate demand growth
Forecast
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Aluminium 2,350 - 2,450 2,350 - 2,450 2,400 - 2,500 2,430 - 2,520 2,450 - 2,550 2,500 - 2,600 2,550 - 2,650
0%
20%
40%
60%
80%
100%
120%
0
10
20
30
40
50
60
70
2009 2010 2011 P 2012 P 2013 P 2014 P
(million tonnes) Global demand supply of aluminium
Global demand Global capacity Demand/capacity (RHS)
24.
Chinese demand for aluminium is likely to grow by 8-9 per cent between 2011-2014; growth will be
slower than the previous 2 years as demand from key end-user sectors is expected to slow down, due to
tightening monetary policies
China, one of the high cost producers of aluminium at $2,150-2,200 per tonne, contributes nearly 40 per
cent of the global production and consequently sets a floor for aluminium prices
Additionally, rising raw material (alumina) prices will support higher aluminium prices during the next few
years
Source: Metal Bulletin, Industry, IAI, CRISIL Research
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Global aluminium prices increase due to rising demand
In 2010, global consumption of aluminium
was primarily driven by China, where
demand is estimated to have grown by 19
per cent y-o-y
Robust growth in production of automobiles
and consumer durables in the countrymainly contributed to China's aluminium
demand, while the construction sector also
maintained a stable growth
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan-0
0
Sep-0
0
May-0
1
Jan-0
2
Sep-0
2
May-0
3
Jan-0
4
Sep-0
4
May-0
5
Jan-0
6
Sep-0
6
May-0
7
Jan-0
8
Sep-0
8
May-0
9
Jan-1
0
Sep-1
0
May-1
1
($/tonne)Aluminium prices
(million tonnes) Global demand supply of aluminium
25.
so, s ea y grow rom e o er ey
consuming regions driven by stimulus
packages aided the upward trend in
aluminium prices
Weak movement of US dollar vis-a-vis the
currencies of major exporting regions has
also contributed significantly to the rise in
aluminium prices in H1 2011
(Refer Annexure II)
Source: Industry, IAI, CRISIL Research
0%
20%
40%
60%
80%
100%
0
10
20
30
40
50
2005 2006 2007 2008 2009 2010Global demand Global production Operating rates (RHS)
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0
1000
2000
3000
4000
0
25,000
50,000
75,000
100,000
125,000
150,000175,000
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q1
1E
4Q1
1P
1Q1
2P
2Q1
2P
3Q1
2P
4Q1
2P
201
3P
201
4P
($/tonne)(Rs/tonne) Aluminium prices
Landed prices Domestic prices LME (RHS)
Domestic aluminium prices to increase with global prices
Domestic aluminium demand is expected
to grow by 8-9 per cent between 2011-12 to
2014-15
Steady growth is expected in power
(transmission and distribution) sector
and double digit growth in automobileand consumer durable sectors
India is amongst the lowest-cost
aluminium producers in the world, due to
Forecast
120%3,500
('000 tonnes) Domestic demand supply of aluminium
26.
an a un an supp y o aux e, cap ve
power sources and lower labour cost
compared to US and Europe
Hence to address the significant export
opportunity, major domestic aluminium
players are setting up huge capacities (~2
million tonnes till 2014-15)
Healthy operating rates will be maintained
as Indian aluminium producers are
estimated to export the surplus
Source: Company Reports, Industry, CRISIL Research
0%
20%
40%
60%
80%
100%
1,000
1,500
2,000
2,500
3,000
2010-11 E 2011-12 P 2012-13 P 2013-14 P 2014-15 P
Apparent consumption Average capacity Demand/Capacity (RHS)
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Price Forecast for Copper
27.
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0
100,000
200,000
300,000
400,000
500,000
600,000
0
2,000
4,000
6,000
8,000
10,000
12,000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
(Rs/tonne)($/tonne) Copper international & landed prices
LME Price Landed Cost (RHS)
Copper prices to remain under pressure due to demand slowdown
Copper demand to be subdued in near
future
Demand growth in China is expected to be
moderate over the next year on account
of measures initiated by the Central Bank
In the light of sovereign debt crisis in
Europe and anticipated slowdown in US,
consumption demand is expected to be
flat
Forecast
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Copper 9,100 - 9,500 9,000 - 9,400 8,900 - 9,300 8,800 - 9,200 8,600 - 9,000 8,300 - 8,700 7,800 - 8,200
28.
