Base metal stocks declined on Friday in reaction to overnight meltdown on the LME. Hindustan Zinc, Sterlite Industries, Hindalco and Hindustan Copper closed losers. According to market analysts, Indian base metal players in the space are global price-followers (particularly of the LME); so in a knee-jerk reaction the prices of base metal stocks were readjusted to an extent to reflect the fall in prices of the metals internationally.
Metal stocks fell overnight as the LMEX, the benchmark on the London Metal Exchange, fell 3.99 per cent on Thursday. On Friday, Sterlite Industries fell 1.50 per cent to close at Rs 167.5. Hindustan Zinc eased by 1.51 per cent and Hindalco Industries declined by 0.72 per cent to Rs 200.50 at close on the NSE.
Mr U.R. Bhatt, Managing Director of Dalton Capital Advisors, global metals market has been seeing a speculative binge and the present correction in the global commodities market may continue for some time till the past excesses are out of the system.
Short-term downtrend
Analysts said, Thursday could be a beginning of a downward trend at least for a short-term. According to Ms Chandrani Dey of Ambit Capital: “Given the higher interest regime that we are likely to see this calendar year, globally as well as locally, there is a risk of unwinding of financial transitions in the metal space. This may have a significant downward pressure on the metal prices”.
The alternative assets, including the commodities, were creating an unsustainable bubble for past few months. The highly leveraged positions, according to dealers, said were now being wound down.
A pointer
Mr Bhatt felt that demand-supply for metals did not justify the soaring prices. “The signals from the US Federal Reserves suggest that by June quantitative easing may end, and the interest rates may then start going up. The present downward trend in the metals is indicative of markets' early response to such a scenario. The built-up shorts are huge; it would take some to rebalance the positions in view of the changing scenario.”
“If the interest rates harden, then commodities are bound to fall”, Ms Dey observed. The risk aversion would extend to equities of the emerging markets, which are key elements of alternative market, analysts said.
As steel was not traded on the metal exchange globally, the steel stocks could survive, the analysts said. “The demand for and price of steel is more linked to the economic activity and supply situation rather than speculation. Hence, chances steel prices getting influenced by a general fall in commodity prices are slim,” an official of a FII said.
The steel stocks here, such as Tata Steel, JSW and SAIL, finished gainers on Friday.