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Regional Materials Summary

Core Content

This document provides an overview of the current state and outlook for key materials in Asia, particularly focusing on iron ore, nickel, coal, and steel. It includes news headlines, analyst views, and market forecasts, highlighting the interplay between supply, demand, and policy changes in the region.

Key Headlines Impacting Materials

• Iron Ore: Prices in China fell due to increased financing costs and higher stockpiles. Spot prices for Shenhua's May delivery increased by RMB5/t (USD0.81/t), and discounts to large buyers were reduced.
• Nickel Ore: Prices reached new highs due to strong Chinese demand and Indonesia's export ban. NPI producers are raising prices in line with the ore cost increases.
• Indonesia: Considering changes to copper concentrate export taxes but not likely to lift the ore export ban. The export tax is expected to decrease once a development plan for a smelter is approved.
• Steel Sector: Steel prices in China remain weak despite seasonal factors. The Shanghai Pudong court reported a significant increase in steel trader defaults on bank loans.
• Coal Market: Thermal coal prices in China remain soft, though there are signs of improvement with lower power plant inventories and a potential rise in prices during the winter season.

Main Views and Key Information

Iron Ore

• Prices have declined by 17% CIF China and 13% YTD, despite a 19% increase in imports.
• Stockpiles have surged, driven by finance-related purchases for credit.
• There is a risk of a sharp price drop if Chinese buyers default on contracts.
• Steel companies have not benefited from lower iron ore costs due to weak demand and surplus production.

Nickel

• Prices have exceeded earlier forecasts, with a 31% increase in LME and 25% in Shanghai YTD.
• The Indonesian ore ban has significantly impacted the supply of nickel ore to China, which accounts for 50% of its total supply.
• A potential peak in nickel prices is expected in 2015 at USD10/lb, followed by a decline.
• A shift in consumption towards lower nickel content grades could ease pressure on prices.

Coal

• Coal inventory at power plants decreased from 23 days in December to 20 days in April, indicating a slight improvement.
• Prices are expected to rise gradually as restocking accelerates and the winter season approaches.
• The coal market is experiencing a surplus, which may limit price increases.
• China has accelerated small mine closures, with 1,725 mines to be closed this year, up from 770 in 2013.

Steel

• Steel prices in China have declined 15% YTD and are expected to fall 12% in 1H14 and 4% in 2H14.
• Steel production reached a record high in Q1 2014, outpacing demand growth.
• Steel companies are struggling with weak demand and surplus production, leading to low prices and profits.
• There is a growing gap between company list prices and market prices, indicating potential for correction.

Top Picks (BUY/SELL)

• VALE Indonesia (INCO IJ; IDR3,550; BUY; TP IDR4,600)
• Sesa Sterlite (SSLT IN; INR185.35; BUY; TP INR252)
• Minmetals MMG (1208 HK; HKD1.80; BUY; TP HKD2.45)
• Angang Steel (347 HK; HKD4.70; SELL; TP HKD4.00)
• China Coal (1898 HK; HKD4.19; SELL; TP HKD3.25)

Analysts

• Alexander Latzer (HK/CHINA): Metals, coal, steel
• Jigar Shah (INDIA): Cement, oil/gas
• Anubhav Gupta (INDIA): Metals, steel
• Isnaputra Iskandar (INDONESIA): Metals, coal, cement
• Lee Yen Ling (MALAYSIA): Steel, building materials
• Ramon Adviento (PHILIPPINES): Metals, coal
• Lovell Sarreal (PHILIPPINES): Cement, consumer, media
• Sutthichai Kumworachai (THAILAND): Coal, energy, oil/gas, petrochemical
• Surachai Pramualcharoenkit (THAILAND): Steel, construction, contractors, automotive
• Trung Thai (VIETNAM): Construction, materials, property

Research Offices and Contacts

• Regional Head of Institutional Research: WONG Chew Hann, CA (603) 2297 8686
• Regional Head of Retail Research: ONG Seng Yeow (65) 6432 1453
• Institutional Product Manager: Alexander GARTHHOFF (852) 22680638
• Chief Economist (Singapore/Malaysia): Suhaimi LIJAS (603) 22978682
• Chief Economist (Indonesia): Juniman (62) 21 29228888 ext 29682
• Economist / Industry Analyst (Indonesia): Josua PARDEDE (62) 21 29228888 ext 29695
• Head of Research (Singapore): NG Wee Siang (65) 6432 1467
• Head of Research (Indonesia): Wilianto IE (62) 21 2557 1125
• Head of Research (Philippines): Luz LORENZO (63) 28498836
• Head of Research (Thailand): Maria LAPIZ (66) 2257 0250
• Head of Retail Research (Thailand): Sukit UDOMSIRIKUL (66) 2658 6300 ext 5090
• Head of Retail Research (Philippines): Lovell SARREAL (63) 28498841
• Head of Research (Vietnam): Trung Thai (84) 444 55 58 88 x 8180

Market Outlook and Risks

• Nickel: Expected to peak in 2015 at USD10/lb, but the market is volatile and sensitive to geopolitical factors like the Ukraine situation.
• Copper: Indonesia's export tax on copper concentrate may be reduced once a smelter development plan is approved, which could ease supply disruptions.
• Steel: Prices are weak due to overproduction and weak demand, with potential for correction if ore prices fall sharply.
• Coal: Prices are expected to rise gradually, but volatility is low due to surplus in the seaborne market and arbitrage activities.

Figures and Data

• Figure 1 & 2: Show iron ore price and inventory trends in China.
• Figure 3: Nickel ore export prices and types from the Philippines to China.
• Figure 4 & 5: LME nickel price forecast and Maybank KE ranking of materials for 2014E.
• Figure 6 & 25: China coal inventory and prices compared to Australia.
• Figure 34: China crude steel production and YoY growth.
• Figure 35: Long-term view of steel prices and input costs.

This summary captures the essential insights from the document, highlighting the dynamics of the materials market in the region and the key factors influencing supply, demand, and pricing.