27
Dec
12

NMDC follow up: CAG revenue loss report and rising Iron ore prices

Last week I had written about entering into covered call of NMDC (https://writingoptions.wordpress.com/2012/12/17/nmdc-covered-call/). I have squared off my December long and rolled over to January. Last week there was CAG report on potential revenue loss of Rs 746 crore from inappropriate pricing of iron ore during 2007-10 (http://articles.economictimes.indiatimes.com/2012-12-20/news/35933836_1_iron-ore-japanese-steel-mills-nmdc). After the release of this report, NMDC stock fell 3%. I don’t expect NMDC stock to fall much from current levels on account of CAG report.

Rising Iron ore prices should drive NMDC stock price (http://www.business-standard.com/india/news/iron-ore-steadies-at-5-12-month-high/496667/). Benchmark prices for 62 percent grade Iron ore has risen 56% from September low of USD 87/tonne. Markets have factored in Chinese demand recovery and restocking of Iron ore at Chinese ports. In case US fiscal cliff gets resolved in next one week, there might be relief rally in riskier assets across the world. This should also provide support to Iron ore prices and ultimately NMDC stock price.

I am playing NMDC for 6-7% rise till levels of 170-175. Somehow I am not comfortable holding PSU stocks for long term. Government intervention usually results in slow decision making, below par performance. Despite being in monopoly position, lot of these companies continue to lag private peers.

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