Refined copper capacity is expected to
increase by 3 per cent CAGR over the next
3 years, as per ICSG
Demand to capacity ratio is expected to
remain flat, which will exert a downward
pressure on prices in 2012 and 2013
However, declining ore grades in major
mines and continuing labour issues
plaguing the industry are expected to act
as a deterrent to the fall in pricesSource: LME, ICSG, CRISIL Research
0%
20%
40%
60%
80%
100%
0
5
10
15
20
25
30
2010 2011 E 2012 P 2013 P 2014 P
(mn tonnes) Global demand supply of Copper
Demand Capactiy Demand/capacity (RHS)
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Prices touched pre-crisis levels due to consumption growth
The key end-users of Copper
include construction (architecture,
electrical), industrial machinery,
consumer durables, etc
Fiscal stimulus aided consumption
pick-up from key end-user regions
such as China, Europe and US in
2010 and Q1 2011
0
2,000
4,000
6,000
8,000
10,000
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
($/tonne) Copper Prices
(mn tonnes) Global demand supply of Copper
29.
These measures helped copper prices
to regain their pre-crisis levels
However, recent events in US and
Europe have impacted prices
significantly in August 2011
Currency movements has also
contributed to the change in copper
prices
(Refer Annexure II)
Source: ICSG, LME, CRISIL Research
0%
20%
40%
60%
80%
100%
15
17
19
21
23
25
2005 2006 2007 2008 2009 2010 E
Demand Capactiy Demand/capacity (RHS)
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Slowdown in demand from China in H1 2011
Chinese copper demand (~ 40 percent of total copper consumption)
has posted a y-o-y decline of 9 per
cent in Jan- May 2011
During the same period, Europe andUS y-o-y copper demand numbers
have been flat
Co er stocks in China which were
0
100
200
300
400
500
600
700(000 tonnes) Copper Demand -2011
China USA EU- 15
30.
declining through April June 2011have shown a partial rebound in July
ahead of the seasonal demand in Q4
2011
Source: ICSG, CRISIL Research
0
40
80
120
160
200000 tonnes Copper SHFE Stocks
SHFE stocks
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Price Forecast for Zinc
31.
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0
2040
60
80
100
120
140
0
1000
2000
3000
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2013P
2014P
('000 Rs/tonne)($/tonne) Zinc Prices
Price ($/tonne) Landed Cost (RHS)
Zinc prices to remain sluggish in 2012 before firming 2013 onwards
Forecast
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
Zinc 2,300 - 2,300 2,110 - 2,190 2,110 - 2,190 2,160 - 2,240 2,210 - 2,300 2,300 - 2,400 2,550 - 2,650
32.
Dampening of demand in China and impending slowdown in USA and Europe expected to exert
pressure on zinc prices in the near future
Players have advanced capital expenditure plans in mine exploration as mine supply is expected to tighten in the
latter half of 2013 and 2014
Zinc concentrate market is expected to remain in surplus in 2011, the 5th straight year of
surplus, thereby putting a cap on prices
Prices expected to inch upwards only 2013 onwards as demand picks up and stocks continue
to fall
Source: LME, Industry, CRISIL Research
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Prices flat on account of huge stocks and sluggish demand
The key end-use sectors of Zinc
include construction, transport and
industrial machinery
Refined zinc metal surplus
increased in H1 2011 as mine output
outpaced demand
Stocks increased by over 250,000
0
750
1,500
2,250
3,000
3,750
4,500
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
($/tonne) Zinc Prices
33.
Demand from China increased
marginally by 3.7 per cent y-o-y in
H1 2011 while that from US declined
by 5.4 per cent
Currency movements has also led
to the change in zinc prices
(Refer Annexure II)Source: ILZSG, CRISIL Research
0%
20%
40%
60%
80%
100%
7
8
9
10
11
12
13
14
2006 2007 2008 2009 2010 2011 E
(mn tonnes) G o a eman supp y o Zinc
Demand Capactiy Demand/capacity (RHS)
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Region-wise Demand Forecast for End-use Sectors
34.
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China: Sectoral consumption pattern for commodities
Source: CRISIL Research
20
29
54
36
12
18
26
7
2
6
26
6
12
26
20
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Copper
Aluminum
Steel
Construction Industrial Machinery Consumer Durables Auto Others
35.
China is the leading producer and consumer of commodities on account of its growing economy
and demand from major end-use industries and exports
The run-up in real estate prices and high inflation in H2 2010 forced the Government of China to
take steps to cool the economy
Accordingly, the Chinese central bank has been taking concrete steps by hiking interest rates
from Q4 2010 and authorizing banks to go slow on lending to douse high inflation.
