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1、Top picks,Buy,Hold,Buy,Buy,Buy,Buy,Deutsche BankMarkets Research,Global Emerging MarketsBrazilMetals&Mining,PeriodicalWhats next,Date22 October 2012Rodrigo Barros,Latam M&M WeeklyPort tariffs:What to expectWe believe that the current port tariffs for iron exports from Brazil ofapproximately USD30/wm
2、t are unsustainable in light of the recent correction iniron ore prices and lower expected growth for Chinese steel demand.Therefore,a key issue to watch going forward is whether port players such asMMX will lower their tariffs to USD15-USD20/wmt in order to attract additionaliron ore volumes in the
3、 years ahead.China:Unemployment is what really mattersA key conclusion from our recent trip to Asia is that low unemployment andrising real wages should prevent a major stimulus to the economy in the shortrun.While we do expect some stimulus to occur after Mar-13,we think thatimportant sector polici
4、es are more likely to be announced in the 3rd session ofthe 18th Party Congress,which will happen after Sep-13 only.Therefore weexpect volatility in the Metals&Mining space to remain high.Whats next?We expect the main topics for this week to be:(i)What to expect from Port,Research Analyst(+55)11 211
5、3-Leandro CappaResearch Analyst(+55)11 2113-Gerdau(GGB.N),USD8.96Companies FeaturedVale(VALE.N),USD18.27Gerdau(GGB.N),USD8.96Ternium(TX.N),USD21.09CSN(SID.N),USD5.69Usiminas(USIM5.SA),BRL10.283Q12 Earnings calendar,tariffs;(ii)Monitoring of unemployment rates in China;and(iii)Gerdaus plan tosell a s
6、take of its iron ore project to a strategic partner may be impacted byunfavorable economic environment.Crystal ballWe estimate January 2013 EBITDA/t for Chinese HRC at USD23(-USD2 vs.previous week)and for European HRC at USD35(-USD15 vs.previous week).Assuming current prices remain stable,May 2013 E
7、BITDA/t would be,respectively,USD22 and USD35.Weekly recapThe main highlights from last week were:(i)IODEX closed on Friday atUSD117.5/dmt,USD1.5/dmt higher vs.previous weeks close,(ii)Valepublished 3Q12 iron ore output of 83.9mt(+4.2%QoQ;-4.5%YoY),and(iii),ValeSouthernCopperGrupo MexicoMMXGerdauUsi
8、minasTerniumMagnesitaBradesparCSN,Oct 24Oct 22-26Oct 22-26Oct 30Nov 1Nov 1Nov 6Nov 8Nov 11To bedefined,China reported 3Q12 GDP growth of 7.4%YoY.Valuation and risksWe value LatAm Metals&Mining stocks using DCF as a primary methodology.For WACC calculation,we assume a 5%market risk premium and a 4%ri
9、sk-free rate.For the steelmakers,we incorporate a multiple component tocalculate the target prices in addition to the DCF.Key risks include currency,project delays,overpaying for acquisitions,and slower-than-expected globaleconomic growth.More on valuation and risks on page 17._Deutsche Bank Securit
10、ies Inc.All prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies
11、 covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE L
12、OCATED IN APPENDIX 1.MICA(P)072/04/2012.,22 October 2012Metals&MiningWhats nextWhats next?Chinese sector policies to come only after Sep-13Port tariffs:What to expectWe believe that the current port tariffs for iron exports from Brazil of approximatelyUSD30/wmt are unsustainable in light of the rece
13、nt correction in iron ore prices andlower expected growth for Chinese steel demand.Therefore,a key issue to watch goingforward is wether port players such as MMX will lower their tariffs to USD15-USD20/wmt in order to attract additional iron ore volumes in the years ahead.China:Unemployment is what
14、really mattersA key conclusion from our recent trip to Asia is that low unemployment and rising realwages should prevent a major stimulus to the economy in the short run.While we doexpect some stimulus to occur after Mar-13,we think that important sector policies aremore likely to be announced in th
