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Most metal and mining company stocks tumbled on Wednesday after the HSBC PMI (Purchasing Managers’ Index) for China released on Wednesday indicated a sharp slowdown in their economy.
Metal may suffer The index fell to its lowest level in six month to 49.6 in January against 50.5 in December. Though China’s manufacturing slowdown will help steel companies tap export markets more vigorously, demand for other industrial metals, such as copper, nickel, zinc and aluminium, depends on China’s demand. Prices of these industrial metals may crash as the demand in China determines the pricing trend.
Besides, export of iron ore from India to China will come under pressure. Earlier this week, the Government imposed a 5 per cent export duty on pellets. Export of raw iron ore or fines and lumps already attract an export duty of 30 per cent.
Pellets are value-added products derived from the leftover material or low-grade iron ore and are used in steel making. In recent times, they have emerged as a major product for the iron and steel industry in the country due to scarcity of ore in some regions following mining bans in Karnataka and Goa.
Most metal and mining stocks, including Jindal Saw(-1 per cent), Tata Steel (-2 per cent), Hindalco (-2 per cent), SAIL (-3 per cent), Jindal Steel and Power (-2 per cent) and Sesa Sterlite (-3 per cent), fell on Wednesday.
Terming the levy of export duty on pellets as a retrograde step, S.K. Chatterjee, Secretary, Pellet Manufacturers Association, said: “We strongly feel that the Government is playing into the hands of a handful of steel makers. We urge the Government to reconsider their decision and exempt pellets from export duty.”
Goutam Chakraborty, Research Analyst, Emkay Global Financial Services, said China faced a similar situation of a slowing economy about four to five months back, but investors felt a resurgent US economy would bail out China from the slowdown. Wednesday’s PMI’s data however, reveals that the Chinese economy is struggling.
“Besides the China factor, the recent hike in key banking rates by the RBI may push up lending rates and further cripple investment in the infrastructure sector,” he said.
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