A Cup of Tea 15 Apr'10

COALThe Chinese economy grew 10.7 percent in the fourth quarter and is forecast by the United Nations to advance about four times more quickly than the U.S. this year.

China, the world’s biggest consumer and producer of coal, may be a net importer of the resource for a second year as the government shuts unsafe mines while the economy surges. Imports surged after a nationwide crackdown on mine safety closed about 1,000 small pits last year while the economy grew at the fastest pace in the fourth quarter since 2007. Net coal imports may reach 100 million tons this year, the official Xinhua News Agency reported.

China may produce 3.15 billion tons this year, Coal consumption may rise to 3.4 billion tons this year, The National development and Reform Commission said.
Demand for coal in the southern regions rose as hydropower production slowed. The southwestern region including Yunnan, Guangxi and Guizhou provinces has been suffering from a severe drought for almost half a year, with water levels in major rivers at record lows, the Ministry of Water Resources.
ADRO PT 2700, PTBA PT 21000, UNTR TP 20000, ITMG TP 41000 and BUMI TP 3200.

BASE METAL
India’s steel demand is expected to rise by 9-10% in the current fiscal and the prices is likely to remain at the current level through this financial year. The prices are moving upwards on the back of a rise in the cost of raw materials like iron ore and coking coal as well as high demand by the consuming sectors like automobile and infrastructure.

The nickel market may swing into a deficit for the first time in four years as the global economy recovers from its worst postwar recession, fueling demand for stainless steel, said Sumitomo Metal Mining Co., the biggest producer in Japan. World demand will probably exceed supply by 36,000 metric tons in 2010, the first deficit since 2006. Global production of nickel may increase 7 percent to 1.37 million tons this year from 1.28 million in 2009, while consumption may advance 13 percent to 1.41 million tons from 1.25 million tons. Nickel demand in China may increase 12 percent to 480,000 tons from 430,000 tons in 2009, while output may grow 13 percent to 270,000 tons from 240,000 tons, Nickel consumption in Japan may expand 17 percent to 135,000 tons this year from last year’s 115,000 tons.

Nickel advanced to the highest level in more than 22 months, pacing an increase in industrial metal prices, as equities gained and an accelerating global recovery led by Asia boosted confidence demand will increase. An improving economic outlook, as reflected in gains in the global equities markets, bolstered metals. The metal for three-month delivery gained as much as 1.6 percent to $25,900 a metric ton, the highest level since May 21, 2008.

ANTM (Reminder)
Nickel Price continues to upward trend. Demand from steel industry triggered higher price movement. We expect a higher nickel price to be sustained and the market to return to deficit for 2010. With these circumstances I will adjust metal prices to reflect the new forecasts, Nickel average 2010 upgrade from 17000 usd/ton to 22500 usd/ton on. Gold average 2010 upgrade from 1200 usd/t.oz to 1300 usd t.oz due higher inflation on 2010. Every 10% increase in average nickel and gold price would be impacted about 21% and 6%. Note: Revenue Breakdown Ferro Nickel 22.3%, Nickel Ore 19%, Gold Mining 12.4%, and Others 46.3%.

For that reason, I will upgrade EPS ANTM at 208 (from EPS 131 PE 18.51xPE’10 consensus base). I will set Price Objective ANTM at 3328 in line with PE market at 16x F’10. The high P/E suggests an opportunity to buy into this highly cyclical company --- Buy.

INCO (Reminder)
PT Inco is a nickel pure play whose earnings are highly sensitive to nickel prices. Well positioned to leverage on higher prices. The uplift in nickel price should be more than enough to cover the higher costs. With assuming nickel average at 22500 I put EPS will growth to 0.0387 usd. Price objective for INCO at 5632 in line with PE market at 16x --- Buy.

BANK
Indonesian banks continue to outperform in a global context, driven by expectations of a takeoff in credits, firm NIMs and an NPL downcycle.

Positive macro indicators — BI’s push for loans is driven by its assessment of excess capacity in the system. Balanced Consumer/Investment loan growth would help sustain high GDP growth. BI’s priority of 20% loan growth will determine its stance on lending rates. With limited room for deposit rate cuts, lower lending rates would hurt NIMs. We remain concerned about high valuations and risks to NIMs due to high LDRs. An easy monetary policy benefits banks with high LDR (BBRI, BDMN) but hurts NIMs (BBCA, BMRI).

1Q10 loan growth of 0.4% is below BI’s expectations and pressure will remain on banks to deliver. Amid weak loan growth, 1Q earnings are expected to be flat (QoQ), though BBRI and BDMN may surprise positively on better loan growth and roll-over of expensive time deposits. As loan growth picks up, competition for deposits will intensify due to skewed LDR –we prefer BMRI. Buy BMRI and BBRI, Sell BBCA and BDMN.