Home / Markets / Stock Markets /  Metal stocks rally for 5th day in row; why is there a strong buying in this basket?

Metal stocks outperform the broader markets on Monday with strong buying in heavyweights such as NALCO, Hindalco, Vedanta, and Tata Steel. Metal indices on both BSE and NSE have extended their gains for the fifth consecutive day. There has been strong demand for precious metals in recent days due to a sharp drop in the dollar index. Also, the recent removal of export duty on steel has renewed interest in steel stocks. Further, metal companies are in focus due to their monthly production performance.

In the early deals, the BSE Metal and Nifty Metal index gained by nearly 2% each. While since November 29 to date, BSE Metal climbed by nearly 7%, whereas Nifty Metal jumped over 6%.

At around 9.59 am, BSE Metal is trading at 21,020.40 up by 300.16 points or 1.45%. The index has touched an intraday high of 21,138.16, after opening at 20,831.15. Except for APL Apollo, all other metal stocks are on a bull run. On the other hand, markets witnessed profit booking with Sensex and Nifty 50 down by 0.5% each. India's volatility index is up nearly 3%.

NALCO leads the rally with a nearly 4% upside, followed by Hindalco and Vedanta which surged by over 2.6% and 2.15% respectively. Tata Steel, JSW Steel, and SAIL shares soared nearly 2% each. JSPL and Coal India also witnessed notable buying with an upside of nearly a percent.

The dollar index has lost its 105 support levels and fell to its lowest level since June 28 as risk currencies picked up momentum. The dollar has been under pressure after US Federal Reserve Chair Jerome Powell's comment hinted at a less hawkish approach in the forthcoming policies.

On Monday, a Bloomberg report highlighted that the US dollar erased more than half of this year’s gains amid waning haven demand spurred by growing bets the Federal Reserve will temper its aggressive rate hikes and China’s reopening. The Bloomberg Dollar Spot index has pared this year’s advance to about 7% after gaining as much as 16% earlier.

In its research note dated December 2nd, ICICI Securities revealed that hot-rolled coil (HRC) prices in the traders’ the market declined by Rs700-1,000/te in the key markets of Mumbai and Ludhiana as traders weigh the option of importing steel. It added, "Our channel checks indicate that some traders have booked small quantities of HRC from Japan at US$580-590/te CFR, implying a discount of 10% to the domestic price. Hence, we might see further correction in domestic steel prices."

Further, the stock brokerage's note added, that on the export front as well, there is no respite as demand from Vietnam has dried up owing to the sluggish construction sector there. As a result, bids for imported HRC are lingering at US$520-540/te. Further, demand for CRC and HDG in Europe has also been lacklustre.

Thereby, ICICI Securities believes exports are unlikely to increase any time soon. Low channel inventory as a result of production discipline by major domestic steel mills is the sole bright spot. On the longs front, capacity utilisation in DRI-IF segment has not yet picked up, resulting in secondary rebar prices rising by almost Rs1,800/te WoW. However, domestic pellet prices continue to hover at Rs8,500/te, despite a slight uptick in global iron ore prices as steel producers in China continue operating at low margins, resulting in a higher preference for low-grade iron ore.

Notably, the regional prices continue to be subdued in the range of $500-550/te. Export prices of Japan / South Korea remain at $500/te – the lowest in the region. China and Russia export prices also declined by $5-8/te WoW. Surprisingly, India HRC export price at $545/te remains the highest in the region.

However, ICICI Securities expect this to trend to lower levels as the competing offers from Russia and Turkey are at even lower prices. Coupled with the year-end stocking looming in Dec’22, the brokerage expects prices to remain weak.

In this scenario, the brokerage's note added, "we see little possibility of exports from India rising, despite roll-back of export duty. In China, despite announced stimulus measures, demand for real estate development is expected to decline by 6-8mnte YoY to 315-317mnte in CY23 according to Mysteel estimates. The total area of newly-launched projects is estimated to shrink by 3% YoY while that of projects under construction may decrease by 4% YoY."

On the outlook ahead, the brokerage stated that weak global demand and prices might defeat the purpose of the export duty roll-back as exports might fail to take off.

Lastly, the brokerage added, "Our channel checks indicate that traders have already booked about 40,000te of imports from Japan for Jan’23 delivery. This might keep prices under pressure. We maintain our cautious view on ferrous with JSPL (TP: Rs605) and Shyam Metalics (TP: Rs425) as our key picks owing to their long-heavy product portfolio. We also like APL Apollo (TP: Rs1225) as it is relatively shielded from adverse price movements."


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You


Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout