Positive Modi-fication For Mining Sector
BMI View: The election of the pro-business Bharatiya Janata Party (BJP) should pave the way for positive reforms in India's mining sector. However, the surge in Indian mining equities since May 16 should surrender to headwinds in the coming months as positive sentiment is overstretched and domestic miners will continue to face significant operating hurdles over the coming quarters.
We remain constructive towards Indian mining equities on the whole. The pro-business Bharatiya Janata Party (BJP) has pledged to push ahead with a mandate of sweeping economic reforms that will revive investor confidence in the country. We believe efforts to slim down bureaucracy and merge departments should help improve the coordination between ministries and provide a springboard for pending infrastructure projects. Subsequently, this will trickle down to the mining sector as demand for construction-related materials including steel, aluminium and nickel increases. We currently forecast steel production in the country to increase at a healthy clip of 6.5% per annum between 2014 and 2018, but may look to upgrade our forecast over the coming quarters.
Crucially, India's incoming Prime Minister Modi is seeking to boost domestic coal production by breaking up state-owned Coal India Limited (CIL) for foreign investment. The government could undertake international private-sector partnerships in the coal sector, and auction coal blocks through open tenders. CIL, which accounts for 80% of India's coal output, has consistently failed to meet its production targets over the past years. Red tape, protests against land acquisition and the failure to obtain environmental approvals have continued to stifle production in the coal sector. Indeed, energy poverty has long been a major bottleneck for India's economy. With coal dominating the bulk of the country's energy portfolio, developments in the coal sector is key to the long-term economic progress of India.
|India - Select Mining & Metals Production (% chg y-o-y)|