Metal shares extend gain on demand recovery; Jindal Steel, Tata Steel up 4%

 Shares of metal companies were trading higher at the bourses on Wednesday on expectation of higher demand due to recovery in global economic activity, and China's infrastructure spend. That apart, domestic steel demand improved notably in July-September quarter (Q2FY21) compared to April-June quarter (Q1FY21) with the opening up of the economy. This has aided capacity utilisation of domestic steel players.

Individually, Jindal Steel and Power and Tata Steel were up 4 per cent, while Hindalco, Vedanta, Steel Authority of India (SAIL), NMDC, Coal India and JSW Steel were up in the range of 2 per cent to 3 per cent on the National Stock Exchange (NSE).

At 12:22 pm, Nifty Metal index was up 2.8 per cent, as compared to 0.92 per cent rise in the Nifty50 index. In the past one week, metal index has outpaced the market by surging 8 per cent, as against 0.28 per cent gain in the benchmark index. From March lows, Nifty Metal index has rebound 62 per cent while Nifty50 index has recovered 58 per cent.

The base metal prices on the London Metal Exchange (LME) have sharply rebounded from April lows. Prices of base metals - copper, aluminium, lead, zinc and nickel exceeds prepandemic levels (March 2020) owing to rising demand, particularly from China and weaker US dollar.

The prices have surged in recent months mainly due to a pick-up in Chinese demand even as recovery in the rest of the world remains weak. China, which produces and consumes roughly half of the world's industrial metals, recovered from the pandemic much earlier than other countries.

"After contracting in March 2020 quarter China's economy registered 3.2 per cent growth in the June 2020 quarter from a year-earlier while all other major economies reported contraction. China's industrial output growth accelerated to 5.8 per cent in September 2020 when compared to a year earlier, hinting at strong underlying demand," CARE Ratings said in sector report.

"Over the next 6 months, prices may remain firm at the current levels as demand recovery in China and the rest of the world continues to gather pace. Increase in raw materials prices may push prices upwards. An anticipated infrastructure development-led stimulus package by some of the other large economies like US, UK and India may spur demand for industrial metals and rally in metal prices," the rating agency added.

However, slower than expected recovery in the rest of world, delay in vaccine for Covid-19, health and economic concern, escalation of US-China trade tensions are considerable headwinds for base metals. The resurgence or a second wave of Coronavirus in China could lead to fall in all base metal prices, it said.

Metal shares decline as coronavirus fears intensify; JSW Steel falls 5%

Shares of metal companies were under pressure on Monday with the Nifty Metal index falling more than 2 per cent as investors grew increasingly anxious about the economic impact of China's spreading virus outbreak.

At 09:59 am, Nifty Metal index, the top loser among sectoral indices, was down 2.2 per cent at 2,734 points, as compared to 0.5 per cent decline in the benchmark Nifty 50 index.

Among individual stocks, JSW Steel slipped 5 per cent, and Tata Steel and Jindal Steel and Power (JSPL) dipped more than 3 per cent on the National Stock Exchange (NSE). Vedanta, Hindalco Industries, Steel Authority of India (SAIL), Moil and NMDC were down in the range of 2 per cent to 3 per cent.

The ability of the coronavirus to spread is getting stronger and infections could continue to rise, China’s National Health Commission said on Sunday, with more than 2,700 people globally infected and 80 in China killed by the disease.

China announced it will extend the week-long Lunar New Year holiday by three days to Febaruary 2 and schools will return from their break later than usual. Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei province in the past 14 days. The World Health Organization (WHO), last week, deemed “an emergency in China,” but not, as yet, for the rest of the world.

Meanwhile, JSW Steel slipped 5 per cent to Rs 258 on the NSE after the company posted an 88 per cent decline in its consolidated net profit to Rs 187 crore for the December 2019 quarter (Q3FY20, due to the severe loss in the international subsidiaries. The company had posted a consolidated net profit of Rs 1,603 crore in the year-ago period.

Its consolidated income during the October-December 2019 period was Rs 18,182 crore, registering a fall of 10.6 per cent over the year-ago period, the filing said.

The company's crude steel production during the October-December 2019 period stood at 4.02 million tonne (MT), up five per cent quarter-on-quarter.

"Production in the quarter was lower by five per cent y-o-y due to extended monsoon which impacted operations at both Dolvi and Vijayanagar," the statement said.

On the outlook, the company said the domestic steel sector is expected to grow significantly on the back of various initiatives of the government pertaining to the domestic infrastructure and supportive monetary policies.

"JSW Steel's third-quarter result reflects the challenges faced by the industry, with S/A EBITDA/ton at Rs 5,998 dropping to the lowest level in the past 15 quarters due to a sharp decline in steel prices," Motilal Oswal Securities said in results update.

"We like JSW Steel given its strong pipeline of projects and cost-reduction initiatives. On the domestic front, improving product mix and higher captive iron ore production should put a check on costs/support margins, along with the recently improved steel prices. Besides, the company's ongoing 5mtpa Dolvi expansion provides strong growth visibility. Any turnaround in the loss-making overseas operations could provide further upside", the brokerage firm added.

At 10:04 am, the stock was trading 3.31 per cent lower at Rs 262.90 as compared to 0.3 per cent dip in the Nifty50 index. Around 54.2 lakh shares have changed hands on the NSE and BSE so far.

Nifty Metal index up over 3%; Tata Steel hits over 4-month high

Shares of metal companies, mainly steel, were in focus on Tuesday with Nifty Metal index surging more than 3 per cent intra-day as analysts remain ‘overweight’ on Indian steel industry and see a likely consensus earnings upgrade cycle in sector major.

Among individual stocks, Jindal Steel & Power rallied 8 per cent to Rs 148 on the National Stock Exchange (NSE). Tata Steel hit an over four-year high of Rs 442, soaring 5 per cent today. The stock was trading at its highest level since July 30, 2019. Steel Authority of India (SAIL), JSW Steel, and Jindal Stainless (Hisar) were up in the range of 3 per cent to 4 per cent.

At 01:17 pm, Nifty Metal index, the largest gainer among sectoral indices, was up 3.2 per cent, as compared to 0.74 per cent rise in the Nifty 50 index.

With strong Chinese demand, and production pulling back, analysts at JP Morgan expect regional steel prices to hold up at least for the next three months (while the winter suspension in China is ongoing). Globally, JP Morgan economists expect manufacturing to pick up. Given improving steel prices, and seasonal demand improvement, analysts see potentially the start of consensus earnings upgrades.

“Steel prices have been increased across most markets globally, and in India we have seen two consecutive price hikes, in our view, given the large gap between domestic and imported steel prices (Rs 4000/t). Lastly there is increasing risk of material disruption in iron ore supply next year, given likely issues with Odisha iron ore mine auction,” the brokerage firm said in India steel sector update.

According to analysts at ICICI Securities, given the experience in calendar year 2017 with Odisha, the clarifications on the process exclusion in Environmental Clearance (EC) required may limit the time of disruption. In case there is any (disruption), integrated players like Tata and miners like NMDC will benefit.

All Indian steel companies have been facing a downtrend in profitability since past 5-6 quarters, in-line with a dual effect of falling demand and lower prices. With a price uptick witnessed globally and in India, the same should follow historical course of a cyclical uptick in EBITDA/te in 2020, the brokerage firm said.