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China: Measures to cool economy are paying off
The measures adopted by the central bank have started having an impact and many end-use
sectors have now started to slow down
Growth in automobile production has moderated considerably in H1 2011. Auto sales showed a
mere 5 per cent y-o-y growth in H1 2011 vis--vis a robust growth of 45 per cent y-o-y in H1 2010
This was also attributed to a slowdown in major global economies of US and Europe, which are key
importers of vehicles from China
36.
,
in H1 2010 to 16 per cent in H1 2011
Industrial machinery too has shown a significant slowdown by clocking a growth of 22 per cent
(y-o-y) in H1 2011 vis--vis a robust 45 per cent in H1 2010
Chi C i hi d d i d d
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0
100
200
300
400
500
Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 PQ411 PQ112 PQ212 PQ312 P
(Index) China - End user segmental growth
Auto Construction FMCG Infrastructure Machinery
China: Construction, machinery and auto to drive demand
CRISIL Research ex ects the rowth momentum of end-use sectors to moderate in line with economic
Source: China NBS, CRISIL Research
Forecast
37.
prospects (as indicated by S&P and IMF)
China is expected to concentrate on domestic growth and wean itself away from exports to cushion any
negative impact of slowdown in key export markets
Growth in urbanisation, investments in infrastructure, construction to fuel demand
The urbanisation rate in China (at 45 per cent in 2010) is expected to increase significantly, thereby
attracting huge investment
Construction, a key consumer of commodities, is expected to grow albeit at a slower pace (as the Chinese
government tries to soft land the economy)
Automobile production is expected to remain strong due to robust domestic demand and
moderate export opportunities
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China: Performance of end-use sectorsFixed Asset Investment in Infrastructure
Automobile roduction Consumer durable roduction
Fixed Asset Investment in Real Estate
14,89318,147
22,294
32,171
39,529
18,375
-
10,000
20,000
30,000
40,000
50,000
2006 2007 2008 2009 2010 H1 2011
(100 mn yuan)
21,446
28,543
35,215
43,065
57,557
31,709
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2006 2007 2008 2009 2010 H1 2011
(100 mn yuan)
38.
Source: NBS
13,872
17,176 17,29019,553
24,408
16,049
0
5,000
10,000
15,000
20,000
25,000
30,000
2006 2007 2008 2009 010 H1 2011
(10,000 units)
728
905972
1,380
1,827
953
0
400
800
1200
1600
2000
2006 2007 2008 2009 2010 H1 2011
(10,000 units)
Chi H lth d d t d t ti lb it t d t
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China: Healthy demand expected to continue, albeit at a moderate pace
With a controlled slowdown induced by the government of China, CRISIL Research expects
commodity growth to remain moderate, in the near future, vis--vis the high historical growth rates.
This is in line with the expected economic performance of key end-use industries
China consumption outlook
(per cent) 2009 2010 E 2011 P 2012 P 2013 P 2014 PSteel 24.8% 5.1% 6.5% 6.8% 6.2% 6.3%
Aluminium 15.0% 19.0% 6.6% 8.8% 8.1% 8.1%
Copper 36.8% 4.3% 3.0% 4.0% 6.0% 6.0%
GDP growth 9.2% 10.3% 9.6% 9.5% 9.5% 9.5%
Source: CRISIL Research, IMF
39.
However, despite tightening of interest rates, China has reported a healthy GDP growth in H1 2011
(9.6 per cent y-o-y)
Going ahead, we expect China to move to a more accommodating economic policy, which keeps an
eye on growth
Consequently, domestic demand from commodities is expected to remain healthy
However, developments in US and Europe can impact Chinese exports and therefore commodity
demand from China
Europe: Sectoral consumption pattern
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Europe: Sectoral consumption pattern
Source: Industry, CRISIL Research
26
27
38
10
14
14
16
58 5
36
16
1
7
32
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Copper
Aluminum
Steel
Construction Machinery Packaging Electricity Auto Others
40.
Auto production in Europe decreased marginally y-o-y during the first half of 2011. However,
car registrations posted a decline of 2.1 per cent y-o-y in H1 2011, primarily due to lack of
sales in United Kingdom, Italy and Spain
However, construction output, declined by 1 per cent y-o-y in H12011
During H12011, index of capital goods production increased by 11 per cent y-o-y, primarily
due to the low base numbers of H12010
Europe: Commodity demand on the path of stable recovery
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Europe: Commodity demand on the path of stable recovery
In line with the moderate performance of end-use industries and GDP growth as indicated
by S&P and IMF, CRISIL Research expects muted commodity growth during 2012-14
EU consumption outlook
(per cent) 2009 2010 2011 E 2012 P 2013 P 2014 PSteel -34.9% 21.2% 8.1% 4.0% 2.6% 2.3%
Aluminium -20.0% 3.4% 6.0% 3.5% 2.3% 2.1%
Copper -19.4% 8.2% 1.7% 2.0% 2.5% 2.5%
GDP growth -4.13% 1.76% 2.0% 1.7% 2.2% 2.2%
Source: CRISIL Research, IMF
41.
