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The easing of covid norms and support by the Chinese government for its ailing property market have improved investor sentiment towards metal stocks. Rising consumption and demand in China, the largest consumer of commodities, is expected to drive global demand and prices for metals, said analysts.

Sentiments have improved significantly and metal prices have been rising, they added. “China has started to ease covid policy and support its ailing property sector. We believe the worst-margin quarter for the Indian steel sector, and the big chunk of earnings cuts for Tata Steel and Hindalco are behind," Jefferies India Pvt. Ltd analysts said in a recent report.

Through 2022, global metals demand outlook had weakened led by the Chinese real estate crisis and covid lockdown. Furthermore, interest rate tightening measures by central banks worldwide had continued to increase recessionary concerns across developed markets.

The Chinese government has unveiled a comprehensive plan to support the property markets and has set a new direction for covid management to stabilize the economy, which, along with other stimulus measures, should drive a recovery in metal demand in 2023, said analysts.

Jayanta Roy, senior vice president and group head of Icra Ltd said China’s incentives for the property market is positive. It has helped improve the sentiments and also helped improve metal prices.

However, Roy as well as other analysts remain cautious as they await further clarity on the situation in China post easing of covid curbs, besides the impact of measures taken to ease the credit situation and incentives for the local property market.

Analysts said while fundamentally these are positive steps, the benefits will only be visible by February or March, in view of the Chinese New Year holiday season.

With coal and iron-ore prices witnessing an uptick along with metal prices, impact on profitability for manufacturers will be closely monitored, said analysts. China will see some inventory buildup in the near term for rebars and hot-rolled coils in the run up to the New Year and a slowdown in construction activity, they added.

Sharekhan analysts upgraded the metals sector outlook to neutral from negative following China’s policy support for the real estate sector (key user of base metals) and the focus on reopening the economy to support demand and price for base metals in 2023. However, they believe that clear signs of an upcycle in metals will take a long time considering the demand concerns in the US and Europe. In India, steel prices have been rising in line with rising prices in China and Korea. However, profitability may not be rising at a similar proportion for Indian manufacturers since raw material costs are on the rise.

Nomura said in a report that for the week ended 6 January, Indian hot-rolled coil prices increased by 2,400 per tonne from the previous week to align with global prices, while India rebar prices rose by 1,800 a tonne. However domestic HRC prices are at modest discounts to Chinese imports, but at a premium to the imports from South Korea and Japan. Besides, India HRC spreads are 1.1% lower month-on-month due to an increase in coking coal prices (up 15.3%) and iron ore prices (up 14.8%) in January, said analysts at Nomura.

HRC export prices remained flat week-on-week at $600 per tonne.

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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