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00:00Metals are in focus before the Fed rate cut ahead and we have Parthiv Johansa, who is

00:17the lead analyst at Anand Rathi Institution Equities, who is joining us for this particular

00:21chat.

00:22Welcome to the show, Parthiv.

00:24You know, my first question to you is that there is a slowdown in terms of, you know,

00:30when it comes to the real estate sector of China and this is overall affecting the global

00:35steel prices.

00:36So, first off, I want to understand that do you expect this trend to continue?

00:40Hi.

00:41Hi.

00:42Thanks for having me.

00:43So, yeah.

00:44As far as commodity is concerned, you know, China is, it is almost 50% of the global consumption

00:52and out of which, you know, real estate is a very big chunk, you know, if you see real

00:56estate is almost about 30-35% of the total, you know, Chinese consumption in metal.

01:03If you see over last, especially post, you know, 2020 era, you know, whatever stimulus

01:08the Chinese government has got, especially during, due to the real estate sector, right,

01:14the metal has rallied in anticipation of those stimulus.

01:17The same thing has been witnessed, you know, last couple of days when the Chinese government

01:22is expected to, you know, cut down the rates for their, you know, a few trillion dollars

01:27of the mortgage and a similar kind of a rally has been seen.

01:31However, if you see, and if you see over last three, four years, the metal has actually

01:36cooled off thereafter and we expect the same thing to happen in the Federal side that,

01:41you know, this, the prices should again come back and cool down a bit going forward.

01:47Got it, Parthiv.

01:49We're talking of prices coming off at a time when, of course, there is a likely slowdown

01:57being engineered globally as well as in the US, especially in the US.

02:02But also with a rate cut expectation, likely this week, how does that interplay with prices

02:10in your opinion?

02:11Because ideally it should help prices go up.

02:15It should spur demand or likely demand may get spurred next year.

02:19Is that how one can look at it?

02:21So let us actually break the entire commodity into, you know, two different baskets.

02:26One is the ferrous and the other one is the non-ferrous, right?

02:28The problem with ferrous right now is, you know, iron ore is also at a high inventory

02:34on the port inventory in China, right, which is actually dragging down the prices as far

02:40as ferrous is concerned, apart from your slugging real estate sector.

02:43As far as your non-ferrous are concerned, there has been some inventory liquidation

02:47happening.

02:48The demand has gradually picked up, especially for aluminium and copper.

02:53There has been some improvement seen there.

02:57You are absolutely right that this, there will be a bit of a sluggish behavior, which

03:01will be seen over the next couple of months.

03:05I personally expect that the demand should pick up anytime post this autumn is completed.

03:12Gaurav Parthiv, Hi Meheka, this side.

03:17So you know, we had a slew of, you know, people say that, you know, maybe the iron ore prices

03:22have bottomed out.

03:24Do you feel that a pickup is eminent and what is your expectation of prices going ahead?

03:31So the thing is, iron ore inventory, the port inventory in China is already at about 150

03:36million tonnes, right, which is at record levels, which is way higher than the historical

03:41average if you see.

03:42In order for the prices to pick up first, the inventory at the port level in China has

03:46to come off to about 100, say 120, 130 odd million tonnes, that kind of a number, right.

03:52Also if you see during second quarter, that is during the monsoon season, usually the

03:57prices come off a bit and the trend usually continues thereafter.

04:02In my personal opinion, till the time there has been no uptick, which is seen in the ferrous

04:06sector within the mainland China, the prices will continue to remain range-bound between

04:11say 95 to 110 odd dollars in iron for the rest part of the year.

04:16Right.

04:17Got it.

04:18Parthiv, I also want to understand that how do you anticipate the potential rate cuts,

04:24how will they overall impact the metal prices and particularly the commodities that are

04:29priced in US dollars, if you can give an overview on that and the potential impact, if you can

04:36quantify that as well.

04:37Sure.

04:38See, what has happened over the last couple of days due to all the global scenario which

04:43has been playing out, especially from China and US, the speed has already been pricing

04:48for, I would say about 25 odd cut from the Fed side, more than the cut, I would say the

04:55commentary of the Fed wouldn't matter a lot, that would actually play out a major role

05:02going forward.

05:03So I personally anticipate that up to 25 has already been priced and anything over and

05:07above that should play out positively.

05:10So if there is a 50 bids cut, that should play out positively along with what the commentary

05:15is.

05:16If there is a soft landing commentary from the Feds, that would actually play out very

05:20positively.

05:21And if this is just to control a certain kind of a panic, it might turn out to be a bit

05:30of a mixed reaction, especially for the metals are concerned.

05:35Got it Parthiv.

05:36So are you saying, if the outcome is as expected, you could see better pricing for metals as

05:43a whole in Q3?

05:44Or do you think the demand concerns and the inventory levels will kind of offset that

05:49positive trajectory?

05:50No, definitely.

05:51You see, the demand from China will definitely play a very major role, because if you, ex-China,

05:59India is one of those few countries which has been playing out very well, but you know

06:03China, we cannot ignore China, right?