However, anticipated slowdown in European heavyweight countries such as Germany
and the United Kingdom is a matter of apprehension
Continued concerns arising out of sovereign debt crises in some EU countries such as
Ireland, Greece etc. and the risk of it spreading to other member countries is a huge
overhang
Although the impact of the probable debt concerns on global commodity demand may not
be significant, it will have a bearing on the currency and overall sentiment thereby
affecting commodity prices
Europe: Demand growth to be muted
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60
70
80
90
100
110
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311P
Q411P
Q112P
Q212P
Q312P
(Index) Europe- End user segmental growth
Construction Auto
Europe: Demand growth to be muted
Source: Eurostat, ACEA, CRISIL Research
Forecast
42.
uropean reg on s no on y expec e o con nue o w ness a near erm s ow own u a so ere
seems to be a global consensus of Europe veering towards a prolonged slowdown
Many countries in the region are undertaking measures to reduce government spending in order to
manage budget deficit, thereby impacting commodity demand
As per IMF, a GDP growth of 1.7- 2.2 per cent is expected during 2011-13
Although, key end-use industries in Europe showed moderate growth performance in H1 2011, the
current recovery is expected to be short lived
Sustained unemployment and slowdown in manufacturing sectors in the European region is
expected to remain a drag on consumption
Europe: Growth in key end-use industries
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Europe: Growth in key end-use industries
(Index) Manufacturing
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 6M 2011
(Index) Capital Goods
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 6M 2011
(Index) Construction Output
1.5%
(in 000's) Auto production
43.
Source: Eurostat, ACEA, CRISIL Research
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 6M 2011-
5,000
10,000
15,000
20,000
25,000
2005 2006 2007 2008 2009 2010 6M 2011 E
US: Sectoral consumption pattern
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US: Sectoral consumption pattern
Source: Industry, CRISIL Research
50
14
31
8
6
23
31
11
37
25
31
26
7
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Copper
Aluminum
Steel
Construction Machinery Packaging Metal Products Auto Others
44.
e ey en -use n us r es n recovere s arp y n on e ac o s mu us pac ages an e ow
base of 2009
Despite a healthy growth in key end-users in the first half of 2011, the July numbers show a slowdown
reflecting the negative sentiments prevailing in the US economy
In H1 2011, motor vehicles production in North America grew by a meager 7 per cent vis-a-vis above 60 per cent
growth in 2010
Total output of construction units in the first half of 2011 showed a degrowth of around 20 per cent (y-o-y)
Machinery IIP index grew by around 14 per cent y-o-y during H1 2011
US: Growth in end-user segments to be moderate
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0
20
40
60
80
100
120
Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 P Q411 P Q112 P Q212 P Q312 P Q412 P
(Index)US End user segmental growth
Auto Construction US Machinery IIP
US: Growth in end-user segments to be moderate
Source: US Census, IMF, CRISIL Research
Forecast
45.
With the end of the current stimulus package by the government, growth in key end-users is
expected to be restrained
In line with the economic outlook (as indicated by S&P and IMF) we expect growth in the US
to be moderate
US: Performance of end-use sectors
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US: Performance of end use sectors
1,5321,636 1,655
1,219
819
520 496
198
-
400
800
1,200
1,600
2,000
2004 2005 2006 2007 2008 2009 2010 H1 2011
(in 000 's) Construction Units
-26 %
3.9 %11,570
10,900 10,530
8,430
5,870
7,690
4,150
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2005 2006 2007 2008 2009 2010 H1 2011
(in 000's)Auto production
-8 %
46.
