Metals and Mining

SECTOR UPDATE
METALS AND MINING

Summer of discontent
India Equity Research | Metals and Mining
Alluding to Icarus’ perilious flight very close to the Sun and meeting its
nemesis thereon, (the once seemingly invincible) metal stocks are also off
their red-hot valuations. In a situation reminiscent of FY14, we find metal
stocks in the throes of meltdown (like FY14), despite a better supply-side
environment and impending benefits of operating leverage. We see a
strengthening Dollar Index and trade brawls cutting down valuation
multiples. Accordingly, we now prefer ferrous over non ferrous; within non
ferrous, we would go with aluminium (Al) instead of zinc (Zn) as: 1)
domestic supply-side tightness augurs well for domestic ferrous plays; 2) Zn
supply woes seem to have eased even as demand remains a concern; and
3) cost push in Al supply chain would keep LME Al above USD2,000/t levels.
Ergo, we prune FY19/20E LME Zn by 8-9%, maintain LME Al estimates, raise
USD:INR to 68 (earlier 65) and 69 (earlier 66), and reduce exit multiples by
~5-17%. Our top picks are Tata Steel, Hindalco Industries and JSW Steel.
About turn, favour ferrous over non ferrous

We remain biased to the supply-side theme. Earlier, we preferred non ferrous over
ferrous and within non ferrous, Zn over Al. This was primarily due to slow production
creep in Zn. In a volte-face, we now prefer ferrous over non ferrous and within non-
ferrous, Al over Zn. In ferrous, the outlook is better driven by supply cuts/winter
shutdowns in China. In non-ferrous, Al seems to be on a firm footing due to: 1) supply
disruptions in both Al and alumina; and 2) cost push across the Al supply chain. In Zn,
however, we see deficit reversing and inventories swelling leading to lower prices.
Expect pressure on valuations

Confidence and conviction are in short supply these days. We find valuations of metals
stocks to be marred by: 1) uncertainties around trade brawls that threaten to disrupt
trade flows coupled with decelerating downstream industry growth; and 2) an
appreciating Dollar Index that precipitated the recent price correction in underlying
base metals (refer our sector note: Metals & Mining - The sky’s overcast, but…).
Outlook: Silver lining in earnings; modest valuations

We broadly retain our FY19/20E HRC and LME Al prices. Factoring in the recent
meltdown in LME Zn prices and easing of production constraints, we have cut
FY19/20 LME Zn estimates by 8-9% to USD2,785/2,600/t. Thus, our earnings
estimates for ferrous and Al players remain broadly unchanged. Reflecting the
Amit A Dixit
impending pressure on valuations, we lower FY20E exit EV/EBITDA multiples by 4-
+91 22 6620 3160
8% for ferrous and 6-12% for non ferrous players. Thus, target prices (TPs) of amita.dixit@edelweissfin.com
ferrous stocks (Tata Steel, JSW Steel, Jindal Steel & Power (JSPL) and SAIL) stand
Meera Midha
reduced by 5-15%. In non ferrous, we have reduced TPs of Hindalco +91 22 4088 5804
Industries/Hindustan Zinc by 13%/17%. We have pruned Vedanta’s TP by a major meera.midha@edelweissfin.com
29% on additional concerns around copper and iron ore divisions.
July 13, 2018
Edelweiss Research is also available on www.edelresearch.com, Edelweiss Securities Limited

1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Metals and Mining
Past: Earnings toned down; valuations stagnant

Current situation is akin to FY14 in
Throwback to the all-too-familiar FY14
terms of valuations remaining
compressed We look back at FY14 when macro headwinds (similar to those prevailing currently) of a
strengthening Dollar Index resulted in correction in industrial metals. For the Indian players,
there was some respite as lower base metal prices were offset by weak rupee, resulting in
earnings growth. However, consensus estimates were reduced progressively every quarter
mirroring the decline in underlying commodity prices. Nevertheless, despite earnings growth,
valuations remained compressed as investors were wary of global growth prospects and
particularly the metals’ outlook.
The prevalent scenario appears to be a déjà vu of FY14, with the only difference seen on the
supply side. Unlike FY14, we find bulwarks of supply firmly in place now with supply
cuts/production restraints/winter shutdowns resulting in a better supply-demand balance
compared to FY14.
Underlying base metal prices dropped progressively in FY14

In FY14, following similar strengthening in the Dollar Index, LME Al prices fell continuously.
However, consensus estimates for ensuing quarters stood higher in H2FY13. During H1FY14,
consensus estimates started falling in line with declining prices with optimism only starting to
build H2FY14 onwards. Nevertheless, LME Al prices were always lower (refer below chart)
versus estimates throughout FY14.
Chart 1: Progressive reduction in LME Al estimates in FY14

2,250
2,100
1,950
(USD/t)
1,800
1,650
1,500
Q2CY12
Q3CY12
Q1CY13
Q2CY13
Q3CY13
Q4CY13
Q1CY14
Q2CY14
Q4CY12
Q3CY14
For better part of FY14, spot LME LME Al Q2CY12 Q3CY12 Q4CY12
Al prices were consistently lower Q1CY13 Q2CY13 Q3CY13 Q4CY13
than estimates Source: Bloomberg, Edelweiss research
In case of Zn, the picture was good with LME Zn being better than consensus throughout
FY14 as constrained supply started showing. Pertinently, Q3CY14 (one-year forward)
estimate for LME Zn was almost 21% lower (refer chart below) than the spot price.
2 Edelweiss Securities Limited

Metals and Mining
Chart 2: LME Zn estimates progressively increased in H2FY14

LME Zn spot prices were also 2,500
consistently below estimates in
FY14 before supply constraints 2,300
took over in FY15
2,100
(USD/t)
1,900
1,700
1,500
Q2CY12
Q1CY13
Q2CY13
Q3CY13
Q4CY13
Q1CY14
Q3CY12
Q4CY12
Q2CY14
Q3CY14
LME Zn Q2CY12 Q3CY12 Q4CY12
Q1CY13 Q2CY13 Q3CY13 Q4CY13
Source: Bloomberg, Edelweiss research
Earnings estimates cut in consecutive quarters

Consensus earnings estimates cut
progressively in FY14 for most of In FY14, divergence was seen in underlying commodity prices that were progressively built in
the companies revenue and EBITDA. In case of ferrous, estimate cuts were severe for Jindal Steel & Power
(JSPL) and SAIL, and in non ferrous for Hindalco Industries (Hindalco). Mining companies too
saw a cut of 22-28% from the initial FY14 EBITDA estimates.
There was progressive change in EBITDA estimates to the extent of 48% in the nine quarters
to Q4FY14 for ferrous players (refer table below). Tata Steel and JSW Steel estimates were
raised following ramp up of the 2.9mtpa brown-field capacity at Jamshedpur and merger of
JSW Steel with JSW Ispat, respectively.
In case of non-ferrous, Zn fared better than Al. Following the uptick in LME Zn prices in
H2FY14, there was progressive uptick in H2FY14 EBITDA estimates for HZL. However, for
Hindalco, the decline in LME Al price resulted in progressive cut in estimates.
Table 1: Reduction in consensus earnings estimates every quarter in-line following the dip in commodity prices
EBITDA Estimates for FY14 Actual Progressive Actual vs
(INR bn) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 (FY14) change (9 qtrs) Final est
Tata 184.9 179.6 171.9 162.0 155.0 146.4 147.5 155.3 156.4 158.5 (15.4) 1.3
JSW 71.4 72.0 75.0 74.9 72.4 69.8 74.1 83.7 87.9 89.1 23.2 1.4
JSPL 97.0 95.8 86.1 81.0 80.1 73.3 67.9 64.0 63.4 62.2 (34.7) (1.8)
SAIL 95.7 90.9 87.5 79.9 71.8 60.4 52.8 50.9 50.3 47.3 (47.5) (5.8)
HZL 73.3 72.5 70.3 70.6 70.3 67.0 68.1 70.8 70.5 70.3 (3.7) (0.4)
HNDL 107.6 102.1 99.3 96.6 92.3 88.2 86.5 85.6 85.1 81.1 (20.9) (4.7)
COAL 227.5 224.9 224.0 211.8 213.3 206.1 190.7 181.2 177.9 171.8 (21.8) (3.4)
NMDC 100.6 98.7 100.6 93.9 85.5 72.2 69.2 71.6 72.2 75.7 (28.2) 4.9

Metals and Mining
Almost all companies saw progressive cuts in estimates, except Tata Steel and JSW Steel
(refer table below).
Chart 3: Tata Steel & JSW Steel - Estimates raised post expansion and merger
1,500 200 550 100
TATA JSTL
1,470 188 510 92
1,440 176 470 84

(INR mn)
(INR mn)
(INR mn)
(INR mn)
1,410 164 430 76
1,380 152 390 68
1,350 140 350 60

Apr-12
Apr-13
Apr-14
Feb-13
Feb-14
Jun-12
Jun-13
Dec-13
Dec-12
Aug-12
Aug-13
Oct-12
Oct-13
Dec-12
Dec-13
Oct-13
Aug-12
Oct-12
Aug-13
Apr-12
Apr-13
Apr-14
Feb-13
Feb-14
Jun-12
Jun-13
REVENUE EBITDA REVENUE EBITDA
SAIL and JSPL estimates were lowered the most as these companies are predominantly into
longs. Longs corrected more than flats in FY14 and hence revenue and profitability estimates
were cut.
Chart 4: JSPL and SAIL - Sharp cut in earnings estimates

600 100 240 100
SAIL JSP
570 88 232 92
540 76 224 84
(INR mn)
(INR mn)
(INR mn)
(INR mn)
510 64 216 76
480 52 208 68
450 40 200 60
Apr-12
Apr-13
Apr-14
Feb-13
Feb-14
Apr-12
Apr-13
Apr-14
Jun-12
Jun-13
Dec-12
Dec-13
Feb-14
Feb-13
Aug-12
Aug-13
Oct-12
Oct-13
Jun-12
Jun-13
Dec-12
Dec-13
Aug-12
Aug-13
Oct-13
Oct-12

Estimates of Hindalco and HZL are closely related to underlying LME Al and Zn prices,
respectively. For Hindalco, revenue was revised upwards following ramp up of rolling
production at its Pinda plant in Brazil, coupled with the mill expansions in Korea and start of
commercial production at its US automotive finishing lines at Novelis. However, EBITDA
estimates continued to decline owing to unfavourable metal-scrap spread. In case of HZL,
estimates were revised upwards following uptick in LME Zn towards H2FY14.