15、e 3rd session of the 18th Party Congress,which willhappen after Sep-13 only.Therefore,we expect volatility in the Metals&Mining spaceto remain high.Gerdau:Whats next for the iron ore projectWe believe that the current economic environment is unfavorable for Gerdaus plan tosell a stake of its iron or
16、e project to a strategic partner.A more likely outcome would be,in our opinion,the development of the project in two stages.The first stage would bethe production of 11.5mtpy of iron ore,out of which 5mtpy would be exported-weassume that port tariffs would be around USD15-20/wmt.A second phase,which
17、 wouldbring production to more than 20mtpy,would be developed after further de-risking ofthe project and an association with a strategic partner.,Page2,Deutsche Bank Securities Inc.,22 October 2012Metals Nowhere to run,In this report,we discuss the outlook for 3Q12 results for LatAm Metals&Miningcom
18、panies.Overall we expect results to deteriorate when comparing both QoQ and YoYmainly due to lower iron ore and steel prices globally.Iron ore prices averagedUSD113/dmt(62%Fe cfr China)which should bring miners profitability down,especially for Vale.Lackluster international steel prices should negat
19、ively impactexports from the Brazilian players.Our ratings and target prices remain unchanged.Near the trough,but not there yetWe believe that results of LatAm M&M companies are near the trough,but in manycases we may see further deterioration in 4Q12 due to seasonally lower demand.For2013,we think
20、some limited economic stimulus in China may occur after Mar 2013,butthat important sector policies are likely to be announced by Oct 2013 only.Figure 1:Recommendation and target price summary,Report published on October17th,2012,CompanyCSNUsiminasGerdauTerniumValeBradesparMMXMagnesitaSouthern Copper
21、Grupo MexicoMMXM11LLX,TickerSID.NUSIM5.SAGGB.NTX.NVALE.NBRAP4.SAMMXM3.SAMAGG3.SASCCO.NGMEXICOB.MXMMXM11.SALLXL3.SA,RecHoldBuyBuyBuyBuyBuyHoldBuyHoldHoldBuyHold,CrncyUSDBRLUSDUSDUSDBRLBRLBRLUSDMXNBRLBRL,TP7.0014.0012.0030.0024.0047.006.009.0042.0052.005.503.13,TP basisDCF/MultiplesDCF/MultiplesDCF/Mu
22、ltiplesDCF/MultiplesDCFNAVDCFDCFDCFNAVDCFDCF,Source:Deutsche Bank,Deutsche Bank Securities Inc.,Page3,22 October 2012Metals&MiningWhats nextImport parity calculationHeavy plate premium at 15%,Figure 2:Hot rolled sheet domestic premium0,Figure 3:Cold rolled sheet domestic premium0,-10%,-5%discount,5%
23、premium,10%,-10%,-5%discount,5%premium,10%,Source:Deutsche BankFigure 4:Rebar domestic premium0,Source:Deutsche BankFigure 5:Heavy plate domestic premium0,-10%,-5%discount,5%premium,10%,-10%,-5%discount,5%premium,10%,Source:Deutsche BankPage4,Source:Deutsche Bank,Deutsche Bank Securities Inc.,22 Oct
24、ober 2012Metals&MiningWhats nextCrystal ballM&M leading indicatorsSwap curve analysisRebar future pricing for January 2013 stands at USD586/t(+USD2 vs.previous week)and for May 2013,at USD583/t(+USD3 vs.previous week).Iron ore futures(SingaporeExchange)for the same dates stand,respectively,at USD114
25、/dmt(+USD2 vs.previousweek),and USD113/dmt(+USD2 vs.previous week).Profitability outlookWe estimate January 2013 EBITDA/t for Chinese HRC at USD23(-USD2 vs.previousweek)and for European HRC at USD35(-USD15 vs.previous week).Assuming current,prices,remain,stable,May,2013,EBITDA/t,would,be,respectivel
26、y,USD22 and USD35.Scrap vs.iron ore/cokeThe current ratio of scrap to iron ore/coke stands at 1.29(-8.3%vs.September),whilethe ten-year average is 1.26.According to our calculation,scrap is more expensive thaniron ore and coal at this time.Historical spreadsMetal spreads in the US suggest that the c
