Indian metal stocks have crashed today: What's the reason?
What's the story
Metal stocks have witnessed a major sell-off today, with declines of up to 6.4%. The Nifty Metal index plummeted by over 4% to 10,927. Hindustan Copper was the biggest loser, falling by nearly 6.4%. Other major players like Hindustan Zinc, Vedanta, SAIL, and NMDC also saw their shares fall by over 5%. Steel companies such as Tata Steel and JSW Steel were not spared either, witnessing declines of between 4-5%.
Expert opinions
Religare Broking attributes fall to sectoral rotation
Ajit Mishra of Religare Broking attributed the fall in metal stocks to sectoral rotation after a consistent rise due to rising metal prices. He also noted fears of demand destruction amid recent geopolitical conflicts as another reason for the decline. Nitant Darekar, Research Analyst at Bonanza, echoed this sentiment, calling today's 4% drop in the Nifty Metal index a purely macroeconomic and geopolitical tale.
Market impact
Bonanza calls drop a macroeconomic tale
Darekar highlighted that rising crude oil prices, a stronger dollar, and geopolitical risk aversion have all contributed to a significant drop in sentiment for metals. He said both ferrous and nonferrous names are witnessing widespread selling. Higher energy prices cut into the profit margins of energy-intensive businesses while a stronger currency makes dollar-priced goods less attractive globally.
Demand forecast
ICICI Securities warns of prolonged conflict affecting steel players
Domestic brokerage ICICI Securities has warned of a prolonged conflict for steel players, which could lead to some demand correction. The firm expects a 2-3% fall in crude steel production, assuming a 30-40% cut in gas supplies. However, it also said that a higher global cost curve might allow Indian steel players to raise prices by ₹1,000-1,500/ton.
Price surge
JM Financial says elevated aluminum prices could weigh on demand
For aluminum players, JM Financial has said that higher aluminum prices are supportive of near-term margins. However, persistently elevated costs could weigh on demand. The firm noted that prices have already risen from some $3,065/ton in February to about $3,470/ton now. The main concern is that conflict might affect production and shipping from Gulf countries through the Strait of Hormuz, a key global trade route.