Chinese heat melts metals shares

Metal stocks were hit hard by worries of slowdown in demand from China after the Chinese central bank increased the lending rates by 27 basis points to 5.58 per cent on Thursday.

The move is viewed as the first step to slow down its heated economy. Analysts are of view that China's decision to slow down its economy may hurt global metals prices, as global commodity prices have been driven mainly by the huge demand from China in the last couple of years.

With China too possibly turning exporter of steel by the end of this year, there are concerns that exports from India will take a hit. The BSE Metals index shed 125.40 points, or 2.52 per cent, to end at 4,853.77 on Friday.

The biggest loser among the metal stocks was Hindalco. The stock was down 3.27 per cent to Rs 1187.10 on aggressive selling pressure. Even a impressive quarterly results failed at arrest the fall in the stock prices.

Hindalco posted a 9.92 per cent rise in net profit to Rs 250.30 crore for the quarter ended 30 September 2004, as against Rs 227.70 crore in the same quarter last year. More than 45,000 Hindalco shares were traded on BSE on Friday.

Tata Steel ended 2.36 per cent lower to Rs 287.65, while Steel Authority of India even after announcing impressive quarterly results was down 1.40 per cent to close at Rs 49.35.

While Tisco posted a 130.61 per cent growth in its net profit at Rs 929.59 crore, Sail reported a three fold jump in its net profit to Rs 1,513.15 crore as against Rs 505.16 crore during the same quarter last year. Sail topped volumes on BSE with over 2.05 crore shares traded on BSE on Friday.

Metal stocks have gained smartly in the last couple of years from high global prices, mainly a result of demand from a booming Chinese economy, on the back of low interest rates.

Tarun Sisodia, director, Aanad Rathi Securities said, " After a long time, china is using the interest rate tool to address the internal economic scenario of very high level of liquidity and second the interest rate. The decision to hike interest rates would ease the country's booming demand for metals such as copper, steel, aluminum and oil. China has been one of the major demand drivers for metals such as copper, steel and aluminum."

Sharad Shukla, head of investment advisory services at IL&FS Investmart said, "The China slowdown will definately have a dampening impact on the metal stocks. But besides the China factor, the performance of metal sector will depend of global consumption of metals. Most global economist have predicted a dip in global metal consumption next year and needs to been seen how much China's consumption go down as they themselves may turn exporter in most commodities soon."

Other metals and metals-related stocks PSL was down 3.85 per cent to Rs 133.50, Sesa Goa was down 2.05 per cent to Rs 761.05, Nalco was down 1.91 per cent to Rs 167.20, Mukand was down 1.56 per cent to Rs 37.75, Jindal Iron and Steel was down 1.81 per cent to Rs 262.90, Jindal Stainless was down 1.63 per cent to Rs 81.50 and Uttam Galva Steel was down 1.81 per cent to Rs 29.90.