Metals and Mining
Chart 5: Non ferrous estimates tracked commodity prices

920 120 140 74
HNDL HZ
900 112 138 72
880 104 136 70
(INR mn)
(INR mn)
(INR mn)
(INR mn)
860 96 134 68
840 88 132 66
820 80 130 64
Apr-12
Apr-13
Apr-14
Apr-14
Apr-12
Apr-13
Feb-14
Feb-13
Feb-13
Feb-14
Jun-12
Jun-13
Dec-12
Dec-13
Jun-12
Jun-13
Dec-12
Dec-13
Aug-12
Aug-13
Oct-12
Oct-13
Aug-12
Aug-13
Oct-12
Oct-13

Chart 6: Mining companies’ estimates dropped progressively

140 110 780 250
NMDC COAL
132 100 760 230
124 90 740 210

(INR mn)
(INR mn)
(INR mn)
(INR mn)
116 80 720 190
108 70 700 170
100 60 680 150

Apr-12
Apr-13
Apr-14
Apr-12
Apr-13
Apr-14
Feb-13
Feb-14
Feb-13
Feb-14
Jun-12
Jun-13
Dec-12
Dec-13
Jun-12
Jun-13
Dec-12
Dec-13
Aug-12
Aug-13
Oct-12
Oct-13
Aug-12
Aug-13
Oct-12
Oct-13


Metals and Mining
Present: FY16-like situation unlikely

We find the metal stocks under pressure on account of: 1) uncertainty around trade brawls
that threaten to disrupt trade flows, besides decelerating downstream industry growth; and
2) an appreciating Dollar Index has led to the recent price correction in underlying base
metals. Nevertheless, we do not see encore of the FY16-like situation when prices collapsed,
Current operating environment cost curve deflated further exacerbated by ramp up in Chinese production of steel and Al and
akin to FY14, but supply steep jump in Chinese exports.
constraints to prevent FY16-like
cascade The Dollar Index has had an inverse correlation with the Industrial Metals Index. Accordingly,
an appreciating USD has always had an adverse impact on commodity prices (refer chart
below).
Chart 7: We do not see Industrial Metals Index dragging down to FY16 lows
600 154
510 138
420 122
(x)
(x)
330 107
240 91
150 75
Apr-13
Feb-12
Sep-12
Mar-09
Mar-16
Jun-14
Dec-10
Dec-17
Jul-11
Oct-09
Aug-15
Oct-16
Aug-08
Nov-13
May-10
May-17
Jan-08
Jan-15
Industrial metals (LHS) Dollar index (RHS)
The situation is much better now. In FY14, the Dollar index rose 2.4%, while the commodity
index fell 8%. In FY19 thus far, the Dollar Index has appreciated 5%, while the Commodity
Index has also strengthened by 2.3%. The correlation between the Commodity and Dollar
Indices, if not unbroken, was significantly undermined by the supply cuts.

Metals and Mining
Chart 8: Supply cuts have seen lower impact on Industrial Metals Index in recent times
450 130
390 122
330 114
(x)
(x)
270 106
210 98
150 90
Nov-16
Nov-17
May-16
May-17
May-18
Sep-16
Sep-17
Jan-16
Jan-17
Jan-18
Mar-16
Mar-17
Mar-18
Jul-16
Jul-17
Industrial metals Dollar index- RHS
Consensus LME Al estimates consistently lower than Spot prices

Unlike FY14, this time round Unlike FY14, currently we find LME Al prices continuously ruling above forecasts. Also,
consensus LME Al estimates lag consensus estimates have been revised upwards every quarter in FY18. Current spot prices
spot prices are broadly similar to consensus estimates for the rest of FY19. We believe that the
correction in LME Al prices will likely stay muted owing to supply cuts and cost push from
buoyant alumina and thermal coal prices.
Chart 9: Unlike FY14, LME Al estimates lag Spot prices

2,450
2,300
2,150
(USD/t)
2,000
1,850
1,700
Q1CY17
Q2CY17
Q4CY17
Q1CY18
Q2CY18
Q3CY18
Q4CY18
Q1CY19
Q3CY17
LME Al Q1CY17 Q2CY17 Q3CY17

Q4CY17 Q1CY18 Q2CY18
In case of Zn, however, we believe there is further scope for correction as despite the recent
slump, consensus estimates continue to remain ahead of current prices.

Metals and Mining
Chart 10: LME Zn appears vulnerable as supply comes on board

3,700
3,420
(USD/t)
3,140
2,860
2,580
2,300
Q1CY17
Q2CY17
Q4CY17
Q1CY18
Q2CY18
Q3CY18
Q4CY18
Q1CY19
Q3CY17
LME Zn Q1CY17 Q2CY17 Q3CY17
Q4CY17 Q1CY18 Q2CY18
FY19E earnings continue to be revised upwards

Unlike FY14, we see FY19E earnings getting progressively revised upwards led by operating
leverage benefits and firm prices. Also, the revisions are higher for ferrous than non ferrous
segment (refer table below). But, for Vedanta, earnings revision has been most muted,
despite expected robust performance by Oil & Gas division due to: 1) continued outage at
Tuticorin copper smelter; 2) uncertainty around resumption of the Goa iron ore mining;
3) higher cost at Zinc-India and Zinc-International divisions; and 4) lower profitability in
Al division owing to higher alumina prices.
Table 2: Past five quarters witnessed progressive upward revision in FY19 estimates
EBITDA Estimates for FY19 Progressive
(INR bn) Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 change (5 qtrs)
Tata 183.6 192.6 207.8 211.3 224.1 243.8 32.8
JSW 145.2 143.6 146.9 148.4 154.1 172.7 18.9
JSPL 81.6 81.5 82.2 84.8 91.7 87.2 6.8
SAIL 68.9 70.2 70.3 73.3 81.7 93.1 35.2
HZL 131.7 132.8 133.8 145.2 148.6 144.8 10.0

HNDL 140.2 140.6 147.7 153.5 150.6 153.4 9.4
Vedanta 287.0 289.1 308.9 307.3 311.1 299.9 4.5
COAL 210.9 195.0 183.1 182.2 226.7 237.6 12.6

NMDC 52.8 50.3 53.4 53.4 60.7 61.3 16.2

Metals and Mining
Future: Ferrous to enjoy edge over non ferrous

We remain focused on supply side and believe it would be the major differentiator in FY19
vis-a-vis FY14. In current times, following supply cuts by China in steel and Al, we are
High spreads and better capacity witnessing a tight demand-supply balance, resulting in relatively stable underlying
utilisation bodes well for ferrous commodity prices. This is different from FY14 when underlying commodity prices crumbled in
sector similar macro environment as: 1) production continued unabated; 2) Chinese exports shot
up: and 3) cost deflation occurred across the value chain.
In case of Zn, the situation has been different as the first four months of the year witnessed
surplus on slab front and with production ramp up at HZL and Lady Loretta mine of Glencore,
we expect the supply situation to ease off considerably.
Ferrous capacity utilisation up; Chinese inventory down

We believe that the prevailing environment augurs well for ferrous with an apparent supply
discipline visible. This has resulted in higher capacity utilisation and better spreads globally.
We believe that the 3C’s - China, Consolidation and Constrained exports have changed the
operating environment for steel (refer our sector update: Metals & Mining - Ferrous: From
ruined dream to dream run). Steel industry remains salubrious with global capacity
utilisation at 77% in April’18 (refer chart below).
Chart 11: Global steel capacity utilisation above 75%

200 90
160 82
(mn tonnes)
(mn tonnes)
120 74
80 66
40 58
0 50
Dec-14
Aug-11
Aug-16
Oct-15
Apr-13
Apr-18
Nov-12
Nov-17
May-15
Jan-12
Jan-17
Sep-13
Feb-14
Mar-16
Jun-17
Jun-12
Jul-14
Global Steel Production World Steel Capacity Utilization

In China, demand growth if not high has remained steady. Inventory that had shot up
following the February winter holidays shrunk 35% in past two months to 12mn tonnes. Seen
in conjunction with robust domestic prices, we believe that Chinese demand is better
compared with consensus estimates.

