 "Metal stocks crack on commodity slump")
The BSE Metal Index fell nearly four per cent after iron ore, copper and aluminium, among others, saw softening in prices. Vedanta was the worst-performing stock, as it dropped 7.8 per cent, followed by SAIL, which declined 6.1 per cent and Hindalco, which fell 5.1 per cent.
China is the biggest consumer of metals and any slowdown in its economy would have a huge impact on commodity prices. China accounts for nearly 50 per cent of all metal consumption. The Chinese markets have been under pressure for the past few weeks with the Shanghai Composite Index having slipped over 30 per cent in the last one-month period. Investors are concerned that the growth rate in China would continue to slip causing panic-selling in the retail-dominated Chinese markets.
Analysts believe that it is unlikely that the commodity prices would see a sharp up-move in the short-term because of the excessive supply.
“The fall is mainly led by the situation unfolding in Greece and the turmoil in the Chinese markets. Even if the Chinese markets were to recover, it would have very little impact on commodity prices because there is a lot of inventory with Chinese companies,” said Rikesh Parikh, vice-president – equities, Motilal Oswal Securities.
Copper has seen the sharpest fall, with prices down 4.5 per cent to $5,339 per metric tonne on the LME on Wednesday. Zinc fell over four per cent. Tin prices were down three per cent and aluminium was down 1.7 per cent for the day. Some of these metals are trading closer to their production costs. “The commodity cycle is on the weaker side, where the demand is not catching up with the supply. In such a scenario, earnings softness will remain and expectations of recovery in earnings gets prolonged to Q3 and Q4,” said Mayuresh Joshi, vice-president and head of institutional sales, Angel Broking.