06:05So inventory levels in China and along with inventory, basically demand and consumption

06:10pattern in China will also play out.

06:12So until and unless, you know, there has been a substantial stimulus in China, because

06:16all the stimulus in the past has not given out the kind of results which is expected

06:20to have given out.

06:22So, you know, there has to be a very big bang stimulus coming out from China in order for

06:27this to completely turn around and, you know, thereafter increase the prices should have

06:33increased.

06:34Got it.

06:35Parthiv, you know, just trying to break this down a little better.

06:39So what's the best way to play this therefore?

06:43What in your view looks good, both from a value as well as well placed from a pricing

06:50standpoint given that there are going to be challenges, at least that's what you seem

06:54to suggest.

06:55Sure.

06:56So the best play out here is focus on companies which has a good domestic presence, because

07:01right now what is happening is India is one of those few large economies which is actually

07:06doing well.

07:07If you just check out any consumption pattern or even production and consumption both say

07:11for steel, right?

07:12We are those, we are one of those that economy which is actually growing on a year-on-year

07:18basis.

07:19Right now our consumption for the first five months is up almost about 12-13% right?

07:24We are on our way to be a 140-145 million ton kind of a steel consumption country.

07:29So India is definitely a better, domestic companies focused on India are definitely

07:34a better place compared to you know companies which has international presence.

07:39So in our opinion say companies like say GSW or JSPL are much better place than companies

07:45which are something like say Tata Steel in ferrous sector and in say non-ferrous sector

07:50we are very optimistic on Hindalco as a entity apart from that we have a soft coverage on

07:57Vedanta, Vedanta Aluminium we are comfortable with.

08:01So these are a couple of companies to play out.

08:03Sorry but you know you said you focus more on the steel counters that have a larger domestic

08:08presence but you know despite being the second largest steel producer we are still a net

08:12import and that trend which started in FY24 seems to be continuing in FY25.

08:17So don't you think from a domestic aspect also these steel companies are hurting?

08:21See there have been news in the market for you know laying down a couple of you know

08:28duties and anti-dumping duties and everything on the Chinese and Vietnamese steel import

08:32so that would eventually help the domestic players more than that see what is happening

08:37is in India we are actually importing say close to about 3-3.5 million ton which has

08:43there has been an import but on the we are even exporting about say 2 odd million tons

08:46so they are a net importer of about 1-1.5 million ton as on date right.

08:50So the quantity is not that huge it is basically the international prices which is hurting more

08:55in my personal opinion so that is the reason if you see companies like say GSW or say JSPL

09:00which are actually enhancing the capacity and focusing more on the value-added product

09:04side rather than just you know the plain vanilla steel those companies will definitely be benefited

09:10as on how the consumption pattern shifts towards more value-added product right.

09:14So today any company which is adding capacity in India are talking more on the value-added

09:18product side whether it be ferrous or non-ferrous and with GSW you're being the front runner

09:23of you know and especially having focus towards the automobile and all and various other sector

09:29similarly GSW having you know focus across you know a number of sectors that is going to play

09:34out much better. Right, Parthiv I also want to understand as to what's happening with base

09:40metals you know they've experienced growth in Q1 now I want to understand because you know it has

09:45been a volatile space and do you so overall going forward do you anticipate you know the base metal

09:52prices to you know see an uptick going forward and a follow-up on that that do you expect the

09:58base metal prices to react as to you know how Chinese demand will play out? See base metal

10:05prices copper or aluminium if you want to say they rallied because of various regions in Q1

10:11thereafter they have you know cooled off a bit in the current quarter. Now if you want to talk

10:17about say aluminium anything you know a level about 2400 kind of a level for aluminium is a

10:22very good level in my opinion because that is the level where a lot of these smelters would be making

10:28money. What happens is any level about 2600 level or 2550 level becomes unaffordable

10:34especially because you know aluminium the quantum of aluminium used in the new age sectors or you

10:39know automobile have the quantum usage of aluminium actually gone up in recent years right so there is

10:44also a part of affordability which plays out. Coming down to you know copper I feel that you

10:50know the current level which is there is a very good level anything about 9000 is a very good

10:54level for copper and I have been telling this that you know this level is possible to sustain

11:00going forward right now we are sitting at about say 9200 levels which is a very good level as

11:04far as copper is concerned. Definitely Chinese demand and Chinese you know inventory will play

11:11out but if you see over the last couple of weeks especially post the second third week of august the

11:16inventory liquidation has happened in China today aluminium and copper inventory are low compared

11:23to july on august month so that is actually playing out positively for the non-certified.

11:28All right Mr. Parthiv well thank you so much for giving us those and you know insights in the

11:33entire metal pack and thank you so much for taking our time and speaking with us at NDTV Profit

11:37but with that we're completely out of time on this edition of small mid-cap show but stay

11:41tuned to NDTV Profit for more news and updates.

Impact Of China Demand On Base Metals | NDTV Profit

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