Metal stocks melt on weak demand from realty, infra

Suresh P. Iyengar Mumbai | Updated on September 26, 2011



Decline of London metal index also seen behind fall

Metal stocks bore the brunt of the market battering on Monday even as the benchmark Sensex recovered its losses incurred during the day. The metal index on BSE was down 331 points at 11,183, while Sensex bounced back from the initial loss over 300 points to close down by 111 points at 16,051.

Non-ferrous metals producer Sterlite Industries and aluminium major Hindalco Industries hit a new 52-week low on Monday. Both Sterlite and Hindalco were down five per cent each at Rs 117 and Rs 129, respectively.

Coal India plunged 20 per cent to Rs 346, Jindal Steel and JSW Steel were down 14 per cent each at Rs 510 and Rs 618, while NMDC and Sesa Goa dipped eight per cent to Rs 219 and Rs 200. Hindustan Zinc fell seven per cent to Rs 119.

The meltdown in metal stocks was attributed to continuous fall in the London Metal Exchange Index, a gauge of six metals traded on the London Metal Exchange, in last few days. The fall in metal prices abroad will have a direct impact on the domestic markets as most metals in India are benchmarked to the LME and New York Metal Exchange.

Mr Amit Chheda, Head Equity, Inventure Growth and Securities, wondered whether the US Fed decision to keep the lending rates low will promote growth. “Lower rates will encourage current borrowers to refinance existing loans, but the recessionary scenario in the US will make it difficult for consumers to go ahead and use fresh credit, which is necessary to generate growth. The growth of credit also depends on banks' willingness to lend the way they did in the pre-2008 era,” he said.


The slowdown in metal demand, especially for steel, on the back of rising input cost is expected exert pressure on the earnings in the second quarter of this fiscal. Besides, the ban on iron ore mining in Karnataka and the consequent jump in prices has pushed up the operational cost. With the slowing demand, companies are left with little head room to pass on the incremental cost to end user, said an analyst.

Steel consumption grew by just 1.3 per cent to 28.05 million tonnes between April and August against 27.69 mt in the same period last year. Finished steel output grew 12 per cent to 29 mt (26 mt) in five months of this fiscal. The slowdown in real estate and infrastructure sector has pulled down the demand.

Mr Anil Agrawal, Director, Comfort Securities, said the high interest rate scenario has put immense pressure on the main metal consumption sectors such as realty and auto sector.

“However, good monsoon across India will be the key trigger for the upward movement in these sectors. The new crop supply along with lower crude oil prices are expected to bring down inflation and subsequently the interest rates,” he added.

Published on September 26, 2011

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