For MOIL, a glimmer of hope on ore front

MOIL Ltd, the biggest producer of manganese ore in the country, feels that ore prices have bottomed out and any positive trigger will take them up, boosting the company’s profits.

“Prices have bottomed out. From here, any small trigger will lead to higher prices and eventually boost company’s earnings,” MOIL chairman and managing director K J Singh said.

However, industry officials and analysts do not see prices rising in the near future as the economic outlook is weak.

Manganese ore prices have been falling since January due to global glut situation, lacklustre US and European markets and weak consumption growth in steel, the major primary consumer of manganese ore.

MOIL, which supplies close to 50% of India’s ore needs, has seen sales and net profit dropping 39% and 32%, respectively during the quarter ended June.

Its shares, which scaled a high of Rs591 on listing in December 2010, have dropped almost 50%.

To offset drop in earnings due to low prices, MOIL has been pushing for higher volumes.

The company is planning to clock a production of 1.2 million tonne this year, which will take care of any drop in earnings that the company might see, Singh said.

While the company is still attractive to analysts as it is one of the low-cost producers with no debt, concerns that steel demand is not expected to improve anytime soon loom large.

MOIL, too, feels that the overcapacity situation will not be any change in the short term. “While steel production grew 16% world over last year, manganese production grew by a whopping 32%. In India witnessed an even worse situation of a rise of 6% in production of steel and a jump of 22% in production of manganese ore,” said Singh.

He said the company doesn’t see any change in the glut situation in the next two years unless the expansion projects of steel firms start coming onstream. While the company is pushing for higher volumes to keep up with its sales and profit targets, analysts Neha Manpuria and Pinakin Parikh from brokerage JP Morgan said a weak steel demand could keep volumes muted in the near-term despite prices being at par with imported ore. “Key risks (for MOIL) are slow recovery in Chinese demand and delay in improvement of manganese ore prices, and lower volume trend in a weak domestic steel environment,” they said in a report released on September 13.