A file photo of a Hindustan Zinc mine. The company, which houses Vedanta group’s lead, silver and zinc businesses in India, saw mined metal production only marginally up in the September quarter as compared with the March quarter. (A file photo of a Hindustan Zinc mine. The company, which houses Vedanta group’s lead, silver and zinc businesses in India, saw mined metal production only marginally up in the September quarter as compared with the March quarter.)
A file photo of a Hindustan Zinc mine. The company, which houses Vedanta group’s lead, silver and zinc businesses in India, saw mined metal production only marginally up in the September quarter as compared with the March quarter.
(A file photo of a Hindustan Zinc mine. The company, which houses Vedanta group’s lead, silver and zinc businesses in India, saw mined metal production only marginally up in the September quarter as compared with the March quarter.)

Mark to Market | Vedanta’s metal output flat in Q2

The outlook for the metal companies in the group continues to be mixed

The production of the Vedanta group’s metal companies in the September quarter was flat, in line with the guidance. Yet, Sesa Goa Ltd, Hindustan Zinc Ltd and Sterlite Industries (India) Ltd all saw their shares rise on Tuesday, perhaps on expectations of an improved second half.

Sesa Goa’s rise may come as a surprise, given the concern surrounding the stoppage of its mining operations in Goa, and this came across in a conference call held by Vedanta on Tuesday to discuss the production numbers. The management expects that it should get a final clearance to restart mining iron ore in Karnataka in the third quarter. Iron ore prices have stabilized in September, after falling sharply in August, which is some good news. Cairn India Ltd, in which Sesa Goa holds a 20% stake that will increase to 58.8% after a proposed restructuring, saw its share of oil and gas output rise by 2.8% sequentially.

Hindustan Zinc, which houses the group’s lead, silver and zinc businesses in India, saw mined metal production only marginally up as compared with the March quarter. This is in line with the company’s earlier guidance and it has maintained that production will rise significantly in the second half. Sales of silver, which saw production rise by 12% sequentially, will be a key contributor to profit growth.

Sterlite Industries’ refined copper output was flat sequentially, but the key point here is that its captive power plant has been synchronized, and lower power costs may boost profitability at this unit in forthcoming quarters. Its alumina production declined sequentially, and may even be shut due to a shortage of bauxite. But aluminium output is steady.

While production is one side of the coin for metal producers, product prices and fuel/energy costs hold the key to profitability. There has been some respite on the cost front, but on the price front, the average London Metal Exchange spot price of aluminium has declined by 2.9% quarter-on-quarter in the September quarter, zinc has declined by 2%, while lead prices were almost flat. Sterlite’s copper business depends on treatment and refining charges, and not copper prices, since it operates a custom smelting operation.

The outlook for the metal companies in the Vedanta group continues to be mixed. Production is set to recover in some of its businesses, but others such as iron ore are likely to underperform. The macro-outlook for metals is weak, as key emerging economies, including China and India, have slowed down. As long as a weak demand casts an overhang on metal prices, it is difficult to see what could drive metal stocks to outperform the market.

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