Metals and Mining
Chart 12: Chinese inventory slipped 35% in past two months

25
20
Cost push across the value chain to
(mn tonnes)
support LME Al prices 15
10
Apr-12
Apr-13
Apr-15
Apr-16
Apr-17
Apr-18
Apr-14
Dec-11
Dec-12
Dec-14
Dec-15
Dec-16
Dec-17
Dec-13
Aug-11
Aug-12
Aug-13
Aug-15
Aug-16
Aug-17
Aug-14
China Steel inventory
Aluminium: Modest surplus, but cost push visible

At current juncture, we see AI in a far better space than FY14 with only modest surplus
available and expected demand growth of 5-6%. YTD CY18, China’s surplus was at 122kt,
while the RoW deficit was at 18kt.
Chart 13: Aluminium surplus modest by historic standards

5,500 550
5,000 400
4,500 250
(kt)
(kt)
4,000 100
3,500 (50)
3,000 (200)
Apr-13
Apr-18
Sep-13
Feb-14
Mar-16
Jun-12
Jun-17
Dec-14
Jul-14
Aug-11
Aug-16
Oct-15
Nov-12
Nov-17
May-15
Jan-12
Jan-17
Surplus- World World demand

We believe that Al prices will continue be supported from cost push. Profitability of Chinese
players has dipped sharply in recent times and is at lowest levels in past 15 months. This has
to the slowdown in new capacity coming on stream in China. For instance, Shanghai Metals
Market (SMM) has revised the forecast of new capacity coming in July down to 0.6mtpa from
1 mtpa. Overall, new capacity expected to come on-stream in CY18 has also reduced to
3.4mtpa from 4.1mtpa earlier. FY18 Al output estimate has also been reduced to 37mtpa
from 37.8mtpa earlier, a growth of mere 1.9% YoY in CY18 thus far (14.2% YoY in CY17).

Metals and Mining
Chart 14: Higher Al costs impacted profits

16,500 3,500
15,000 2,300
13,500 1,100
(RMB/t)
(RMB/t)
12,000 (100)
10,500 (1,300)
9,000 (2,500)
Apr-14
Sep-14
Feb-15
Mar-12
Mar-17
Jun-13
Jun-18
Dec-15
Jul-15
Aug-12
Aug-17
Oct-11
Oct-16
Nov-13
May-16
Jan-13
Jan-18
Profit Cost
On inventory side, we draw comfort as reported Al inventory on exchanges is at much lower

levels than the recent past. Notably, inventory in FY14 was at the highest-level ever. In China,
Inventories are down to 1.83mt (7.2% MoM).
Chart 15: Al inventory at exchanges lower than past

6,000
5,000
4,000
(kt)
3,000
2,000
1,000
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-11
May-11
May-12
May-14
May-16
May-17
May-18
May-13
May-15
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-18
Jan-17
Inventory on exchanges- Aluminium

Zinc: Surplus on the horizon, prices to see limited upside

In case of Zn, after the sustained decline in mined metal production, finally an uptick is being
driven by increases in Australia, Turkey and the US. However, it was partially offset by the
decline in production in Canada, China and India.

Metals and Mining
Chart 16: Mined metal production inched up in past four months

1,500 21.0
Zn looks most vulnerable with
supplies clawing back and demand
1,200 12.8
remaining weak
900 4.6
(kt)
(%)
600 (3.6)
300 (11.8)
0 (20.0)
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Mined metal production % growth (YoY)
The refined Zn market remained in surplus for the fourth consecutive month in April’18.
Higher refined Zn production in Australia, Belgium, China, Norway and Peru was partially
offset by the declines in India and USA. In China, maintenance work at smelters and
environmental reviews are on the final leg. July’s refined Zn output across China is likely to
fall from June levels as the recovery in production is slower than expected owing to weak
margins.
April‘18, demand growth remained muted, growing at mere 0.4% YoY. Going ahead, we
believe that ramp up in Rampur Agucha mine for HZL and Lady Loretta mine of Glencore will
further improve production. Elsewhere, total of 300-400kt of supply growth of Zn
concentrate is expected in the international market in CY18 with majority coming in H2CY18.
MMG’s Dugald River mine is estimated to add 130ktpa in Zn content and the New Century
Resources’ Century mine could see 100kt in Zn content in H2CY18.
Chart 17: Refined Zn surplus seen so far in CY18

1,500 109
1,200 60
900 11
(kt)
(kt)
600 (37)
300 (86)
0 (135)
Apr-13
Apr-18
Sep-13
Feb-14
Jun-12
Jun-17
Mar-16
Dec-14
Jul-14
Aug-11
Aug-16
Oct-15
Nov-12
Nov-17
May-15
Jan-12
Jan-17
Net surplus Zinc slab demand Zinc slab supply


Metals and Mining
Zn inventory at exchanges despite showing slight uptick in Q1CY18 remains low compared to
historical levels. In China, imported material inventory has dwindled. Refined Zn inventory
in China is down at 109kt, as on date.
Chart 18: LME Zn inventory, despite recent uptick remains low

1,600
1,280
960
(kt)
640
320
0
Sep-11
Sep-12
Sep-14
Sep-15
Sep-16
Sep-13
Sep-17
May-13
May-14
May-15
May-16
May-17
May-11
May-12
May-18
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Inventory on exchanges- Zinc
Earnings estimates unchanged, except for Vedanta and NMDC

We see almost no threat to our earnings estimates given that the decline underlying
Maintain HRC and LME Al price commodity prices is expected to be limited owing to prevailing supply constraints. On
assumptions. Zn seems to be ferrous side, we retain our HRC price estimate of INR42,000-43,000/t, a 8-10% discount
vulnerable given that supply is to prevailing prices. We have broadly kept our FY19/20 estimates for LME Al broadly
clawing back unchanged at USD2,127/2,027/t. However, in view of the recent meltdown in LME Zn
prices and easing of production constraints, we have reduced our FY19/20E LME Zn
prices by 8-9% to USD2,785/2,600/t. Our FY19/20 USD:INR assumptions are also restated
to 68/69 from 66/66.
Table 3: LME Zn estimates cut; LME Al and HRC estimates maintained

Revised Current % chg
FY19E FY20E FY19E FY20E FY19E FY20E
LME Aluminium (USD/t) 2,127 2,029 2,077 2,027 2.4 0.1
LME Zinc (USD/t) 2,785 2,600 3,030 2,804 (8.1) (7.3)
HRC- India (INR/t) 42,037 42,537 42,312 42,812 (0.6) (0.6)
Our ferrous estimates are in-line with consensus for Tata Steel and SAIL. We are ahead
of consensus by 12-15% for JSPL and JSW Steel, possibly due to higher volume estimates
and spreads, respectively. We believe that our estimates would be met as production
run rate of JSPL is in line with our numbers. In case of JSW Steel, we believe that
operating efficiencies and focus on downstream products will keep EBITDA/t in the
10,000-11,000/t range over next two years.
In case of Vedanta, our FY20 estimates are lower than consensus as we have taken off
earnings from copper division and Goa iron ore unit. We have also reduced our LME Zn

Metals and Mining
price estimates to USD2,600/t that might be higher than consensus. In case of HZL, we
are slightly ahead of consensus possibly due to higher FY20 mined metal production
estimate of 1.1mt which is still lower than management's guidance.
Among mining companies, our estimates are ahead of consensus as: 1) we do not expect
material decline in domestic iron ore prices given the favourable steel cycle; 2) CIL’s e -
auction realisations and volume growth are expected to be robust given firm
international coal prices; and 3) additional revenue streams from NMDC’s pellet and
steel plants.
Overall, we believe that earnings growth trajectory will be maintained for our coverage
companies, though valuation multiples are likely to be under pressure.
Table 4: Earning estimates broadly maintained for all companies, except Vedanta and NMDC
Revised estimates CAGR (FY18- Consensus % diff wrt consensus
FY18
FY19E FY20E 20E) FY19E FY20E FY19E FY20E
Tata Steel
Revenue (INR mn) 1,330,164 1,424,240 1,475,803 5.3 1,397,759 1,378,808 1.9 7.0
EBITDA (INR mn) 218,905 238,915 251,825 7.3 244,668 248,561 (2.4) 1.3
Adjusted PAT (INR mn) 37,768 84,949 93,684 57.5 84,679 88,891 0.3 5.4
EPS (INR/share) 33.0 74.2 81.8 57.5 72.5 76.0 2.3 7.7
EBITDA margin (%) 16.5 16.8 17.1 17.5 18.0

PAT margin (%) 2.8 6.0 6.3 6.1 6.4
ROAE (%) 19.5 14.2 14.0 13.7 12.8
JSW Steel
Revenue 702,250 849,646 886,590 12.4 749,045 764,997 13.4 15.9
EBITDA 147,940 193,201 203,020 17.1 172,746 179,646 11.8 13.0
Adjusted PAT 63,236 84,981 89,513 19.0 70,438 72,737 20.6 23.1
EPS 26.2 35.2 37.0 19.0 29.1 30.1 20.7 23.2
EBITDA margin 21.1 22.7 22.9 23.1 23.5

