Metal stocks rally on China infra push

BL Mumbai Bureau | | Updated on: Jul 05, 2022

China’s $75-billion infrastructure fund to boost its economy expected to prop up metal prices

After a long hiatus, metal company shares were in demand on reports that China is planning to set up a $75-billion infrastructure fund to boost its economy battered by multiple Covid attacks.

The revival of metal demand in the world’s second-largest economy is expected to prop up metal prices and help Indian metal companies reeling under slowing demand.

Shares of JSW Steel, Tata Steel, Jindal Steel, Steel Authority of India, Hindalco, Vedanta and Nalco were up between 1 per cent and 3.5 per cent after surging sharply during the day’s trade. For instance, Hindalco gained five per cent to day’s high of ₹357 from the previous close of ₹341, but closed at ₹345 on profit booking. Similarly, Tata Steel gained three per cent to day’s high of ₹879 before closing at ₹860.

Metals under pressure

Most of the metal companies have come under pressure after the government levied 15 per cent duty on steel in May to rein-in run-away prices amid rising inflation concern. Even since steel prices have crashed along with most other metals.

However, a surge in Chinese demand could be a positive for Indian companies which had ramped up their exports to the Asian country in the wake of Chinese companies shutting down production due to environmental concerns.

The Chinese economy has been shattered due to the frequent outbreak of the Omicron variant in the country. Rampant lockdowns across major industrial hubs have crippled the Chinese economy and cast a cloud over the country’s growth target of 5.5 per cent for this year.

Back home, metal prices have been falling freely due to weak demand and excess supply in the market. Though some of the steel companies are keeping their promise to their international clients by exporting despite the 15 per cent duty, many smaller steel mills are weighing the option of cutting production.

Pricing and production impacted

Hot rolled coil prices have fallen nine per cent to ₹60,200 compared to last month, while the entire non-ferrous metal have come under heavy pricing pressure. Nickle and Zinc prices have dipped 23 per cent and 21 per cent to $21,766 a tonne and $3125 a tonne, while copper and aluminium prices fell 16 per cent and 15 per cent month-on-month to $7,976 a tonne and $2,384 a tonne. Lead was down 12 per cent at $1,919 a tonne.

Vishal Chandak, Research Analyst, Motilal Oswal said the domestic steel industry has not yet taken the plunge on production cuts as Tata Steel and SAIL maintain healthy production rates.

Domestic HRC premium to export prices now stands at ₹8,000 a tonne, while domestic prices continue to quote at a discount of ₹2,500 a tonne on import parity basis, he said.

Published on July 05, 2022
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