Nifty Metal Gains 4% In Five Days Due To Signs Of Price Recovery

Nifty Metal has risen over 4% in the last five days, even as the index had been under pressure since June, due to weak pricing across various metals. The uptick seems to have come from potential signs of price recovery in ferrous and non ferrous metal prices, as well as support from the government.

Here is a look at the factors causing the uptick in the index.

After a stellar uptick in the first quarter of fiscal 2025, prices of base metals like copper, aluminum, and lead started correcting in the second quarter, due to overall weak Chinese demand.

These metals are now seeing signs of price recovery as latest data shows pick-up in demand in China. As per Multi Commodity Exchange data, copper, aluminum and lead prices have risen 1.75%, 2.46%, and 2.21%, respectively, on a week-on-week basis.

This uptick in prices is a positive for companies like Hindustan Copper Ltd., Hindalco Industries Ltd., National Aluminium Co. and Vedanta Ltd.

Furthermore, global iron ore prices seem to have bottomed out at $90 per tonne, according to Nuvama. While iron ore prices have corrected around 31% year-to-date, the prices are expected to move higher, crossing the $100 per tonne level, according to the brokerage, as it expects China's demand to recover, due to the onset of peak autumn season.

Potentially higher prices of iron ore stand to benefit NMDC, which is a major iron ore exploration and production company. Nuvama also expects NMDC to not take price cut in September, which is positive since the company's prices trade at a 21% discount to landed import costs, giving it an upper hand on a global landscape.

The uptick in iron ore prices will also lead to higher steel prices, benefiting companies like Tata Steel Ltd., JSW Steel Ltd., Steel Authority of India Ltd., and Vedanta.

Indian stainless steel pipe players, like Tata Steel, JSW Steel, Welspun Corp., and Ratnamani Metals & Tubes Ltd., have also gotten a boost from government support. On Tuesday, the Ministry of Finance approved the extension of anti-subsidy imports duty on welded stainless steel pipes and tube from China and Vietnam. The extension is for an additional five years, and was done due to the domestic industry claiming that China was selling steel in India at very low rates, which was hurting Indian players.

This is evident from data provided by ICRA Research, which reveals that the landed Chinese steel import costs in August 2024, stood at $32 per million tonne discount, compared to domestic steel prices.

But despite these boosters, headwinds persist.

While base metal prices have seen recovery in the last week, overall prices remain in the negative since the start of July 2024.

Another headwind that is likely to impact Ebitda of metal miners by 2-3% is the retrospective application of mineral taxes. The Supreme Court's ruling in August stated that metal miners are liable to play additional cess to state governments for the metals mined since 2005. This ruling affects companies with mines mainly in Odisha, Jharkhand, Karnataka and Goa.

As per Nuvama and management commentary, Tata Steel, SAIL, JSW Steel and Hindustan Zinc could see a liability of Rs 17,347 crore, Rs 2,980 crore, Rs 4,811 crore, and Rs 1,500 crore, respectively. However, it is key to note that the cash outflow impact will be contained due to the 12-year payment period allowed to the companies.

The least impact would be on Coal India Ltd. and NMDC, who can pass on the past liabilities to their buyers due to passthrough clauses.

The Indian metal sector is currently trading at a premium, as per Motilal Oswal Financial Services Ltd. The price-to-earnings ratio of the index constituents stands higher to the five-year average, according to Bloomberg data.

Industry valuations are unlikely to revisit historical troughs and steel stocks could continue to underperform due to unfavorable valuations, according to Morgan Stanley.

Despite being the worst performer on the Nifty Metal, analysts still maintain a positive outlook on APL Apollo Tubes, with 15 recommending a 'buy' for the stock, according to Bloomberg data.

While, Hindalco Industries Ltd. has 25 and Jindal Steel has 15 analysts maintaining a 'buy'.

Both Tata Steel and JSW Steel have 14 'buy' calls each.

On the downside, companies with the most 'sell' recommendation include SAIL and Hindustan Zinc, with 20 and 10 analysts making the suggestion, respectively.