Metal Stocks To Heed Fed Commentary Over Rate Cuts, Says Analyst

The commentary during the US Federal Reserve’s Sept. 18 announcement is going to have more impact on the metal sector than an imminent rate cut, Parthiv Jhonsa, lead analyst (metal and mining) at Anand Rathi Institutional Equities, said.

While talking to NDTV Profit on the declining metal prices, Jhonsa said, “If there is a soft-landing commentary from the Fed, that should be very positive. If it’s to control a certain kind of panic, it might turn out to be a mixed reaction, especially for metals.”

The metal sector is going to react positively to any rate cuts of 25 basis points and above, according to the senior analyst. “If there is a 50 bps rate cut, it should play out positively along with the commentary,” he said.

However, ferrous metal prices like that of iron ore are not going to rise if there is no price uptick in China, the analyst noted. 

“The port inventory in China is already about 150 million tonnes, which is at record levels. For the prices to go up, first the inventory level in the Chinese ports has to come down to around 124 million tonnes,” Jhonsa said.

For the non-ferrous sector, even though there has been some inventory liquidation and a gradual demand pickup, the analyst expects the behaviour to be sluggish in the next couple of months.

Prices of metals like steel and iron ore have come down due to the economic slowdown in China, which is one of the largest consumers of global commodities.

Real estate contributes around 30–35% of the total Chinese consumption in the metal space, according to the analyst. 

Jhonsa advised that the best way for investors to play this scenario is to focus on companies that have a good domestic presence, 

“India is one of those few large economies which is actually doing well. We are growing on a year-on-year basis in terms of production and consumption patterns like steel,” he said.

However, Jhonsa noted that international prices are hurting domestic companies in India, which is a net importer of steel.