Cover Story Outlook Of Non- Ferrous Metal Corporate Credit FCNR(B) Loans Business Trivia First self-made female millionaire Visual Facts Sensex, Gold, Crude, Dollar, MCX Metal & MCX Agri

1. Volume: 98

2. The rise in global population, growth in the Chinese economy, urbanization of the Asian countries and increasing requirements of the developed countries have created an unprecedented demand for minerals and metals. The metals & mining industry caters to this ever-rising demand through extraction (mining) and primary and secondary processing of these metals. However, of late, the tepid global economic growth has emerged as a major headwind for the global metal industry.
IRON ORE PRICE OUTLOOK
Iron ore prices had a bullish run in 2013, in contrast to other base metals, helped by heightened demand from steel end consumers, particularly the Chinese construction sector. The scenario changed dramatically in the first quarter of 2014, with iron ore prices recording its sharpest one-day drop in four years in March tumbling by 8.3% to close at $104.7 per ton. This represented an 18-month low for iron ore prices.
Overall, prices have been impacted by myriad reasons: rising production and abundant supply of iron, tight credit in China and persistent fears regarding China's economy. Global steel production rose by a meager 2.5%, mainly dragged down by a slowdown in China's output and affecting demand for iron ore, its main ingredient.
Iron ore prices continued to slump in the second quarter, reaching a low of $89 per tonne in June after a low of $105 per tonne in the first quarter; they have, however, held above the spike low of $86.70 per tonne in 2012. This suggests that there is a floor in the market just below $90 per tonne. As of early July, prices had started to recover - they were last seen at $97 per tonne after buyers took advantage of the dip to levels that are likely to be unsustainable.
Although there has been a surge in iron ore supply as expansions are ramped up, the market will still need some high-cost Chinese iron ore to balance the market, which should provide a floor price. An estimated 200 million tonnes of Chinese ore will be required. While higher-cost Chinese capacity is closed, the marginal costs for the industry as a whole will shift lower. Although marginal costs are seen around $110 per tonne for China, lower cost producers would have costs closer to $80-90 per tonne if the higher-cost producers close. This means iron ore prices may well stay in a lower range around $90-$115 per tonne for longer. There is a risk that buyers may continue to destock into this price weakness but we also feel bargain hunting will encourage restocking by those that have already destocked.
STEEL PRICE OUTLOOK
Steel prices are generally volatile owing to the highly cyclical nature of the global steel industry. Rising raw material prices have a direct impact on steel prices. Furthermore, overcapacity, a glut in cheaper Chinese steel imports, unfavorable economic conditions and shifts toward other substitutes significantly impact steel prices. The unstable situation in Europe and tempering growth in Asia kept prices in check in 2013.
World steel production expanded at a rate of around 4.4 percent in 2013, while steel demand is estimated to have grown around 3.1 percent last year, according to the World Steel Association (WSA). The recovery in steel prices in the second half of last year continued into January with prices rising to $726 per tonne, from a low of $679 in July last year.
OUTLOOK OF NON- FERROUS METAL