PAT margin 9.0 10.0 10.1 9.4 9.5
ROAE 25.2 26.9 22.5 21.2 18.4

Metals and Mining
Table 4: Earning estimates broadly maintained for all companies, except Vedanta and NMDC (Contd…)
FY18
JSPL
Revenue 273,834 353,001 411,031 22.5 345,219 385,989 2.3 6.5
EBITDA 64,691 99,923 110,520 30.7 87,064 99,578 14.8 11.0
Adjusted PAT (8,973) 15,233 23,040 NM 9,830 20,242 55.0 13.8
EPS (9.3) 15.7 23.8 NM 10.3 20.4 52.2 16.6
EBITDA margin 23.6 28.3 26.9 22.3 23.9

PAT margin (3.3) 4.3 5.6 (2.4) 2.3
ROAE (3.6) 5.0 7.0 (2.8) 3.3
SAIL
Revenue 575,585 685,751 751,922 14.3 671,047 731,679 2.2 2.8
EBITDA 46,178 92,567 111,983 55.7 94,942 116,071 (2.5) (3.5)
Adjusted PAT (4,016) 24,333 37,905 NM 23,424 36,089 3.9 5.0
EPS (1.0) 5.9 9.2 NM 6.3 9.0 (6.3) 2.3
EBITDA margin 8.0 13.5 14.9 8.6 11.1

PAT margin (0.7) 3.5 5.0 (0.3) 1.8
ROAE (1.1) 6.6 9.5 (1.2) 3.7

FY18
Coal India
Revenue (INR mn) 858,624 970,954 1,029,292 9.5 958,463 1,023,130 1.3 0.6
EBITDA (INR mn) 95,663 251,352 282,323 71.8 237,899 258,313 5.7 9.3
Adjusted PAT (INR mn) 70,198 161,496 171,604 56.4 158,970 168,143 1.6 2.1
EPS (INR/share) 11.3 26.0 27.6 56.4 26.1 27.5 (0.3) 0.6
EBITDA margin (%) 11.1 25.9 27.4 24.8 25.2

PAT margin (%) 8.2 16.6 16.7 16.6 16.4
ROAE (%) 31.1 82.6 79.8 16.4 19.1
NMDC
Revenue 116,149 124,784 162,092 18.1 120,124 126,482 3.9 28.2
EBITDA 58,088 58,582 71,791 11.2 62,355 63,369 (6.0) 13.3
Adjusted PAT 35,177 40,226 45,164 13.3 42,084 43,017 (4.4) 5.0
EPS 11.6 12.7 14.3 11.1 13.1 13.3 (2.7) 7.7
EBITDA margin 50.0 46.9 44.3 51.9 50.1

PAT margin 30.3 32.2 27.9 35.0 34.0
ROAE 15.6 16.5 17.6 29.5 28.6

Metals and Mining
Table 4: Earning estimates broadly maintained for all companies, except Vedanta and NMDC (Contd…)
FY18
Vedanta
Revenue (INR mn) 918,660 947,055 1,089,029 8.9 947,882 1,075,353 (0.1) 1.3
EBITDA (INR mn) 251,640 296,027 309,266 10.9 297,613 335,500 (0.5) (7.8)
Adjusted PAT (INR mn) 81,920 103,102 108,533 15.1 122,851 146,694 (16.1) (26.0)
EPS (INR/share) 22.0 27.7 29.2 15.1 33.0 39.5 (16.1) (26.0)
EBITDA margin (%) 27.4 31.3 28.4 31.4 31.2

PAT margin (%) 8.9 10.9 10.0 13.0 13.6
ROAE (%) 12.8 17.6 16.6 16.4 19.1
Hindalco
Revenue 1,158,086 1,358,836 1,355,712 8.2 1,278,125 1,300,644 6.3 4.2
EBITDA 139,206 152,301 156,806 6.1 153,381 158,172 (0.7) (0.9)
Adjusted PAT 45,006 49,431 54,958 10.5 56,197 60,550 (12.0) (9.2)
EPS 20.2 22.2 24.7 10.5 25.1 27.1 (11.5) (9.1)
EBITDA margin 12.0 11.2 11.6 12.0 12.2

PAT margin 3.9 3.6 4.1 4.4 4.7
ROAE 4.3 11.3 11.1 9.4 9.9
HZL
Revenue 225,210 262,578 285,476 12.6 248,266 269,473 5.8 5.9
EBITDA 127,090 154,398 165,585 14.1 144,308 156,477 7.0 5.8
Adjusted PAT 95,328 111,837 119,260 11.9 110,007 119,350 1.7 (0.1)
EPS 22.6 26.5 28.2 11.9 25.9 27.2 2.3 3.7
EBITDA margin 56.4 58.8 58.0 58.1 58.1

PAT margin 42.3 42.6 41.8 44.3 44.3
ROAE 24.4 29.5 29.2 29.5 28.6

Metals and Mining
Valuation: Macro concerns spoil earnings party

Multiples to remain compressed
Forward multiples remained
compressed in FY14 on macro The past 10-year average one-year forward valuation bands align with the conventional logic
concerns; expect encore in FY19 of negative correlation with underlying commodity prices, except for HZL. We have plotted
one-year forward EV/EBITDA multiples for the companies against underlying commodities,
viz: 1) ferrous with China’s export price; 2) Hindalco with LME Al; 3) HZL with LME Zn; 4)
NMDC with the international iron ore fines price; and 5) CIL with the international thermal
coal price.
Valuation multiples across our coverage companies had declined in FY14 marred by macro
concerns - appreciating Dollar Index played spoilsport.
Chart 19: Ferrous valuations remained range bound in FY14

10.0 1,047 10.0 1,047
8.2 882 8.4 882
6.4 718 6.8 718

(USD/t)
(USD/t)
(x)
(X)
4.6 553 5.2 553
2.8 389 3.6 389
1.0 224 2.0 224

Jul-08
Jul-12
Jul-13
Jul-16
Jul-17
Jul-09
Jul-10
Jul-11
Jul-14
Jul-15
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
TATA China Export Price JSTL China Export Price
14.0 1,047 23.0 1,047
11.6 882 18.6 882
9.2 718 14.2 718
(USD/t)
(USD/t)
(x)
(x)
6.8 553 9.8 553
4.4 389 5.4 389
2.0 224 1.0 224

Jan-16
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-17
Jan-18
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
JSP China Export Price SAIL China Export Price


Metals and Mining
In Al, Hindalco’s valuation negatively correlated with LME Al. However, towards latter part of
FY14, multiples shot up owing to fall in LME Al price. In Zn, HZL’s valuation (surprisingly)
positively correlated with LME Zn, probably as it is a niche commodity.
Chart 20: Hindalco’s valuation negatively correlated to LME Al but HZL’s valuation (surprisingly) correlated to LME Zn
9.0 3,500 10.0 3,500
8.0 3,000 8.2 2,900
7.0 2,500 6.4 2,300
(USD/t)
(USD/t)
(x)
(x)
6.0 2,000 4.6 1,700
5.0 1,500 2.8 1,100
4.0 1,000 1.0 500
Jan-11
Jan-13
Jan-18
Jan-09
Jan-10
Jan-12
Jan-14
Jan-15
Jan-16
Jan-17
Jan-14
Jan-15
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-16
Jan-17
Jan-18
Jul-12
Jul-17
Jul-08
Jul-09
Jul-10
Jul-11
Jul-13
Jul-14
Jul-15
Jul-16
Jul-16
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-17
HNDL LME Al HZ LME Zn

Among the mining companies, we observed negative correlation between iron ore prices and
NMDC’s valuation as import parity determines the domestic price. Besides, the company
faces competition from private miners in Odisha. However, for Coal India (CIL), owing to its
monopoly in India and FSA prices not linked with international coal prices, there is no
correlation between international coal prices and valuation.
Chart 21: NMDC’s valuation multiple shot up due to fall in iron ore prices
12.0 180 12.0 180
10.0 150 10.0 150
8.0 120 8.0 120
(USD/t)
(USD/t)
(x)
(x)
6.0 90 6.0 90
4.0 60 4.0 60
2.0 30 2.0 30
Dec-16
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-17
Aug-17
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Nov-14
Nov-10
Nov-11
Nov-12
Nov-13
Nov-15
Nov-16
Nov-17
Mar-15
Mar-17
Mar-11
Mar-12
Mar-13
Mar-14
Mar-16
Mar-18
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Coal India Coal price NMDC Iron Ore Price


