DJ Basic Materials Roundup: Market Talk

The latest Market Talks covering Basic Materials. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0757 GMT - Aarti Industries' earnings-growth visibility over the medium to long term looks good, Axis Securities says, as it upgrades the stock to buy from hold and raises the target price to INR1,080 from INR925. Drivers include the commercialization of its major long-term contracts and the growing contribution of value-added products. The chemical manufacturer's plants are running at high utilization levels, with demand in India's market for discretionary products having reached pre-Covid-19 levels and export markets likely to return to normal by end of 2H FY 2022. Its focus on value-added products, production of more downstream products and better operating leverage are expected to boost profitability, the brokerage adds. Shares are 3.5% higher at INR1,057.40. (ronnie.harui@wsj.com)

0631 GMT - Even as Chinese power producers scale up renewable energy sources like wind, coal-fired electricity generation isn't likely to go away soon, according to S&P Global Ratings. This is because "wind power, which is intermittent by nature, requires a ramping up of power storage facilities and enhancing of grid distribution capabilities," it says. Coal-fired power units with high efficiency and low emissions are likely to continue playing an essential part in ensuring grid stability even when clean energy makes the bulk of contributions, the rating firm says. (yongchang.chin@wsj.com)

0615 GMT - Chinese power producers should be able to weather rising coal-input costs, S&P Global Ratings says. Not only is the government helping companies secure more fuel supply but also looking to increase the flexibility of electricity tariffs to allow these higher costs to be passed to end users, the ratings company says. Utilities' increased focus on renewable energy should also help them mitigate high coal prices, it adds. S&P Global Ratings thinks the credit profiles of Chinese utilities and commodities companies it rates can handle the continuing energy crunch. (yongchang.chin@wsj.com)

0350 GMT - Thermal coal, nickel, aluminum and lithium should be more resilient than other mined commodities in a bear market, by either falling less or staying firm for longer than anticipated, according to UBS. It reckons thermal coal prices will surprise positively in 2022, as gas shortages supercharge coal demand. Nickel and lithium will be supported by longer-run expectations of electric-vehicle demand, while any retreat in aluminum prices should be capped by constraints to Chinese output of that material, UBS says. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0340 GMT - It is too early to buy mining stocks despite their recent correction, according to UBS, which says that the outlook for commodity demand has deteriorated and that prices should fall further over the coming 12 months. "Mining stocks rarely go up/outperform in a falling commodity price environment regardless of 'what's priced in,'" the bank says. Mining companies are well placed to get through any downturn in commodity prices, with balance sheets strong and capital expenditure relatively low, UBS says. Even though the recent pullback "may have unearthed long-term value in certain stocks," the bank remains underweight on the mining sector with mostly sell or neutral ratings on the stocks it covers globally.(rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0231 GMT - Copper production growth from next year should benefit from the delayed ramp up of some projects as well as improved output from Escondida, the world's No. 1 copper mine, says Fitch Solutions. The research firm revises its 2022 copper mine output growth forecast to 4.7% from 4.0% previously, and its 2023 projection to 4.0% from 3.2%. "We were already expecting 2022 and 2023 to be relatively strong growth years for Chilean copper production given the slate of projects coming online," Fitch Solutions says. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2309 GMT - UBS reckons South32 has done the right thing in exercising its pre-emptive right to buy Mitsubishi's stake in the Mozal aluminium smelter. The deal is compelling, with an attractive valuation for a future-facing commodity, says UBS. That business is currently benefiting from sky-high aluminum prices and while UBS doesn't expect the rally that's taken aluminum prices 45% year-to-date to hold for long, it does forecast solid prospects over the medium term as China's efforts to cut carbon emissions constrain global supply growth. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2156 GMT - AGL Energy's planned separation of its retail business from its coal-fired power generation assets won't provide either with significant capacity for growth, UBS says. That's because both companies--AGL Australia and Accel Energy--will have constrained balance sheets. UBS now sees a lower risk that more equity will be needed before the demerger happens, as AGL has scrapped its special dividend and will underwrite its dividend reinvestment plan. However, the bank says its "refreshed credit analysis still does not expect either AGL Australia or Accel Energy to have balance sheet capacity to support any material growth investments following the demerger." (david.winning@wsj.com; @dwinningWSJ)

1518 GMT - Gold prices rose Monday, with most-actively traded futures adding 0.7% to $1,170.50 amid a decline in major stock indexes. The move extended a recovery in the haven metal, which was dragged lower in recent weeks by rising bond yields and a stronger US dollar. Investors this week are preparing to analyze monthly jobs data to gauge the strength of the pandemic rebound and the prospects for inflation. (Hardika.Singh@wsj.com)

1409 GMT - The emergence of power cuts in several Chinese provinces hitting heavy industries will loom over fourth-quarter production, UBS says. The Swiss bank estimates the country will face a 70-80 metric ton coal shortage by the end of 2021, meaning that industrial-power usage may be cut by 10% to 15% in November and December. That would translate into a 30% slowdown among energy-intensive industries such as chemicals, UBS says. The limits on industrial-power use are driven by factors including surging liquefied natural-gas pricing, environmental targets amid the overproduction of coal, and winter heating requirements, UBS says. (edward.frankl@dowjones.com; @Ed_Frankl)

1402 GMT - Power cuts hitting industrial production in China could pose a direct risk to production volumes for some major European chemicals companies, either in their own energy shortfall or their customers' outages, UBS says. Covestro, Wacker Chemie, Fuchs Petrolub, Akzo Nobel and EMS-Chemie are the top five companies in terms of percentage of group sales to China, the bank says. Chemicals account for around 6% of total power consumption in China, second only to metals and mining, the bank says. The impact could be mitigated by supplying China from other regions in the companies' global network, but with high shipping rates due to challenged supply chains, margins would be slimmer, UBS adds. (edward.frankl@dowjones.com; @Ed_Frankl)

1320 GMT - Glencore shares still look cheap despite a share-price rally, says J.P. Morgan Cazenove. While Glencore is the best-performing U.K. diversified miner in 2021, up 55% so far this year, JPM believes the equity is still under-valued and says it could rise further than the U.S. investment bank's 440 pence per share December 2022 price target. The miner's 2021 investor day on Dec. 2 is likely to be a key catalyst, the bank says. "Strategic commitment to coal will be financially vindicated as prices have surged to records," analyst Dominic O'Kane says. "We place Glencore on JPM's Catalyst Watch with a high-conviction positive view ahead of Dec. 2." Shares rise 2% to 359p. (philip.waller@wsj.com)

(END) Dow Jones Newswires

October 05, 2021 04:20 ET (08:20 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.