The Hindu Business Line : Commodity stocks remain under pressure

The price movements of 12 prominent commodity or commodity-related counters — Tata Steel, SAIL, JSW, Hindalco, Sterlite Industries, Nalco, Sesa Goa, Gujarat NRE Coke, Aban Offshore, Great Offshore, RIL and ACC — show that all of them witnessed a steeper fall and muted recovery. In some cases, there was no recovery.

Aban Offshore, which is a crude oil E&P play, fell 49.41 per cent between October 1 and October 10. Thereafter, it did not get respite and fell further 6.7 per cent till Wednesday’s close.

In case of Sesa Goa, the fall till October 10 was 31.8 per cent, while there was another decline of 10.8 per cent in the stock price this week.

The recent decline in prices of commodities in the international market have an anti-inflationary and positive effects on equities in general, but commodity stocks are likely to remain under some more time, analysts feel.

“The fire-fighting measures by the American and European authorities have seen banks recapitalised to an extent, but onward lending flows to reach commodities and energy sector would take a little while. In recent times, speculators may have largely exited commodities. But the fear of a serious slowdown in global demand for commodities stays,” said Mr V.K. Sharma of Anagram Securities.

According to global fund monitor Morningstar, the natural resources funds have recently dipped more than even the funds that purely invest financial stocks. Banks and hedge funds have slashed their exposure in the commodities and are unlikely to re-enter in the near future.

Metal prices in the local market are linked to global prices, particularly on the downside. “Usually the Government tend to cap the upward price spiral,” the Religare official added.

In the petrochemical sector, an exporting company would find top and bottom lines affected. According to industry sources, since globally the exploration budgets, mostly leveraged, has got delayed and postponed, the rig charter rates have come down substantially (15 to 20 per cent in the past 45 days).

The demand-supply gap in the local market for cement has taken a toll on the cement stocks. An Emkay survey reveals that even in the backdrop of moderating housing demand and slowdown in industrial activity, the cement industry is optimistic on consumption growth of 9 per cent plus over next 2 to 3 years. According to Mr Ajay Jaiswal of Microsec, slowdown in consumption of commodities has not only brought down the prices but also has affected capex plans.

“The confidence is shaken. Regulatory vigilance world over would now restrict money from turning speculative. The recovery, when it would come, would this time be demand-led,” he added.