Source: US Census, CRISIL Research
92 96100 97
7681
91
0
20
40
60
80
100
2005 2006 2007 2008 2009 2010 H1 2011
Mac inery4 %
-9 %
US: Demand expected to recover
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p
S&P recently lowered its long-term sovereign credit rating on the United States of
America to 'AA+' from 'AAA highlighting the need for US to contain its debt
US consumption outlook
(per cent) 2009 2010 2011 E 2012 P 2013 P 2014 P
Steel -34.9% 21.2% 8.1% 4.0% 2.6% 2.3%
Aluminium -20.0% 3.4% 6.0% 3.5% 2.3% 2.1%
Copper -18.3% 6.7% 2.0% 2.0% 1.0% 1.0%
GDP growth -2.6% 2.8% 2.0% 2.1% 2.7% 2.7%
Source: CRISIL Research, IMF
47.
spending, deteriorating financial conditions and faltering business confidence haveprompted a moderate growth outlook in commodity demand in US
Key monitorable
Monetary policy adopted by the US Federal Reserve
Depreciation of the dollar will exert upward pressure on commodity prices
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Price Forecast Methodology - Rubber
48.
Framework of analysis Natural Rubber
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(I/O norm)
Production/
Imports of NR
OEM Exports
Replacement Stocks
Domestic Tyre
Demand
49.
NR Demand NR Supply
Demand Supply
Scenario
Domestic NR Price
Global NR Demand Global NR PriceGlobal NR
Supply
Framework of analysis Synthetic Rubber (SBR/PBR)
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RM Price
Styrene
Butadiene
Utilisation level
SR Supply
SR Capacity
Impact of
Demand
Supply &
Crude oilprices
NR Demand
NR SR Ratio
SR Demand
50.
Global SR Price
Landed SR Price
Domestic SR Price
eman upp yost
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Price Forecast for Rubber
51.
Rubber: Price Forecasts
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Rubber
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590
PBR 4,500 - 4,700 4,050 - 4,260 3,890 - 4,090 3,810 - 4,010 3,470 - 3,650 3,370 - 3,540 3,300 - 3,470
NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930
ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180
PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410
Domestic Price
NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190
Quarterly Annual
52.
P: Projected
Source: CRISIL Research
Natural Rubber: Prices to decline due to poor demand
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1.0
2.0
3.0
4.0
5.0
6.0
50
100
150
200
250
300
8 8 8 8 9 9 9 9 0 0 0 0 1 1 1
($/Kg)(Rs/Kg) NR Price Forecast
Forecast
Demand slowdown to exert downward
pressure on NR prices H2 2011 onwards.
Global consumption to increase merely by1-2 per cent during 2011 due to
anticipated slowdown in demand
Rubber
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930
NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190
Quarterly Annual
53.
1Q0
2Q0
3Q0
4Q0
1Q0
2Q0
3Q0
4Q0
1Q1
2Q1
3Q1
4Q1
1Q1
2Q1
3Q1
4Q1
1Q1
2Q1
3Q1
2012
2013
2014
Domestic Price Landed cost - With Duty International Price (RHS)
Source: Rubber Board, CRISIL Research
onwards (We are assuming there is nofurther major weather disruption in the
leading producer countries of Thailand,
Indonesia and Malaysia)
Supply expected to grow by 4-5 per
cent y-o-y
Consequently prices expected to decline
H2 2011 onwards
Global rubber production growth
(000 tonnes) 2010 2011 E 2012 P 2013 P 2014 P
Production 10,384 10,858 11,401 12,085 12,907
Grow th(Y-o-Y) 7.2% 4.6% 5.0% 6.0% 6.8%
Consumption 10,765 10,897 11,374 12,025 12,866
Grow th(Y-o-Y) 15.4% 1.2% 4.4% 5.7% 7.0%
NR prices declined on account of weak demand scenario
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Review of NR prices
In 2010, NR prices increased significantly by
around 88 per cent on account of demand
supply mismatch
NR prices continued their upward trend in Q1
2011 reaching $5.7 per kg on the back of
favourable demand in key markets of US,(In 000 tonnes) Natural Rubber Global Demand - Supply
54.
E: Estimated
Source: CRISIL Research and IRSG
Europe and China
However, prices declined in Q2 2011, on
account of unfavourable demand situation
due to slowdown in economic growth across
key markets
18
0%
20%
40%
60%
80%
100%
120%
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
2005 2006 2007 2008 2009 2010 2011 E
Supply Demand Demand/Supply (RHS)
Domestic prices have increased in line with landed cost
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0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Jan08
Mar-08
May-0
8
Jul-08
Sep-0
8
Nov08
Jan09
Mar-09
May-0
9
Jul-09
Sep-0
9
Nov09
Jan10
Mar-10
May-1
0
Jul-10
Sep-1
0
Nov10
Jan11
Mar-11
May-1
1
Jul-11
(tonnes)(Rs/tonne) NR - Domestiv V/s Landed Cost
Import Domestic Price Landed Cost Landed Cost - Duty Free
55.