27、urrent spreads are below the long-runaverage.Price above raw material in Europe is higher than the long-run average andprice above raw material in China is also higher than the long-run average.Vale ports lineupThe current lineup of Vales ships suggests iron ore exports of 23.4mt in October2012(excl
28、uding Samarco).At the same time last month,export forecasts forSeptember were 24.7mt.,Deutsche Bank Securities Inc.,Page5,(USD/t),(USD/t),Jan-13,May-13,Dec-12,Nov-12,Mar-13,Jun-13,Feb-13,Apr-13,Jul-13,Jan-13,Apr-13,May-13,Mar-13,Dec-12,Nov-12,Jun-13,Feb-13,Jul-13,Jul-13,(USD/t),(USD/t),Jan-13,May-13
29、,Apr-13,Nov-12,Mar-13,Dec-12,Jun-13,Feb-13,Jul-13,Jan-13,Apr-13,May-13,Nov-12,Dec-12,Mar-13,Feb-13,Jun-13,(USD/t),Oct-10,Oct-11,Oct-12,Apr-10,Apr-11,Jun-10,Aug-10,Dec-10,Jun-11,Aug-11,Dec-11,Apr-12,Jun-12,Aug-12,Feb-11,Feb-12,(USD/t),12/16/10,01/15/11,02/14/11,03/16/11,04/15/11,05/15/11,06/14/11,07/
30、14/11,08/13/11,09/12/11,10/12/11,11/11/11,12/11/11,01/10/12,02/09/12,03/10/12,04/09/12,05/09/12,06/08/12,07/08/12,08/07/12,09/06/12,10/06/12,22 October 2012Metals&MiningWhats nextM&M dashboardFigure 6:Crystal ball,Exihibit 1:Rebar futures620600580560540520500,Exihibit 2:Iron ore forwards120115110105
31、100959085,8/18/2012,9/18/2012,10/19/2012,8/18/2012,9/18/2012,10/19/2012,Source:Bloomberg Finance LP and Deutsche BankExihibit 3:Chinese profitability555550545540535530525520515,Source:Bloomberg Finance LP and Singapure Exchange LtdExihibit 4:European profitability660650640630620610600,Chinese HRC co
32、st,Current HRC price,European HRC cost,Current HRC price,Source:Platts,MetalBulletin,Bloomberg Finance LP and Deutsche BankExhibit 5:Scrap vs.iron ore&coke1.9,Source:Platts,MetalBulletin,Bloomberg Finance LP and Deutsche BankExhibit 6:Historical spreads,1.71.51.31.10.9,Spr e a ds(USD/t)Slab-PigMetal
33、 Spread(Flat,USA)Blast Furnace Spread HRC,ChinaBlast Furnace Spread,EuropePig-Scrap ShreddedHRC-Slab,GermanyCRC-HRC,GermanyHRC US-Germany,Cur r e nt983072843645014810711,10y av1213452283417612810120,7y av130370228361911481032,5y av12136422334710615395-16,Scrap/(Iron Ore+Coal)Source:Platts,SBB and De
34、utsche BankExhibit 7:Ports lineup,10y average,Source:Platts,MetalBulletin and Deutsche BankExhibit 8:Pellet premium,(0 0 0 t)Ponta da MadeiraTubaraoItaguai,Oct-1 28,2189,0631,746,Nov-1 26,1105,866805,Tota l14,32814,9292,551,6560555045,Guaiba 4,338Tota l 2 3,3 6 5Source:Vale and Deutsche Bank,9551 3,
35、7 3 6,5,2933 7,1 0 1,40353025,20Pellet PremiumSource:MySteel,SteelHome and Deutsche Bank,Page6,Deutsche Bank Securities Inc.,22 October 2012Metals Weak results across the board”published on October 17th.Southern Copper announced DPS of USD 2.75:SCCO announced quarterlydividends of USD2.75/sh(USD2.3b
36、n)payable on November 21 to shareholders withposition on November 08.The payment represents a yield of 7.4%consideringOctober 18th closing price of USD37.16 for SCCO shares.For more details pleaseread our alert“SCCO announces DPS of USD2.75,a7.4%yield”published onOctober 19th.Brazilian steel market-
37、September figures:The Brazilian Steel Association(IABR)published the September figures for the Brazilian Steel market.Compared to theprevious month,production remained flat at 2.8mt while domestic sales decreasedby 6%.For the quarter just ended,production remained flat QoQ at 8.7mt,domesticsales dec
38、reased by 5%and exports decreased by 16%.As a consequence of aproduction level above domestic and international sales,we believe thatsteelmakers in Brazil are likely to show an increase in inventory when they report3Q12 results.For more details please read our alert“Brazilian steel market update”pub