3. Steel demand should continue to recover in 2014, with developed markets – including Europe – all seeing positive growth. The main area of uncertainty lies with China and the emerging markets as we expect high stocks of steel, tight credit conditions and government clampdowns on surplus capacity in China, will go some way to restriction production growth and a slower economy in China is likely to impact its demand for exports from emerging markets.
Production remains in oversupply and capacity utilization rates are generally low, which means producers should be able to respond quickly to any increase in demand, which in turn is likely to cap steel prices.
With iron ore prices also trading at lower levels this year, we feel there will be little upside cost pressure on steel prices apart from during bouts of restocking.
Although global supply is growing, the picture at the regional level remains mixed – output in the first two months of 2014 climbed in Europe, the Middle East and Asia, while it fell in the CIS, North and South America, Africa and Oceania.
Indeed with China accounting for 49 percent of global steel production, what happens in China can distort the global picture. In 2013, Chinese steel production climbed 10 percent, while global steel production climbed 4.4 percent, but output in the world ex-China dropped three percent.
Overall global steel capacity utilization trended lower in 2013; it ended December at 72.8 percent, but has picked up again in the first quarter and is last around the 77.6 percent level.
For 2014, we expect production to grow at a slightly lower pace of 4.0 percent after 4.2 percent in 2013.
The steel market remains well supplied – indeed, it is oversupplied – so any pick-up in demand can initially be satisfied by drawing down inventories and then by boosting capacity utilization rates. But producers are taking measures to reduce this overcapacity and China’s new government could make significant inroads in this area in the years ahead.
We expect demand to pick-up in 2014, on balance global PMI data shows continued expansion and a recovery in Europe could be all important. That said, the extent to which China’s economy slows is likely to be the key factor.
We are more bullish for US demand but it alone is unlikely to produce a strong global steel market. Stronger US demand is also likely to attract imports, which in turn will keep prices in check. As well, we feel lower iron ore prices in 2014 will be passed onto customers in the form of lower steel prices because steelmakers continue to face considerable competition. For 2014, we would look for HRC prices to average around $660 per tonne.
A sustained downside in steel prices will materially affect the margins of steel companies. We believe that the recovery in pricing momentum will only be driven by a reviving economy, stabilization in the Euro-zone, and a rebound in construction activity in the U.S. and developing countries, in particular China and India.

4. FCNR(B) Loans
Further, Fund Angle Clearance (FAC) given by IBD will lapse if the disbursement is not availed within 3 months from the date of FAC. After availing the loan, if the borrower wants to prepay the same, is it permitted subject to the penalty normally in the range of 1-1.5% of the amount prepaid for the un expired period of the loan.
FCNR (B) loans are beneficial to the corporates on account of following:
Corporate gets the loan at a cheaper cost as the interest is linked to LIBOR / EURIBOR.
The borrower is not required to go to the International market for raising the funds as foreign currency funds are made available in India reducing the cost of raising such funds.
The disadvantage is that Corporates have to bear the exchange fluctuation risk. This scheme will be attractive to those who have regular forex earnings. Those who do not have any forex earnings should understand this risk and arrange for hedging the exchange risk.
Corporates are allowed to obtain foreign currency denominated loans in India under the above scheme for the purpose of meeting working capital requirements in Indian Rupees, By way of pre-shipment advances/ post shipment advances to the exporters, Import of raw materials/ capital goods, Repayment of the existing Rupee Term Loan and Repayment of any existing ECB's with the permission from RBI, Govt. of India. End-use of funds may need to be restricted for productive purposes with high priority to be given to exporters, manufacturers and infrastructure projects.
This facility for working capital is given by way of FCNRB (Demand Loan). FCNR(B) Demand Loans can be extended for a maximum period of 11 months. The loan can be disbursed up to 90% of the MPBF limit.
The base rate for FCNRB (DL) in USD, GBP and YEN is LIBOR. The base rate for FCNRB (DL) in EURO is EURIBOR. The base rate for FCNRB (TL) is 6 month LIBOR/EURIBOR. The differential over the base rate will be as per the credit rating of the borrower.
In addition to interest, there are some other costs involved like, Processing fee, as applicable for rupee loans, Transaction fee, and Commitment fee.
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5. The first self-made female millionaire was Madam C.J. Walker. In the early 1900s, She made her fortune by developing and marketing a successful line of beauty and hair products for black women under the company she founded, Madam C. J. Walker Manufacturing Company.
Sensex Gold (10 gm)
MCX Metal MCX Agri Crude Oil ($/barrel) Dollar/INR

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Team Chronicle
Akanksha Srivastava akanksha@investeurs.com
Nidhi Gogia nidhi@investeurs.com
Sonali Yadav sonali@investeurs.com
Harpreet Kaur harpreet@investeurs.com
Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.