Metal stocks sizzle as demand lifts copper, zinc, aluminium base prices

The sudden spike in base metal prices has pushed up almost all the metal company stocks, even as the broader market closed the day on negative territory.

While the benchmark Sensex was down 1,145 points to 49,744, the BSE Metal index jumped 287 points to 13,094 on the back of steady rise in metal prices. In fact, the BSE Metal index has touched the highest level since October, 2018.

Demand booster

Base metals complex witnessed strong buying with most of them including copper, zinc, aluminium and nickel touching a new high on the back of buoyant demand.

Copper prices breached $9,000 a tonne mark on LME for the first since 2011 on sharp fall in inventory levels and rising demand. The premium for cash copper over three-month metal is rising showing tight supply in spot market. Nickel rallied above $20,000 a tonne to hit a six-year high.

Except for Jindal Steel and Coal India all the constituents of BSE Metal index closed in the green. Vedanta Ltd and Hindalco Industries hit a new 52-week high of ₹208 and ₹328 but closed at ₹204 and ₹316 with a gain of six per cent and two per cent on profit booking. Hindustan Copper also touched 52-week high of ₹102 and closed with a gain of 14 per cent at ₹98 on Monday.

Deepak Jasani, Head of Retail Research, HDFC Securities, said metal companies have seen some deleveraging in the recent past and their balance sheets are in better shape. Metal stocks would continue to do well as the large spend enumerated in the Union Budget could drive demand for metals, he added. After the sharp pick up in automobile sales some of the companies have started launching new models to woo customers sitting on the fence. Moreover, most of the car companies have increased prices citing rise in raw material cost, especially that of steel.

The firm price trend of metals globally and China in particular bodes will for domestic metal companies as they can pass on the incremental production cost to the user industry. Steel prices in India increased 55 per cent between June and December last year.

Peaking iron ore

Last week, iron ore prices surged to near 10-year highs in the global market as China tapped the global markets after the lunar new year holiday. Iron ore with 63.5 per cent iron content gained nearly seven per cent since the beginning of the year.