Metals: Gloom lifts, but volatility stays
Volatility has replaced gloom in the metals sector, which some might say is a good thing. Metal prices that had been falling all along in 2015 recovered in 2016. On the non-ferrous side, supply cuts helped prices recover, especially in zinc, while copper and aluminium staged more modest improvements.
Iron-ore prices were the surprise gainers, despite a flood of fresh supply coming into the market, as China’s steel plants stepped up steel production, possibly trying to export their way out of difficult times.
It’s no surprise then that news reports are speculating that Tata Steel Ltd may not actually exit its UK operations, although the company insists that the sale is still on the cards. The improved steel prices and support from the government may be behind a possible rethink.
Better realizations are always good news for this sector. Thus, Tata Steel’s sales rose sequentially by 5.2%, while its operating profit rose to Rs.2,205 crore from Rs.184 crore in the preceding quarter.
Hindalco Industries Ltd’s aluminium business got its form back and, as a result, the company’s operating profit rose 73.7% sequentially.
Companies did report write-downs during the quarter, partly because it is the closing quarter of the fiscal, taking into account the revaluation of assets due to the deterioration in the business environment. Prices have improved, but volatility remains.
In May, metal prices fell sharply although they recovered towards the end of the month. The bigger problems have not gone away. Developed markets are not in the pink of health yet, and China is still figuring its way around rebalancing its economy.
Meanwhile, higher prices have seen temporarily shuttered plants restart; more supply could put pressure on prices. An increase in crude oil may see energy prices increase as well.
The S&P BSE Metal Index is up by 27% since 12 February and is closely following price trends.
The gloom that was surrounding the metals in 2015 has lifted for now, but volatility remains.