Head of Research at Pioneer Intermediaries, Bhavin Chedda says, copper is expected to be among the most volatile metal on LME, whereas aluminum and zinc prices after the correction on LME look much more comfortable.
Excerpts from CNBC-TV18's exclusive interview with Bhavin Chedda:
What do you make of the kind of fall that we saw across commodities and more importantly, which are the one that you are most bullish on copper, aluminum or zinc?
We are particularly bullish on aluminum because of the amount of percentage rise that has happened in alumina is much lower and it has also underperformed copper and zinc. We expect copper to remain volatile on LME because of the kind of rise. This year copper started with USD 4400 and peaked out at $8800, so that is 100% rise.
So copper is expected to be among the most volatile metal on LME, whereas aluminum and zinc prices after the correction on LME look much more comfortable.
Take us through Hindalco; it has got both aluminum and some amount of copper as well?
Hindalco Industries is a good mix of aluminum and copper and its current capacities in both the commodities stands close to 0.5 million tonne. In the FY06 performance, the company was hit badly on the copper side because its copper smelter three, which is 0.25 million tonne faced some problems; though it is now in a stabilising stage.
So this year, there will be a substantial volume growth in copper and that investors should remember that copper is the most volatile metal on LME. None of the smelter company's profit depends on copper prices on LME; in fact the mining companies get impacted. Basically smelter companies profits are more dependent on TCRC (Treatment and Refining Charges) margins and contracts. One that Hindalco has signed is higher than its average for FY06.
The mining volumes are going up too, which will receive benefits from higher LME prices. The aluminum prices have gone up by nearly 25% on YoY basis and the company has consistently raised prices. So its aluminum business is also headed for margin expansion.
Hindalco Industries are at about Rs 158, how much visibility do you have to give us a target? What kind of recovery one can expect? Is it an investment opportunity at this price?
I think maybe medium to long-term investor can easily look at 20-25% growth in that company. We believe, that earnings growth visibility is there for three years.
It's going ahead with few greenfield projects, UTKAL Alumina, Jharkhand project and Orissa project. So in both aluminum and alumina within three years, the company will be among the top five players globally. If one looks at the non-ferrous valuation matrix, global players are trading at 11-13 times forward and at Rs 160 Hindalco is just trading at 7-8 times forward.
So it is significantly 25-30% discount and the earnings growth visibility is much more.
How are steel prices moving globally, and more importantly in that light Jindal Steel and Power ?
Taking the steel industry and steel prices, we have in-house, a positive view on overall industry because we feel the consolidation phase, which is happening in global steel industry will lead to significant re-rating of steel stocks. This has been already shown by the way the steel prices have recovered from the bottom. If one remembers correctly, December and January, the prices of HR Coil had dipped to as low as $350 to $380 across CIS, US, Europe and China markets.
How much more of an uptake do you expect in JSW Steel , Tata Steel prices?
We expect another round of Rs 800-1000 steel price coming within next one or two months. This will be mainly because there has been $40-50 hike by Chinese steel companies, which is a very positive sign.
Any disclosures?
Myself, our company or our clients maybe having positions in the stocks, which we have discussed.
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