India’s industrial production, as measured by the Index of Industrial Production (IIP), contracted for the sixth month in a row in August by 8 per cent y-o-y. However, one good news is that basic metals production improved from a year ago levels. The basic metals sub-index in IIP recorded a growth of 0.1 per cent y-o-y in August. This is significant, since the index was in contraction since February and in April recorded the steepest drop of 70 per cent.
Another optimistic signal is also the recovery in the Purchasing Managers’ Index (PMI). The PMI, which was 52 in August, moved higher to 56.8 in September — the fastest growth since January 2012, recovering from 27.4 in April.
Government housing and electrification projects have been driving demand for metals, say physical market participants. Consumption of long steel has seen sharp recovery – it was 4.5 million tonnes (mt) in August, up from 0.4 mt in April, shows JPC data.
Similarly, flat steel consumption also increased from 0.6 mt in April to 4 mt in August.
Demand for aluminium, copper and zinc, too, have recovered vis-à-vis June quarter, say metal traders and manufacturers who spoke to BusinessLine . Sandeep Jain, Managing Director of Laurel Wires, a domestic company that is into manufacture of copper wires, said, “We are getting more order enquiries now; demand is recovering from lows we saw in April. Orders are more from private institutions though there are some government orders too. There is recovery in the housing sector in Maharashtra…”
A CARE ratings report on base metals is positive about the automobile sector’s demand too. Given the growing need for personal vehicles as an alternative to public transport due to Covid-19 pandemic, there is optimism over the auto sector, says the report. Retail car sales increased 10 per cent, y-o-y in September.
That said, Sandeep Daga of Regsus Consulting, a company that advises on commodity hedging to producers, consumer of metals, says, “It is a fact that pent-up as well as demand from projects that were approved before lockdown have contributed to demand for base metals. But I see the intensity of recovery flattening in the coming months…”
Domestic premium high
The premium in the domestic metals exchange – MCX, continues to be high for all base metals, relative to LME as per a report of Regsus Consulting. While zinc trades at about $90/tonne premium, copper trades at a premium of $150. This could be a reflection of strong domestic market demand. In zinc, though, the upward pressure on prices is due to probe from Custom authorities against import from FTA countries that have slowed down imports. In lead, too, MCX prices are at a premium ($90/tonne) to the LME. Here, it is not a play of demand alone – it is actually supply shortages and higher price of battery scrap that is driving prices, say traders.