China GDP data drag metal stocks

Our Bureau Chennai | Updated on January 22, 2019 Published on January 22, 2019

Analysts predict dull Q3 show

Metal stocks on Tuesday remained under pressure due to weak macro data as China reported slowest GDP growth in 28 years. Of the 10-stock BSE Metal Index, half of them hit their 52-week low on Wednesday while a couple of them are ruling near that level. The BSE Metal index ended 2.31 per cent lower at 10,791.98.

Shares of Tata Steel, Hindustan Zinc, JSW Steel, Jindal Steel and Power, and Steel Authority of India (SAIL) registered their year-lows on Tuesday.

According to analysts, metal stocks will remain under pressure, due to global slowdown, though domestic consumption may remain buoyant.

Jindal Steel and Power on Tuesday fell 4.53 per cent to end at ₹137.9 on the BSE, Vedanta tumbled 3.5 per cent to ₹191.45, and Tata Steel slipped 3.13 per cent at ₹456.8. Among the others, Hindustan Zinc edged down 2.76 per cent to ₹260.75 and JSW Steel tumbled 2.46 per cent to ₹277.75. SAIL dropped 2.23 per cent to ₹48.3 apiece and Hindalco Industries slid 1.88 per cent to close at ₹203.15.

China steel prices (HRC export) declined 11 per cent q-o-q to $516/tonne in Q3 FY19, said Kotak Securities in a report. Lower China export prices led to a sharp fall in steel prices across regions, including India.

Discount offers

Kotak Securities, which expects lower prices to hurt the performance of steel makers in the quarter ended December 2018, said Indian steel prices declined mostly in December 2018, which contained the extent of price decline to 1-3 per cent q-o-q (on average) for 3Q FY19.

Besides, most companies were offering discounts in December even if the list prices were higher due to lower global prices (and thus reduced cost of imports). Raw material costs for domestic steel producers will be higher due to 19 per cent q-o-q increase in coking coal price to $220/tonne, it said.

“We expect EBITDA/tonne for domestic steel producers to decline by 17-19 per cent q-o-q due to price-cost effect,” Kotak Securities said.

Hindustan Zinc on Monday announced its September-December quarter performance. It had reported a revenue of ₹5,540 crore (up 6.5 per cent q-o-q, down 16 per cent y-o-y), While the year-on-year fall was due to lower zinc volume and lower zinc realisation, q-o-q improvement was primarily led by higher volume in zinc, lead and silver and also due to rupee depreciation. Net profit stood at ₹2,211 crore, against the previous quarter figure of ₹1,815 crore and the year-ago period PAT of ₹2,298 crore.

Warehouse inventory

According to JM Financial, near-term zinc price outlook remains steady, driven by multi-year low warehouse inventory and ILZSG deficit forecast in CY19.

JM Financial remains positive on Hindustan Zinc due to its presence in the lower end of the global cost curve, facilitated by high-grade captive mines sufficient to meet requirements for decades, 100 per cent captive power plants, sizeable scale, diversified revenue stream with increasing contribution from silver sales, and strong balance sheet with net cash of ₹29/share.

However, Narnolia maintains neutral stance with a price target of ₹286, as it sees most of the positives already factored in.

Published on January 22, 2019
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