Historically, India imports a very small proportion of its natural rubber requirements due to high import
duty (at 20 per cent or Rs 20 which ever is lower)
Most of the imports are made by players who get import duty rebate against export of finished product
Landed cost of global NR prices act as a ceiling for domestic prices
Domestic prices, which have been increasing since July 2009 due to a strong auto demand, declined in
September 2010 owing to oversupply in the market
,
Global SR prices to fall in line with crude prices and lower demand($ / t ) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
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0
750
1,500
2,250
3,000
3,750
4,500
5,250
Q08
Q08
Q08
Q08
Q09
Q09
Q09
Q09
Q10
Q10
Q10
Q10
Q11
Q11
11E
11P
12P
12P
12P
12P
13P
14P
($/tonne) SBR & PBR pricesReview
SBR/PBR prices increased by ~ 80 per cent in
H1 2011 (y-o-y)
Increase in upstream butadiene and styrene
prices due to a surge in crude oil prices since
Sept Oct 10
Forecast
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590
PBR 4,400 - 4,700 4,030 - 4,280 3,870 - 4,110 3,790 - 4,030 3,450 - 3,660 3,350 - 3,560 3,280 - 3,490
56.
2 3 2 3 2 3 23
4
1
2
3
20
20
20
PBR SBR grade 1502
Source: CRISIL Research
Increase in NR prices due to supply
constraints
Outlook
Constrained supply of butadiene, on account of
lower yield, is expected to keep its price firm in
the short-to-medium term, leading to relatively
firm Synthetic Rubber (SR) prices
However, expected fall in crude oil prices from
H2 2011 onwards to put a cap on SR prices
Additionally, declining NR prices to also exert
downward pressure on SR prices
-
0.40
0.80
1.20
1.60
2.00
Jul-01
Mar-02
Nov-0
2
Jul-03
Mar-04
Nov-0
4
Jul-05
Mar-06
Nov-0
6
Jul-07
Mar-08
Nov-0
8
Jul-09
Mar-10
Nov-1
0
Jul-11
NR-SBR Price Ratio
Global SBR and PBR prices increased with demand
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Source: Industry, CRISIL Research
0
750
1,500
2,250
3,000
3,750
4,500
1
Q07
2
Q07
3
Q07
4
Q07
1
Q08
2
Q08
3
Q08
4
Q08
1
Q09
2
Q09
3
Q09
4
Q09
1
Q10
2
Q10
3
Q10
($/tonne) SBR & PBR prices v/s butadiene price
Butadiene PBR SBR grade 15 02
0
750
1,500
2,250
3,000
3,750
0.0
40.0
80.0
120.0
160.0
($/tonne)($/bbl) Butadiene Vs Crude Oil prices
Crude oi l prices But adiene prices (RHS)
57.
SBR and PBR are manufactured from the same feedstock, Styrene and Butadiene, which are in
turn derived from crude oil
Hence their cost is always linked to the international prices of crude oil
Generally, domestic prices of SBR and PBR follow global prices of these commodity chemicals,
barring monthly aberrations
Supply constraint for Butadiene The main feedstock for SR
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Global manufacturing unit for
ethylene is rapidly shifting to
natural gas based crackers
This shift led to a lower yield of
butadiene (refer table)
This, coupled with plants shut
down in March and April 2011
created a shorta e in the su l
Source: Industry, CRISIL Research
Eth lene Ca acit KT
Yield for producing Butadiene from various sources
Note: Others include Benzene, Toluene, MXC 4, Py Gas, Fuel Gas, and SCLight Fuel Oil
58.
of butadiene
As a result, prices surged and
are expected to remain firm till
Q3 2011. However going
forward, easing supply on
account of plant coming into
operation will exert downward
pressure on prices
Source: RIL India, CRISIL Research
Note: With the capacity that has become operational in the Middle East,
the feedstock mix for cracker has also changed in favour of gas.
USA 34,842 30% 32,706 23% -7%
EU 25,313 22% 26,087 18% -4%
Middle East 11,803 10% 25,290 18% 7%
Asia 33,504 29% 47,630 33% 4%
Others 10,412 9% 11,890 8% -1%
World 115,874 100% 143,603 100%
2005 2010 diff
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Price Forecast for PP and ABS
59.
Framework of analysis Polypropylene (PP)
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60.
