Why metal stocks are falling despite broader market rally
What's the story
Metal stocks continued their downward trend for the third consecutive session, with a nearly 5% decline overall today. The slump was led by National Aluminium Company (NALCO), Hindustan Zinc, and Vedanta. The fall is attributed to a sharp drop in base metal prices on the London Metal Exchange (LME), driven by easing supply concerns and a stronger US dollar.
Market dynamics
A stronger dollar and potential US interest rate hike
The potential rise in US interest rates has strengthened the dollar and increased borrowing costs. This could reduce demand for commodities. Since metals are mainly priced in dollars, a stronger US currency could make them more expensive for buyers using other currencies, putting pressure on prices and affecting metal producers.
Price drop
Performance of metal stocks and prices on LME
On Wednesday, silver settled 2% lower at $3,421.50 per ton while aluminium closed over 3% lower at $3,122.5 per ton on LME. Zinc and copper also ended about 2% lower at $3,421.5 per ton and $13,086.5 per ton, respectively. NALCO was the biggest loser with a fall of 4.38%, followed by Hindustan Zinc which declined by 4%.
Expert opinions
'Metal stocks are underperforming rather than crashing'
Nitant Darekar, Research Analyst at Bonanza, said "Metal stocks are underperforming rather than crashing today." He attributed the sell-off to a stronger US dollar and a hawkish Fed stance. However, he considers this as healthy consolidation in an intact uptrend rather than a structural breakdown. "Commodity-price direction remains the key swing factor," he added.