Metals and Mining
Target price: A case for pruning multiples and not earnings estimates
TPs are down 10-15% of most Valuations are expected to remain compressed, as in FY14, taking cues from the global
companies owing to pressure on uncertainty around tariffs and strengthening Dollar Index. Factoring in the impending
valuations pressure on valuations, we cut valuation multiples of the ferrous players by 4-8% and by
6-12% for the non ferrous players.
Thus, the target prices (TPs) of our coverage ferrous stocks stand reduced upto 15%. We
have cut TPs of Hindalco and HZL by 14% and 17%, respectively, following the cut in
valuation multiple and lower LME Zn estimate, respectively.
We have reduced Vedanta’s TP by 29% to INR293 due to: 1) continued outage at the
Tuticorin copper smelter; 2) uncertainty around resumption of iron ore mining in Goa; 3)
higher costs at Zn-India and Zn-International divisions; and 4) lower profitability at Al
division, impacted by higher alumina prices.
In our mining clutch, we have lowered TP of NMDC by 20% to INR155 due to: 1) lower
than expected volumes; and 2) weak global iron ore price environment.
Table 5: Target prices cut by 5-15% on an average; reduction highest for Vedanta
Valuation multiple (x) Target multiple
Current Target price (INR/share)
2 yr forward- 10 year cycle (FY20E)
multiple
High Low Average Revised Earlier Revised Earlier % chg
Tata Steel- EV/EBITDA 7.1 1.6 4.9 4.7 6.3 6.8 777 903 (14.0)
JSW Steel- EV/EBITDA 7.2 2.8 5.0 6.2 6.9 7.2 372 390 (4.7)
JSPL- EV/EBITDA 9.5 2.8 6.4 5.4 6.2 6.5 300 350 (14.3)
SAIL- EV/EBITDA 11.9 0.2 4.2 6.3 6.2 6.5 70 72 (2.8)
Jindal Stainless- EV/EBITDA 5.8 3.9 4.0 3.8 5.0 6.0 100 120 (16.7)
Hindalco- EV/EBITDA 7.7 4.3 6.0 5.8 6.6 7.0 280 325 (13.8)
HZL- P/E 12.4 2.0 5.9 9.7 11.2 12.7 327 395 (17.2)
Vedanta- EV/EBITDA 11.1 1.3 3.8 3.4 4.6 5.0 293 410 (28.5)
Coal India- P/E 12.6 5.3 8.5 9.6 11.7 11.7 325 325 0.0
NMDC- EV/EBITDA 16.9 2.3 5.1 3.7 6.0 7.0 155 195 (20.5)
We maintain ‘BUY/SO’ on Tata Steel, JSW Steel, JSPL, Jindal Stainless, Hindalco, Vedanta, HZL,
NMDC and CIL. We maintain ‘REDUCE/SU’ on SAIL.
Our preferred picks in the sector are Tata Steel, Hindalco Industries and JSW Steel.

Metals and Mining
In conclusion
Confidence in earnings accompanied by risk aversion on valuations
Going ahead, we see a different EBITDA growth trajectory for all companies than FY14 -
16. As the charts below suggest, EBITDA CAGR (FY17-19E) of ferrous players would be
much higher and a minimum of 20%. Also, earnings CAGR has been constantly rising.
Evidently, the situation is very different from FY14 when consensus forecasts were
progressively lower.
Chart 22: Higher confidence on earnings growth now compared to past

40.0 20.0
Tata Steel JSW Steel
24.0 12.0
8.0 4.0
(%)
(%)
(8.0) (4.0)
(24.0) (12.0)
(40.0) (20.0)
Apr-16
Apr-16
Sep-16
Feb-17
Feb-17
Sep-16
Mar-14
Jun-15
Mar-14
Dec-17
Jun-15
Dec-17
Jul-17
Jul-17
Oct-13
Aug-14
Oct-13
Aug-14
Nov-15
May-13
May-18
Nov-15
May-13
May-18
Jan-15
Jan-15
EBITDA CAGR (FY14-16) EBITDA CAGR (FY17-19) EBITDA CAGR (FY14-16) EBITDA CAGR (FY17-19)
50.0 180.0
Jindal Steel & Power SAIL
34.0 120.0
18.0 60.0
(%)
(%)
2.0 0.0
(14.0) (60.0)
(30.0) (120.0) Dec-17

Dec-17
Oct-13
Aug-14
Aug-14
Apr-16
Oct-13
Nov-15
May-18
May-13
Sep-16
Feb-17
Jan-15
Apr-16
Nov-15
May-13
May-18
Jan-15
Sep-16
Feb-17
Mar-14
Jun-15
Jul-17
Mar-14
Jun-15
Jul-17

Metals and Mining
25.0 30.0
Hindustan Zinc Hindalco Industries
19.0 24.0
13.0 18.0
(%)
(%)
7.0 12.0
1.0 6.0
(5.0) 0.0
Dec-17
Aug-14
Oct-13
Apr-16
Sep-16
Apr-16
Feb-17
Nov-15
May-13
May-18
Jan-15
Sep-16
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Mar-14
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Jul-17
Mar-14
Jun-15
Oct-13
Aug-14
Jul-17
Nov-15
May-13
May-18
Jan-15
20.0 30.0
NMDC Coal India
8.0 23.0
(4.0) 16.0
(%)
(%)
(16.0) 9.0
(28.0) 2.0
(40.0) (5.0)
Dec-17
Oct-13
Aug-14
Dec-17
Apr-16
Nov-15
May-13
Aug-14
May-18
Oct-13
Jan-15
Sep-16
Feb-17
Apr-16
Nov-15
Mar-14
May-13
May-18
Jun-15
Jan-15
Sep-16
Feb-17
Jul-17
Mar-14
Jun-15
Jul-17

Metals and Mining
What can go wrong?

While we believe that the supply discipline will sustain, any disruption there has the potential
to exacerbate the fragile growth momentum. Thus, a lot depends on the policies of the
Chinese government. Thus far, reaction to the tariffs imposed by the US has been surprisingly
muted and Chinese exports and export prices have remained firm. Following are the key risks
to our earnings growth estimates:
1. Disruption in production discipline
2. Higher Chinese exports
3. Decline in Chinese export prices
What needs to be monitored?

1. China’s export prices
2. China’s production cuts, exports and impending winter shutdowns
3. Inventory of base metals

Metals and Mining
Annexure I: Stock Performance

Table 1: Steel
Company name Absolute returns Company name Absolute returns
5D 1M 3M 6M 12M 5D 1M 3M 6M 12M
Steel prices Anyang Steel 15.7 14.5 13.0 (15.9) 48.7
China 0.3 (1.3) 7.4 2.3 14.1 Baotou Steel 2.7 (10.0) (29.8) (38.8) (34.1)
US 0.2 3.2 5.4 41.7 50.0 Maanshan Steel 2.1 (17.1) (2.0) (14.5) (1.4)
Europe 0.0 (0.9) (2.6) 0.9 10.8 Nanjing Steel 10.7 (2.3) 3.6 (7.6) 16.8
India (0.3) 0.4 3.6 12.1 19.6 Xinyu Steel 14.7 (0.2) 2.5 (11.7) 55.8
Companies HYUNDAI Steel Company (2.4) (20.8) (3.9) (20.6) (21.7)
ArcelorMittal (0.0) (11.0) (3.9) (17.7) 18.8 US Steel 6.9 (3.5) 1.1 (7.3) 58.8
ThyssenKrupp AG (2.7) (10.4) (5.5) (17.9) (21.8) AK Steel 5.3 (4.0) 2.7 (25.5) (25.6)
Tenaris 1.0 2.5 6.9 13.3 15.1 Nucor Corporation 3.6 (4.7) 3.2 (7.4) 8.4
Ternium 1.8 (5.3) (3.4) 2.5 20.4 Steel Dynamics 3.4 (6.1) 3.7 (0.6) 29.9
Voestalpine Group (3.9) (13.9) (9.2) (27.0) (7.1) Commercial Metals 3.6 (10.7) 7.0 (13.6) 9.0
SSAB (0.4) (11.4) (13.7) (13.2) 1.3 Gerdau S.A. 4.2 2.5 (9.5) (0.5) 35.1
Nippon Steel 1.4 (7.9) (10.3) (31.8) (20.2) NLMK 3.0 (9.0) 4.7 (7.6) 22.9
POSCO 0.6 (15.0) (3.3) (19.5) 1.6 Evraz 0.6 (7.9) 28.0 35.5 117.5
JFE Steel Corporation 2.5 (10.2) (6.4) (25.6) 1.4 Severstal 3.2 (8.5) 4.5 (11.0) 9.6
Kobe Steel 3.1 (11.3) (7.2) (15.0) (18.6) MMK 2.0 (8.0) (0.3) (11.7) 22.2
Tokyo Steel (0.9) (0.9) 15.3 (1.7) 1.9 Erdemir Group (4.4) (3.1) (3.9) 2.8 36.3
China Steel Corporation 1.5 (1.4) 0.8 (6.1) (6.8) Bluescope Steel 5.9 (0.7) 14.0 14.1 27.4
Fangda Steel 8.4 (14.9) (20.9) (26.7) 24.7 Usiminas (2.8) (9.3) (28.6) (31.7) 48.5
Dongkuk Steel 1.4 (29.8) (23.3) (40.6) (50.2) Average 3.0 (8.0) (3.2) (11.1) 12.5
Ezz Steel 1.1 3.0 (2.3) 34.5 34.7 Tata Steel 0.3 (4.3) (7.2) (23.5) 5.4
Ansteel Group 7.0 (17.1) (8.3) (5.7) 20.9 JSPL 3.3 (11.3) (10.2) (17.3) 56.2
Hebei Steel Group 1.4 (8.1) (15.4) (30.0) (34.8) JSW 2.1 (7.1) 2.9 10.6 48.2
Baosteel Group 7.5 (14.8) (12.7) (16.3) 7.2 SAIL (5.0) (16.4) 0.9 (24.3) 20.0
Angang Steel 7.0 (17.1) (8.3) (5.7) 20.9