* Other Polymers like Poly Styrene (PS), Poly Carbonate (PC), ABS etc
PP: Prices to remain under pressure due to low demand($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
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100
400
700
1,000
1,300
1,600
1,900
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11P
1Q12P
2Q12P
3Q12P
2012P
2013P
2014P
($/tonne) Propylene & Naptha prices v/s PP price
PP Pro lene Na tha
Forecast
In 2011, PP prices are expected to
increase by 22 per cent y-o-y owing to
expected increase in upstream propylene
prices
The expected increase in propylene prices
is due to high crude prices and tight supply
situation of propylene
($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410
61.
Source: CRISIL Research
However, 2012 onwards, PP prices are
expected to fall on account of
Fall in its major feedstock propylene prices
Also higher capacity than demand will lead
to lower operating rates and thus exert
pressure on PP prices
Global demand for PP is likely to grow at
a CAGR of 4-5 per cent over 2010 to
2014. Capacity expansion is also
estimated to grow at a similar pace
50.0
60.0
70.0
80.0
90.0
100.0
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2005 2006 2007 2008 2009 2010E 2011P 2012P
(per cent)PP: Global capacity-demand and operating rates
Capacity Demand Operating rates
PP prices declined on account of weak demand scenario
$/tonne(Rs/tonne) Polypropylene Prices
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PP, the lightest thermoplastic is used mainly in
consumer goods, packaging, home products,
automotive parts, industrial products, textile
yarns, fibres and fabrics
In 2010, domestic demand for polypropylene
(PP) is estimated to have grown by 17-18 per
cent y-o-y to ~2.6 million tonnes
World consum tion of Pol ro lene: 2010
600
800
1,000
1,200
1,400
1,600
1,800
2,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
$/tonne(Rs/tonne) Polypropylene Prices
Do mestic Price Lan ded Cost C&F Far East Asia (In jection Moulding)
62. Source: CRISIL Research
raffia, injection moulding, BOPP (biaxially
oriented polypropylene) etc.
In 2010, global prices for PP increased by 23 per
cent y-o-y to average $1,300 per tonne from
$1,061 per tonne in 2009 on account of increase
in upstream propylene prices
China27%
WesternEurope
15%
UnitedStates12%
MiddleEast6%
Japan6%
India5%
Others29%
Framework of analysis Acrylonitrile Butadiene Styrene (ABS)
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63.
* Other Polymers- ABS competes with specialty and advanced thermoplastics, such as Polyamide (PA), Polybutylene terephthalate (PBT), PolyethyleneTerephthalate (PET), and Poly(p-phenylene oxide) (PPO).
Substitutes of ABS - Polystyrene (PS), Polypropylene (PP),
However, owing to ABS' superior properties for electronics segment, higher volatility in polystyrene prices and the narrowed gap between itsprices and that of ABS, ABS is preferred
ABS: Prices to decline in sync with crude oil prices($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P
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Forecast
ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180
64.
Source: CRISIL Research
Outlook
We expect ABS prices to decline Q4 2011 onwards on account of a fall in its chief feedstock acrylonitrile and styrene
with the expected drop in crude oil prices
Going forward margins are also expected to improve in line with the expected fall in upstream feedstock prices,
on account of the expected improvement in the demand scenario.
($/tonne)(Rs/tonne) ABS Prices
ABS prices increased due to firm raw material prices
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900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
2,500
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Ex-factory (Natural) Landed Cost C&F Far East Asia (Injec t)
65.
Acrylonitrile Butadiene Styrene (ABS) is used in various home appliances, electronics and automobiles
The largest consumer for ABS is China accounting for nearly 60 per cent of global consumption
In 2010, ABS prices increased significantly by around 42 per cent to $1,980 per tonne.
This is on account of the continuous tight supply situation, coupled with a high increase in upstream styrene,
butadiene and ACN prices
However, ABS prices at present are under pressure due to a decline in upstream ACN prices coupled with
subdued buying trends
In YTD 2011, high crude prices and continual shortage of key feedstocks like butadiene and acrylonitrile (ACN)
has led to an increase in ABS prices
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Annexure
66.
Annexure I: Regional commodity consumption pattern
Al i iSt l
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NorthAmerica
13%
Europe
18%
China
43%
Japan
4%
RoW
22%
Aluminium
Total 39.6 million
tonnes (2010)
North
America6%
Europe
11%
China
45%
Japan5%
RoW
33%
Steel
Total 1380 million
tonnes (2010)
67.
