Nifty Metal drops more than 4% as Tata Steel, Jindal Steel, Hindalco and more fall
Metals stocks posted strong profit taking and were the biggest losers on Monday. The Nifty Metal Index, an indicator of major metals stocks, fell more than 4% during the day.
The index has risen more than 130 percent in the past year and is up about 70 percent since the start of the year.
Inventories of metals such as Tata Steel, Jindal Steel & Power, Hindalco Industries, NMDC, SAIL, among others, plunged more than 3-6%.
Steel inventories were under pressure amid concerns over weak near-term demand from China. Weak real estate data, along with contagion fears over defaults in the high-yield developer market, have set a context for the current cuts in steel production.
“The risk-return of steel stocks is further compounded by the steep fall in iron ore prices. The latest support for steel costs is high coking coal prices and it seems only a matter of time, given the current rate of decline in steel production in China, that coking coal is starting to correct itself, ”ICICI Securities said in a note.
Rising coking coal prices are currently squeezing Chinese steel margins and supporting steel prices. Global steel stocks continue to depreciate in anticipation of lower prices.
Meanwhile, low iron ore prices are expected to lead to lower scrap and eventually lower prices for long products, the brokerage believes. Thus, he noted a sharp drop in MTM profits for SAIL and Jindal Steel & Power.
He is more constructive on aluminum and maintains a call for purchase on Hindalco Industries. Jindal Steel & Power, given its potential to be debt-free by the end of fiscal 23R after the divestment of Jindal Power, is ICICI Securities’ first choice in the ferrous space.
Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, believes the sale of metals stocks should be seen as a temporary hang-up in the near term, while the long-term outlook remains bullish.
“I remain extremely agile in the metallurgical sector. Short term volatility will prevail in metals stocks as global markets are down by risk aversion. There are concerns related to China, but we are bullish on long-term metal stocks, ”Bandyopadhyay said.
He is bullish on steel and aluminum stocks such as Tata Steel, Hindalco Industries and NALCO.
“In the post-pandemic era, metals stocks will continue to recover. There are shortages and the demand for steel and aluminum is expected to increase in the future, ”he added.