Metals and Mining
Table 2: Aluminium
Company name Absolute returns
5D 1M 3M 6M 12M
LME Aluminium (0.8) (8.9) (7.1) (3.1) 11.4
BHP Billiton 2.1 (0.4) 13.3 6.5 34.9
Rio Tinto 0.2 (7.8) 7.9 (3.0) 17.1
Glencore (3.1) (17.6) (5.9) (20.9) 3.1
Alcoa 4.9 (2.5) (11.8) (15.3) 38.9
Kaiser Aluminium 3.0 (5.9) 1.4 (4.9) 18.1
Century Aluminium (1.8) (14.1) (21.9) (33.1) (7.0)
Aluar Alumino 7.7 27.5 55.1 45.6 108.9
Rusal Aluminium 9.6 (2.3) (0.9) (62.0) (43.9)
China Hongqiao Group 3.0 (7.6) (16.6) (27.7) 9.9
Shangdong Nashan Aluminium 1.9 (11.4) (17.6) (29.1) (22.2)
Yunnan Aluminium 5.1 (23.2) (36.8) (53.1) (37.8)
Henan Zhongfu 3.1 (16.1) (35.1) (50.5) (47.0)
Xinjiang Joinworld 1.6 (8.1) (1.1) (20.5) (19.1)
JZWF Aluminium 0.2 (16.4) (28.6) (45.1) (43.6)
China Minmetals 1.8 3.0 (14.5) (12.8) (22.4)
Aluminium Corporation of China 1.6 (20.8) (31.7) (43.3) (21.0)
Mytilineous Holdings 0.7 (7.3) (12.7) (13.9) 1.5
Aluminium Bahrain 0.0 0.8 5.9 1.6 26.0
Norsk Hydro (2.3) (11.9) (6.7) (23.9) (6.5)
Egypt Aluminium (0.7) (11.4) (15.7) (21.0) 64.6
Alro SA (8.7) 3.7 (6.1) 13.2 103.3
Chalco 1.6 (20.8) (31.7) (43.3) (21.0)
South32 2.0 (5.0) 4.0 (5.9) 32.0
Average (Ex Rusal) 1.1 (7.9) (9.4) (18.2) 9.6
Hindalco 0.0 (8.5) (5.3) (18.1) 9.8
Vedanta (4.5) (13.9) (26.8) (37.7) (18.7)

Metals and Mining
Table 3: Zinc
5D 1M 3M 6M 12M
LME Zinc (6.1) (20.0) (19.9) (24.2) (8.3)
Nyrstar (1.1) (3.3) (22.4) (35.8) (15.3)
Silvercorp Metals Inc (0.8) (2.5) 6.9 (1.9) (1.1)
KAZ Minerals PLC (3.2) (20.0) (10.7) (16.0) 35.1
Teck Resources Ltd (1.2) (17.9) (8.0) (21.5) 29.0
Anglo American PLC (3.5) (8.4) (0.6) (6.1) 51.4
Hecla Mining Co (3.9) (13.0) (7.8) (22.4) (35.0)
Agnico Eagle Mines Ltd (3.0) 0.8 9.0 1.4 5.0
Grupo Mexico SAB de CV 0.1 (6.5) (15.8) (16.9) 1.3
BHP Billiton Ltd 2.1 (0.4) 13.3 6.5 34.9
Pan American Silver Corp (8.1) (7.0) 2.4 0.6 3.3
Industrias Penoles SAB de CV (2.3) (2.3) (13.7) (19.8) (18.7)
Rio Tinto PLC 0.2 (7.8) 7.9 (3.0) 17.1
Glencore PLC (3.1) (17.6) (5.9) (20.9) 3.1
Boliden AB (3.7) (10.0) (3.4) (5.8) 17.0
Lundin Mining Corp 2.9 (12.7) (6.5) (13.4) (3.7)
Zijin Mining Group Co Ltd (1.7) (20.7) (24.1) (18.2) 13.6
Vedanta Resources PLC (1.1) 11.9 8.5 (10.5) 11.7
Fresnillo PLC (4.4) (8.2) (13.2) (23.5) (25.6)
Southern Copper Corp (0.2) (12.9) (20.6) (10.8) 22.3
Capstone Mining Corp (5.9) (21.5) (18.1) (37.1) (9.5)
HudBay Minerals Inc (3.6) (22.0) (24.4) (43.9) (18.2)
Average (2.2) (9.9) (6.7) (14.5) 6.1
HZL 0.2 (9.5) (12.2) (15.2) 0.7
Vedanta (4.5) (13.9) (26.8) (37.7) (18.7)
Table 4: Coal
5D 1M 3M 6M 12M
Thermal coal (del China)- 5500 kcal (2.5) 1.3 8.3 (3.7) 16.4
Consol Energy (0.1) 2.3 11.7 15.2 34.6
Indo Tambangraya Megah Tbk 6.3 (8.4) (9.0) 4.1 27.9
Adaro Energy Tbk PT 2.5 (3.4) (11.4) (16.1) 12.3
China Shenhua Energy Co Ltd 7.5 (12.2) (17.3) (22.3) (30.7)
Datong Coal Industry Co Ltd (1.3) (18.5) (12.4) (23.5) 1.2
Yang Quan Coal Industry Group Co Ltd 1.9 (7.8) (11.9) (26.4) (10.1)
New Hope Corp Ltd 3.6 (9.0) (6.0) (13.7) (12.3)
Whitehaven Coal Ltd (6.2) 18.5 42.7 25.9 100.7
China Coal Energy Co Ltd (1.9) 1.2 33.8 20.8 105.8
Average 1.3 (4.6) 2.9 (4.9) 21.6
Coal India (1.9) (6.5) (5.8) (14.2) 4.7

Metals and Mining
Table 5: Iron Ore:

5D 1M 3M 6M 12M
Iron ore (del. China) 0.0 (4.9) (4.8) (21.1) (3.8)
African Rainbow Minerals 2.4 (2.6) 20.5 (14.9) 39.1
Anglo American (3.5) (8.4) (0.6) (6.1) 51.4
Assore (1.4) (0.0) 1.2 (25.8) 41.5
Atlas Iron Ltd (2.3) 0.0 55.6 20.0 162.5
BHP Billiton 2.1 (0.4) 13.3 6.5 34.9
CAP SA (4.1) (18.6) (16.2) (28.8) 4.0
CSN SA (3.2) (10.5) (14.6) (28.0) (4.4)
Cliffs Natural Resources 0.7 (6.7) 19.0 (4.8) 13.9
Ferrexpo PLC (8.9) (26.2) (26.1) (46.3) (20.7)
Fortescue Metals Group Ltd (5.4) (1.3) (17.6) (17.3) (17.3)
Kumba Iron Ore Ltd (0.7) 1.7 9.6 (20.9) 75.4
Mineral Resources Ltd 2.2 (11.7) (6.7) (26.8) 30.0
Mitsubishi Corp 2.7 (2.6) 6.9 (5.6) 29.5
Mitsui & Co Ltd 2.2 (6.1) 0.6 (5.0) 15.4
Mount Gibson Iron Ltd (1.2) (4.6) 1.2 (3.5) 15.3
Rio Tinto PLC 0.2 (7.8) 7.9 (3.0) 17.1
Vale SA 1.9 (5.5) 9.0 12.2 63.4
Average (0.9) (6.9) 0.5 (13.6) 24.3
NMDC (0.7) (12.5) (15.5) (34.0) (14.4)
Table 6: Stainless Steel:

5D 1M 3M 6M 12M
Stainless steel HR prices 0.0 (2.0) 11.4 9.3 13.1
Jindal Stainless 6.9 (17.7) (29.9) (47.6) (19.0)
Acerinox (0.7) (5.4) (4.3) (8.5) (3.5)
Aperam (1.7) (7.9) (7.8) (19.1) (11.5)
Outokumpu (3.1) (5.4) (7.0) (32.0) (27.4)
Table 7: Coverage:
5D 1M 3M 6M 12M
Tata Steel 0.3 (4.3) (7.2) (23.5) 5.4
JSPL 3.3 (11.3) (10.2) (17.3) 56.2
JSW Steel 2.1 (7.1) 2.9 10.6 48.2
SAIL (5.0) (16.4) 0.9 (24.3) 20.0
Hindalco 0.0 (8.5) (5.3) (18.1) 9.8
HZL 0.2 (9.5) (12.2) (15.2) 0.7
Vedanta (4.5) (13.9) (26.8) (37.7) (18.7)
Nalco 1.3 (17.3) (20.7) (28.0) (10.8)
NMDC (0.7) (12.5) (15.5) (34.0) (14.4)
Coal India (1.9) (6.5) (5.8) (14.2) 4.7
MOIL 3.9 (2.9) (13.4) (28.8) 13.5
Jindal Stainless 6.9 (17.7) (29.9) (47.6) (19.0)
Hindustan Copper 0.5 (17.3) (17.4) (34.9) (7.0)