Source: CRISIL Research
America
15%
Europe
22%
China
38%
Japan
5%
RoW
20%
Copper
Total 19.3 million
tonnes (2010)
North
America9%
Europe
15%
China
42%
Japan5%
RoW
30%
Zinc
Total 12.5 million
tonnes (2010)
Annexure II: Impact of currency on commodity prices
A B C D E
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Month Curency
Index
Aluminium
prices ($/tonne)
Currency adjusted
prices ($/tonne)
Actual Price
Index
Currency influence
index
B1 x A1 / A2 = B (base 100) = C (base 100)
Jan-09 75 1413 1413 100 100
Feb-09 80 1330 1319 94 93
Mar-09 79 1336 1336 95 95
Sep-10 65 2162 1637 153 116
Oct-10 63 2354 1678 167 119
Source: CRISIL Research
68.
Methodology
As indicated above, Jan-2009 is considered as the
base period.
Currency index is the weighted average of the key
exporting countries of a particular commodity.
The actual prices (column B) are discounted for
currency fluctuation (in column C).
Both prices (column B&C) are converted on a base
of 100 in Jan-2009 (column D & E) and plotted.
178
128
0
50
100
150
200
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
(Index) Currency impact on Aluminium prices
Actual price Currency influence
Impact of currency on commodity prices
($/tonne) l
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183
108
90
110
130
150
170
190
210
Ja
n-09
Ma
r-09
Ma
y-09
Ju
l-09
Sep-09
No
v-09
Ja
n-10
Ma
r-10
Ma
y-10
Ju
l-10
Sep-10
No
v-10
Ja
n-11
Ma
r-11
Ma
y-11
Ju
l-11
($/tonne) Currency impact on Steel prices
Actual Price Currency influence
125
299
90
130
170
210
250
290
330
Jan-0
9
Mar-0
9
May-0
9
Jul-0
9
Sep-0
9
Nov-0
9
Jan-1
0
Mar-1
0
May-1
0
Jul-1
0
Sep-1
0
Nov-1
0
Jan-1
1
Mar-1
1
May-1
1
Jul-1
1
($/tonne) Currency impact on Copper prices
Currency Influence Actual Price
69.
201
118
90
110
130
150
170
190210
230
Ja
n-09
Ma
r-09
Ma
y-09
Jul-09
Se
p-09
No
v-09
Ja
n-10
Ma
r-10
Ma
y-10
Jul-10
Se
p-10
No
v-10
Ja
n-11
Ma
r-11
Ma
y-11
Jul-11
($/tonne) Currency impact on Zinc prices
Actual Price Currency influence
314
9590.0
140.0
190.0
240.0
290.0
340.0390.0
440.0
Ja
n-09
Mar-09
May-09
J
ul-09
Se
p-09
No
v-09
Ja
n-10
Mar-10
May-10
J
ul-10
Se
p-10
No
v-10
Ja
n-11
Mar-11
May-11
J
ul-11
( /kg) Currency impact on NR prices
Actual Price Curr ency influence
Annexure III: Historical volatility in prices
Quarterly Volatility in Aluminium prices Quarterly Volatility in Copper prices
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0%
5%
10%
15%
20%
25%
30%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Q y y p
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Quarterly Volatility in Copper prices
30.0%
Quarterly Volatility in Zinc prices
45%
Quarterly Volatility in HR prices
70.
Source: LME,CRISIL Research
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
0%
5%
10%
15%
20%25%
30%
35%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Historical volatility in prices
Quarterly Volatility in NR prices Quarterly Volatili ty in PP prices
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0%
5%
10%
15%
20%
25%
30%
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Quarterly Volatility in NR prices
0%
5%
10%
15%
20%
25%
30%
35%
40%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Quarterly Volatili ty in PP prices
Quarterly Volatil ity in ABS prices
71.
Source: CRISIL Research
0%
5%
10%
15%
20%
25%
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Annexure IV: Commodity Duty Structure
(per cent) Excise Duty Custom Duty
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Commodity 2010-11 2011-12 2010-11 2011-12
HR Steel 10 10 5 5
CR Steel 10 10 5 5
Sponge iron 10 10 5 5
TMT Steel 10 10 5 5
Pig iron 10 10 5 5
Aluminium 10 10 5 5Copper 10 10 5 5
Zinc 10 10 5 5
NR * - - 20 20
72.
SBR (1502) 10 10 10 10
PP 10 10 5 5ABS 10 10 5 5
Note: Education cess is applicable at 3 percent
In case of NR, customs duty applicable is 20 per cent or Rs 20, w hichever is low er
During Jan-Mar 2011 customs duty w as reduced to 7.5 per cent
Source: Central Customs Tariff, Central Excise Tariff
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73.
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