Metal Stocks Decline Amid Profit Booking
Shares of metal companies fell on Tuesday, down by up to 8 percent on the National Stock Exchange (NSE). This decline followed profit booking by investors concerned about disappointing earnings in the September quarter (Q2FY25) due to weak metal prices. The National Development and Reform Commission (NDRC) did not announce new measures to boost demand in the Chinese economy.
Earnings Outlook
In Q2FY25, metal firms may face margin contraction as analysts expect flat sales volumes. Metal prices have also declined, with average steel HRC down 8 percent year-on-year and 6 percent quarter-on-quarter. Meanwhile, LME Aluminum prices fell 6 percent QoQ but increased 10 percent YoY.
All metal companies, except those dealing in aluminum, may report margin contractions year-on-year.
Stimulus Package Impact
The recent stimulus package from China has improved market sentiment slightly. Exports of hot-rolled coil (HRC) from China increased by around $43 per tonne. Analysts note that potential cuts to steel production in winter and planned maintenance shutdowns in South Korea could support HRC prices in the near term.
Market Performance
Companies like NMDC, Tata Steel, National Aluminium, JSW Steel, APL Apollo Tubes, Hindalco Industries, and Jindal Stainless saw declines of 2 to 8 percent on the NSE.
At 09:53 AM, the Nifty Metal index was down 2 percent, making it the top loser among sectoral indices. The metal index has fallen 6 percent since October 1, compared to a 2 percent drop in Nifty 50.
Future Challenges and Opportunities
Analysts at Elara Capital expect lower iron ore and coking coal prices to ease some cost pressures. However, weak steel prices remain a significant challenge. Flat steel prices have fallen for the third consecutive quarter, declining 5-6 percent QoQ.
LME aluminum prices softened in Q2, rising 10 percent YoY but declining 6 percent QoQ. Analysts believe Hindalco Industries may offset weak aluminum prices with better volume and improved pricing strategies.
Demand Boost from Construction Season
The busy construction season in the domestic market is expected to bolster demand and support steel prices. Lower coking coal and iron ore prices may ease pressure on profit margins for steelmakers.
The increase in Chinese HRC prices has shifted the domestic HRC pricing from an import parity premium to a discount. This change is likely to stabilize domestic prices and prevent further declines in the near future.