Metals and Mining
Annexure II: Valuations

Table 1: Steel
Mkt Cap. Ent. Val. EV/EBITDA P/E P/CF P/BV
Company Name
(USD mn) (USD mn) FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E
SAIL 4,500 10,898 6.5 6.0 9.2 6.5 0.5 0.4 0.8 0.7
JSW 11,186 17,000 6.6 6.3 10.8 10.5 7.1 6.7 2.3 2.0
JSPL 3,092 9,106 6.9 6.1 21.2 10.7 3.6 3.2 0.7 0.6
TATA STEEL 9,270 20,052 5.4 5.3 7.6 7.3 4.4 4.2 1.0 0.9
Tata Metaliks 257 308 6.3 5.4 9.0 7.4 7.0 6.1 3.1 2.2
Bluescope Steel 7,294 7,875 6.6 5.9 13.1 10.6 8.2 6.9 1.8 1.5
Commercial Metals 2,545 3,104 8.1 5.8 15.0 9.7 17.9 6.8 1.7 1.4
MMK 7,985 8,075 3.9 4.5 7.5 9.5 4.4 5.0 1.4 1.3
Nippon Steel 17,721 39,591 7.1 6.6 8.4 7.9 3.2 3.7 0.6 0.5
AK Steel 1,454 3,863 6.4 6.0 6.4 5.4 3.3 3.5 9.2 3.5
Dongkuk Steel 622 3,082 8.2 7.6 NM 9.1 1.9 1.7 0.3 0.3
US Steel 6,414 7,895 4.4 4.3 6.6 6.3 5.2 4.5 1.5 1.2
Maanshan Steel 3,951 6,950 4.2 4.2 5.0 5.0 2.6 2.6 0.8 0.7
Ansteel Group 6,138 9,617 5.3 5.3 7.1 7.1 4.1 4.2 0.8 0.7
POSCO 24,080 35,724 4.5 4.4 7.8 7.4 3.5 3.4 0.6 0.5
NLMK 15,037 15,931 5.7 6.6 8.7 10.9 6.5 6.6 2.2 2.2
Nucor 20,333 23,736 6.2 6.6 9.3 10.2 7.6 7.4 2.0 1.8
Hyundai Steel 5,694 15,054 5.6 5.5 7.8 7.0 2.5 2.4 0.4 0.4
Gerdau SA 6,142 10,295 6.7 6.3 14.7 10.6 7.7 5.3 1.0 1.0
Baosteel Group 25,399 40,346 5.4 5.2 7.5 7.0 3.8 3.7 0.9 0.9
ArcelorMittal 30,092 43,308 4.2 4.5 6.2 6.8 3.9 3.9 0.7 0.6
China Steel Corporation 12,278 20,352 9.0 8.8 19.6 18.0 6.3 6.7 1.2 1.2
Severstal JSC 12,742 13,528 5.2 5.8 7.3 8.8 5.8 6.4 3.5 3.3
Tata Steel Group 9,270 20,052 5.4 5.3 7.6 7.3 4.4 4.2 1.0 0.9
JSW Steel Limited 11,186 17,000 6.6 6.3 10.8 10.5 7.1 6.7 2.3 2.0
SAIL 4,500 10,898 6.5 6.0 9.2 6.5 0.5 0.4 0.8 0.7
Angang Steel 6,138 9,617 5.3 5.3 7.1 7.1 4.1 4.2 0.8 0.7
Eregli Demir ve Çelik Fabrikalari TAS (Erdemir Group) 7,332 6,362 4.8 5.0 8.3 8.6 5.2 6.1 1.6 1.5
SSAB 4,199 5,875 5.5 5.4 10.9 10.4 6.2 5.6 0.8 0.7
Nanjing Steel 3,080 5,186 5.4 5.0 5.7 5.4 4.0 4.0 1.4 1.1
Voestalpine Group 8,126 12,652 5.5 5.2 9.2 8.4 4.4 4.3 1.1 1.0
Average 5.6 5.5 8.1 7.8 4.2 4.1 0.9 0.9

Metals and Mining
Table 2: Aluminium
Mkt Cap. Ent. Val. EV/EBITDA P/E P/BV P/CF
Company Name
Hindalco 7,523 13,560 5.9 5.8 9.2 8.5 0.9 0.9 5.0 4.6
Vedanta 12,799 17,550 4.0 3.5 7.0 5.9 1.3 1.2 4.4 3.9
BHP Billiton 128,459 149,061 6.2 6.3 14.6 15.4 2.2 2.2 7.6 7.2
Rio Tinto 99,155 109,130 5.9 6.4 11.4 12.8 2.1 2.0 7.3 7.3
Glencore PLC 69,416 100,931 5.5 5.5 9.6 10.0 1.3 1.2 5.5 5.4
Alcoa 8,665 11,078 3.4 3.9 NM 10.6 1.5 1.3 7.6 4.7
Rusal 3,969 11,847 5.0 4.8 2.3 2.2 0.7 0.5 1.8 1.6
Aluminium Corp of China 8,166 15,944 4.9 4.2 6.3 4.1 0.8 0.7 3.0 2.7
Chalco 8,084 22,233 8.8 7.8 17.1 11.7 1.0 1.0 3.6 3.0
Kaiser Aluminium 1,754 1,905 9.3 8.2 16.1 13.6 2.1 1.9 9.5 8.5
Century Aluminium 1,334 1,459 8.3 4.6 NM NM 1.6 1.3 11.5 5.9
China Hongqiao Group 8,467 16,245 5.0 4.3 6.5 4.3 0.8 0.7 3.0 2.7
Shangdong Nashan Aluminium 3,659 4,284 5.4 5.0 10.6 8.3 0.8 0.7 6.3 5.6
Yunnan Aluminium 1,909 4,098 7.2 5.6 11.5 6.9 1.2 1.1 2.8 3.1
Mytilineous Holdings 1,412 2,159 5.4 5.3 6.8 6.4 0.9 0.8 5.5 5.6
Average 5.8 5.1 7.7 6.4 1.1 1.0 4.4 3.9
Table 3: Zinc
Mkt Cap. Ent. Val. (USD EV/EBITDA P/E P/CF P/BV ROE
Company Name
(USD mn) mn) FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E
HZL 16,942 13,537 8.9 7.4 14.1 12.0 16.2 11.9 4.4 4.3 31.1 36.4
Korea Zinc 6,519 4,831 5.0 4.6 11.0 10.2 7.3 6.6 1.1 1.0 10.6 10.7
KAZ Minerals PLC 4,663 6,722 5.0 4.8 7.1 6.6 5.7 5.1 2.8 2.0 48.4 36.4
Teck Resources Ltd 15,017 20,929 7.8 4.2 7.2 8.9 NM NM NM NM 13.2 10.0
Anglo American PLC 28,413 38,494 4.4 4.6 8.9 9.9 4.2 4.3 1.1 1.1 13.7 11.6
Hecla Mining Co 1,370 1,677 8.4 6.0 44.4 22.4 9.9 6.5 NM NM 1.6 5.1
Agnico Eagle Mines Ltd 10,588 11,499 13.9 11.4 92.7 50.4 15.0 12.7 2.1 2.1 3.2 4.0
Grupo Mexico SAB de CV 22,621 31,440 6.0 5.5 11.1 9.8 7.8 7.0 1.8 1.6 17.9 19.3
Industrias Penoles SAB de CV 7,105 8,699 4.6 4.1 11.1 9.7 13.0 8.2 1.8 1.6 16.5 17.3
Rio Tinto PLC 94,444 104,419 5.6 6.1 10.7 12.0 6.9 6.9 2.0 1.9 18.8 16.3
Glencore PLC 60,111 91,621 5.0 5.0 8.3 8.6 5.0 4.6 1.1 1.1 13.7 12.3
Boliden AB 8,511 8,695 5.2 5.5 9.9 11.0 6.1 6.7 1.9 1.8 20.8 17.8
Lundin Mining Corp 4,180 3,428 4.2 3.8 14.4 12.8 6.5 5.8 1.1 1.0 7.8 7.6
Zijin Mining Group Co Ltd 11,019 15,673 8.4 7.8 11.6 10.5 5.2 5.0 1.4 1.3 13.0 13.4
Cia de Minas Buenaventura SAA 3,363 4,111 8.2 7.5 6.2 5.3 NM NM NM NM 9.5 10.1
Volcan Cia Minera SAA 2,370 3,022 7.4 5.9 5.7 4.0 3.4 NM 0.7 NM 9.0 11.4
OZ Minerals Ltd 2,122 1,553 4.3 4.4 14.7 15.9 7.7 6.9 1.0 1.0 6.4 7.0
Fresnillo PLC 10,735 10,714 8.7 7.9 22.6 19.7 12.4 11.2 3.3 3.0 14.1 15.4
Southern Copper Corp 20,086 25,526 11.8 11.0 24.9 23.0 14.4 12.9 4.5 3.9 25.8 25.5
Capstone Mining Corp 229 641 5.2 5.7 NM NM 2.1 2.0 NM NM 5.0 6.0
HudBay Minerals Inc 876 2,059 5.1 4.5 78.9 15.3 2.7 2.7 0.6 0.6 7.6 8.0
Average 6.8 6.1 20.8 13.9 8.0 7.1 1.9 1.8 14.6 14.4

