Commodities

Metal output recovery hits pause

Rajalakshmi Nirmal Chennai | Updated on January 13, 2021 Published on January 13, 2021

Increase in prices has dented demand; liquidity issues have resurfaced

India’s industrial production, which saw a recovery in September after six months of contraction, witnessed a slump again in November. The index (IIP) dropped by 1.9 per cent in November (y-o-y), as per data released on Tuesday.

Sharp contraction was seen in the two sub-indices of IIP - the computer, electronic and optical products index which dropped 15.4 per cent and the machinery and equipment index which was down 5.4 per cent.

 

Growth in the output of basic metals slowed to 1.2 per cent in November after recording a growth of 8.1 per cent in October. In fabricated metal products, growth slowed to 2.1 per cent, down from 14.8 per cent recorded in the previous month. In electrical equipment, the output recorded a flat growth at 0.1 per cent in November, sharply below the dramatic 20.4 per cent jump in October and 11.9 per cent increase in September. In motor vehicles too, the growth was disappointing at 0.9 per cent in November, down from 18.5 per cent in October.

Sandeep Jain, Managing Director of Laurel Wires and Senior VP, Bombay Metal Exchange, spoke about the demand slowdown, “There has been a slowdown in orders in the past two months especially from the transformers and the electrical components manufacturers. Liquidity stress has increased for companies as metal prices have been on the rise continuously...” Prices of metals including copper, aluminium and zinc have shot up significantly in the last nine months.

Rally in prices

Supply disruptions due to Covid-related mining interruptions and strong demand from China due to increase in infrastructure spends, stoked a rally in metal prices. Between March and October, copper prices were up 54 per cent and at current market prices (of $8,008/tonne) it is up 83 per cent from the price in March ($4371/tonne). Zinc prices were up 50 per cent by October and are now at about 65 per cent higher from March low of $2,523/tonne. Similarly, nickel, lead and aluminium prices have also shot through the roof.

Harssha Shetty, Director, Marketing, International Business, Vedanta Group, said, “November saw a slump in demand while there was a recovery in December. November being festive season saw lower activity. Additionally, the prices of aluminium, copper and steel saw a price rally. Since most project orders are fixed price orders, market participants were slow to absorb the price increase in November and order executions were bare minimum.”

Shetty added, “Q4 is expected to be good and is typically the best quarter for metal demand and this Q4 may be better than Q4FY20. In some segments – Transmission and Distribution, the domestic demand hasn’t come back to pre-covid levels and the industry is tapping exports market to keep the capacity utilisation healthy”.

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Published on January 13, 2021
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