39、lished on October 18th.China 3Q12 GDP growth at 7.4%YoY:According to Jun Ma,Deutsche Bank Chinaeconomist,results came in line with market expectations,reporting a GDP growthlower than the 7.6%in Q2 and also the sixth quarterly decline in YoY growth rates.The main reason for the GDP deceleration is w
40、eaker IP growth,which was partiallyoffset by slightly stronger agriculture and service sector activities.For more detailsplease read Jun Mas alert“China:Q3 GDP/Sept IP in line,modest Q4 recovery insight”published on October 18th.,Deutsche Bank Securities Inc.,Page7,(USD/wmt),(USD/t),30-Jul-10,31-Jul
41、-11,30-Nov-10,30-Nov-11,31-Jan-11,31-May-11,31-Jan-12,31-May-12,30-Sep-10,30-Sep-11,31-Jul-12,31-Mar-11,(USD/t),Jul-09,Jul-10,Jul-11,Jul-12,Jan-12,May-12,May-11,May-10,May-09,Nov-09,Nov-10,Nov-11,Nov-12,Jan-09,Jan-10,Jan-11,Mar-11,Mar-12,Mar-10,Mar-09,Sep-09,Sep-10,Sep-11,Sep-12,Jan-13,31-Mar-12,30-
42、Sep-12,12-Jun-11,12-Dec-10,12-Dec-11,12-Aug-10,12-Aug-11,12-Jun-12,12-Aug-12,12-Oct-10,12-Oct-11,12-Feb-11,12-Feb-12,12-Oct-12,12-Apr-11,12-Apr-12,22 October 2012Metals&MiningWhats nextSector data,Figure 7:Iron ore prices2001801601401201008060SGX Platts iron ore 1-month forward(USD/dmt),Figure 8:Fre
43、ight price spread2015105,Vales iron ore fob Brazil(USD/wmt)Source:Platts and Deutsche Bank calculationsFigure 9:Iron ore contract pricingA200180160140120100806040Contract price CFR China(USD/dmt),Brazil-Australia spreadSource:Platts and Deutsche Bank calculationsQuarterly pricingIron ore spot price
44、62%Fe(USD/dmt),TTM average spread,Source:Platts,SGX AsiaClear and Deutsche Bank calculations.Iron ore futures pricing as of 13 July 2012,Page8,Deutsche Bank Securities Inc.,(mt),(mt),Jul-10,Jul-11,Nov-10,May-10,May-11,Nov-11,Jan-11,Jan-12,23-Jun-10,23-Jun-11,23-Dec-10,23-Dec-11,23-Feb-11,23-Feb-12,2
45、3-Jun-12,23-Apr-10,23-Apr-11,23-Apr-12,23-Aug-10,23-Aug-11,23-Aug-12,23-Oct-10,23-Oct-11,May-12,Sep-10,Mar-11,Sep-11,Mar-12,(USD/t),(mt),13-Aug-10,13-Aug-11,Jul-12,13-Aug-12,13-Jun-11,13-Dec-10,13-Dec-11,13-Feb-11,13-Feb-12,13-Oct-10,13-Oct-11,13-Jun-12,3-Apr-11,3-Apr-12,3-Jun-11,3-Jun-12,3-Aug-10,3
46、-Aug-11,3-Aug-12,3-Feb-11,3-Feb-12,3-Oct-11,3-Dec-10,3-Dec-11,3-Oct-10,3-Oct-12,(USD/t),7-May-10,7-May-11,7-May-12,7-Feb-10,7-Feb-11,7-Nov-09,7-Nov-10,7-Nov-11,7-Aug-09,7-Aug-10,7-Aug-11,7-Feb-12,7-Aug-12,(%),13-Oct-12,13-Apr-11,13-Apr-12,22 October 2012Metals&MiningWhats next,Figure 10:China iron o
47、re stockpiles,Figure 11:China iron ore imports,1009590858075706560,29%28%27%26%25%24%23%22%21%20%,706560555045403530,China iron ore imports,%Brazil,50%45%40%35%30%25%20%15%10%Australia,China iron ore stockpilesSource:SteelHome and Deutsche BankFigure 12:Daily HRC China800750700650600550500,%Brazilia
48、n ore,Source:Bloomberg Finance LPFigure 13:China steel inventories9.59.08.58.07.57.06.56.05.55.0,Steel inventories in main cities,2-year average,Daily HRC price ChinaSource:Bloomberg Finance LPFigure 14:US metal spread450400350300250200150,5-year average817977757371696765,Source:Bloomberg Finance LP
49、,1978-2007 average utilization(%)US Capacity Utilization(%)US metal spread(USD/t)8-year average metal spread(USD/t)Source:Bloomberg Finance LP,Deutsche Bank Securities Inc.,Page9,22 October 2012Metals&MiningWhats nextIron ore exports,BrazilFigure 15:Iron ore exports,Iron ore export volume(000t)AsiaA
50、sia ex-Middle EastMiddle EastChinaJapanEUGermanyFranceBelgium+LuxembourgOther regionsTotal Brazilian exports%growth,4Q1172,45567,4824,97347,80611,66316,1583,5591,8097104,96193,5754%,1Q1253,29449,0374,25735,9296,09611,0872,2681,3478943,98668,368-27%,2Q1256,84752,3054,54236,9067,94815,5982,1601,252983