Metals and Mining
Table 4: Iron Ore

Mkt Cap. Ent. Val. EV/EBITDA P/E P/CF P/BV
Company Name
NMDC 4,724 3,964 4.5 4.8 7.5 7.4 NM NM NM NM
Rio Tinto 94,424 104,399 5.6 6.1 10.7 12.0 6.9 6.9 2.0 1.9
Vale 66,849 82,945 5.5 5.6 9.0 9.6 6.3 6.0 1.5 1.4
Fortescue 10,100 13,404 4.1 4.3 9.2 9.1 6.5 4.1 1.0 1.0
Kumba 7,557 7,307 6.1 6.7 13.6 14.9 8.2 8.5 2.9 2.9
Assore 3,019 2,486 20.0 16.6 6.5 7.8 6.4 10.0 1.3 1.3
Cliff 2,459 4,024 5.7 6.7 5.5 6.6 4.1 4.6 NM 6.0
African Rainbow 1,884 2,097 10.3 8.6 5.4 5.8 4.2 4.4 0.8 0.8
CapSA 288 581 3.2 3.0 4.8 4.4 2.1 2.0 NM NM
Ferrexpo 1,258 1,662 3.3 4.5 3.7 5.3 3.0 4.0 1.5 1.3
Average 5.2 5.5 6.6 7.3 4.4 4.6 1.4 1.4

(x) (x) (x)
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9.0
9.0
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6.0
12.0
18.0
15.0
Feb-07 Feb-07 Feb-07
Chart 1: Steel
Aug-07 Aug-07 Aug-07
Metals and Mining
JSPL
Tata Steel
Arcelor Mittal
30
Companies
(x) (x) (x)

3.2
5.6
8.0
2.0
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Mar-07 Feb-07 Mar-07

Sep-07 Aug-07 Sep-07
SAIL

JSW Steel
Nippon Steel
Annexure III: Valuations of Indian and Global

Edelweiss Securities Limited

(x) (x) (x)
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Aug-07 Oct-07
Apr-08 Jun-11
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Chart 2: Aluminium
Feb-09 Apr-09
Oct-09 Jun-12
Aug-09
Aug-10 Oct-10
Apr-11 Jun-13
Feb-11
Feb-12 Apr-12
Posco
Jun-14
MMK
Aug-12 Oct-12
Hindalco
Aug-13 Oct-13
31
Apr-14 Jun-15
Feb-14
Feb-15 Apr-15 Jun-16
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Sep-07 Aug-07 Aug-07
Nucor
Alcoa
Baoshan

Aug-16

Sep-16 Aug-16

Metals and Mining
(x) (x) (x)
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11.6
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Feb-07 Feb-08
Feb-07
Chart 3: Zinc
Aug-07 Aug-07
Feb-08 Aug-08
Aug-08 Feb-08 Feb-09
Feb-09 Aug-08 Aug-09
Feb-09 Feb-10
Aug-09 Aug-09
Feb-10 Aug-10
Feb-10 Feb-11
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Feb-11 Aug-11
Metals and Mining
Feb-11
Aug-11 Aug-11 Feb-12
Feb-12 Aug-12
Chalco
Feb-12
Shangdong
Feb-13 Feb-13 Aug-13
Hindustan Zinc
32
Aug-16 Aug-16
(x) (x)
1.0
5.8
2.6
4.2
7.4
9.0
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Mar-10 Feb-10
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Mar-11 Feb-11
Sep-11 Aug-11
Mar-12 Feb-12
Sep-12 Aug-12
Norsk Hydro
Mar-13 Feb-13
Grupo Mexico
Sep-13 Aug-13
Mar-14 Feb-14
Sep-14 Aug-14
Mar-15 Feb-15
Sep-15 Aug-15
Mar-16 Feb-16

Sep-16 Aug-16
Mar-17 Feb-17
Sep-17 Aug-17
Mar-18 Feb-18

(x) (x) (x)
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5.8
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2.0
5.6
3.8
7.4
9.2
11.0
Aug-07 Aug-07
Sep-10
Chart 4: Mining
Feb-08 Feb-08
Mar-11 Aug-08 Aug-08
Sep-11 Feb-09 Feb-09
Aug-09 Aug-09
Aug-11 Aug-11
Boliden
NMDC
Teck Resources
Aug-13 Aug-13
33
Feb-15 Feb-15
Feb-17 Feb-17
(x) (x)
1.0
4.2
5.8
2.6
7.4
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11.0
Nov-10 Dec-07
Jun-08
May-11 Dec-08
Nov-11 Jun-09
May-12 Dec-09
Jun-10
Nov-12 Dec-10
May-13 Jun-11
Nov-13 Dec-11
Jun-12
May-14
Nyrstar
Dec-12
Coal India
Nov-14 Jun-13
Dec-13
May-15 Jun-14
Nov-15 Dec-14
May-16 Jun-15
Dec-15
Nov-16 Jun-16

May-17 Dec-16
Nov-17 Jun-17
Dec-17
May-18 Jun-18

Metals and Mining
Metals and Mining
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Aditya Narain ou=HEAD RESEARCH, cn=ADITYA NARAIN,
serialNumber=e0576796072ad1a3266c27990f20bf
Head of Research ADITYA NARAIN 0213f69235fc3f1bcd0fa1c30092792c20,

postalCode=400005,
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st=Maharashtra
aditya.narain@edelweissfin.com Date: 2018.07.13 10:34:42 +05'30'
Coverage group(s) of stocks by primary analyst(s): Metals and Mining

Coal India, Hindalco Industries, Hindustan Zinc, Jindal Steel & Power, JSW Steel, NMDC, Steel Authority of India, Sesa Sterlite, Tata Steel, Usha Martin
Recent Research
Date Company Title Price (INR) Recos
11-Jul-18 Coal India At the right price…; 265 Buy

Company Update
03-Jul-18 Metals & Earnings conducive, valuations
Mining elusive;
Q1FY19 Result Preview
02-Jul-18 Tata Steel Done deal!; 568 Buy
Company Update
Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
One year price chart

350 350
300 320
250 290
(INR)
(INR)
200 260
150 230
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Dec-17
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Coal India Hindustan Zinc

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Jan-18 Jan-18 Jan-18 Jan-18
NMDC
Tata Steel
Feb-18 Feb-18 Feb-18 Feb-18
35
Hindalco Industries
Jindal Steel & Power

Mar-18 Mar-18 Mar-18 Mar-18
Apr-18 Apr-18 Apr-18 Apr-18
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Jun-18 Jun-18 Jun-18 Jun-18
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Jan-18 Jan-18 Jan-18 Jan-18
Vedanta
JSW Steel
Feb-18 Feb-18 Feb-18 Feb-18

Jindal Steel & Power
Mar-18 Steel Authority of India Mar-18 Mar-18 Mar-18
Apr-18 Apr-18 Apr-18 Apr-18
May-18 May-18 May-18 May-18

Jun-18 Jun-18 Jun-18 Jun-18

Metals and Mining
Metals and Mining
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SECTOR UPDATE

About turn, favour ferrous over non ferrous

Expect pressure on valuations

Outlook: Silver lining in earnings; modest valuations

29% on additional concerns around copper and iron ore divisions.

July 13, 2018

Edelweiss Research is also available on www.edelresearch.com, Edelweiss Securities Limited

Past: Earnings toned down; valuations stagnant

Underlying base metal prices dropped progressively in FY14

Chart 1: Progressive reduction in LME Al estimates in FY14

2 Edelweiss Securities Limited

Chart 2: LME Zn estimates progressively increased in H2FY14

Earnings estimates cut in consecutive quarters

3 Edelweiss Securities Limited

1,440 176 470 84

1,380 152 390 68

1,350 140 350 60

Chart 4: JSPL and SAIL - Sharp cut in earnings estimates

REVENUE EBITDA REVENUE EBITDA

4 Edelweiss Securities Limited

Chart 5: Non ferrous estimates tracked commodity prices

880 104 136 70

REVENUE EBITDA REVENUE EBITDA

Chart 6: Mining companies’ estimates dropped progressively

124 90 740 210

116 80 720 190

108 70 700 170

100 60 680 150

REVENUE EBITDA REVENUE EBITDA

5 Edelweiss Securities Limited

Present: FY16-like situation unlikely

6 Edelweiss Securities Limited

Consensus LME Al estimates consistently lower than Spot prices

Chart 9: Unlike FY14, LME Al estimates lag Spot prices

LME Al Q1CY17 Q2CY17 Q3CY17

7 Edelweiss Securities Limited

Chart 10: LME Zn appears vulnerable as supply comes on board

FY19E earnings continue to be revised upwards

HZL 131.7 132.8 133.8 145.2 148.6 144.8 10.0

COAL 210.9 195.0 183.1 182.2 226.7 237.6 12.6

8 Edelweiss Securities Limited

Future: Ferrous to enjoy edge over non ferrous

Ferrous capacity utilisation up; Chinese inventory down

Chart 11: Global steel capacity utilisation above 75%

Global Steel Production World Steel Capacity Utilization

9 Edelweiss Securities Limited

Chart 12: Chinese inventory slipped 35% in past two months

Aluminium: Modest surplus, but cost push visible

Chart 13: Aluminium surplus modest by historic standards

Surplus- World World demand

10 Edelweiss Securities Limited

Chart 14: Higher Al costs impacted profits

On inventory side, we draw comfort as reported Al inventory on exchanges is at much lower

Chart 15: Al inventory at exchanges lower than past

Inventory on exchanges- Aluminium

Zinc: Surplus on the horizon, prices to see limited upside

11 Edelweiss Securities Limited

Chart 16: Mined metal production inched up in past four months

Chart 17: Refined Zn surplus seen so far in CY18

Net surplus Zinc slab demand Zinc slab supply

12 Edelweiss Securities Limited

Chart 18: LME Zn inventory, despite recent uptick remains low