Metal stocks likely to stay weak

Prices of metal stocks such as Hindustan Zinc, Sterlite Industries and Hindustan Copper, which fell yesterday as copper and zinc prices eased, continued to remain weak though metal prices steadied in the international markets on Friday. Analysts expect the stocks to be subdued in the near term as excess supplies of base metals are expected to keep prices low.

On Friday, Hindustan Zinc was down 0.07 per cent to Rs 784.85, while Hindalco slipped 2.17 per cent to Rs.171.10 on the Bombay Stock Exchange. Hindustan Copper too shed 2.71 per cent to Rs 88.10. Sterlite Industries bucked the trend, rising 0.99 per cent to Rs 543.30.

Hitesh Agrawal, senior research analyst, Angel Broking, said, "We believe that on a longer-term horizon "� over 12-18 months, increasing supplies of base metals will continue to put pressure on prices. We expect copper, zinc and aluminium prices to trade further lower in this period."

Global metal prices "� particularly copper and zinc "� have witnessed significant weakness over the past one month. Since early December 2006, while copper has corrected by almost 20 per cent, Zinc has lost over 10 per cent on the London Metal Exchange (LME).

The key reason for the sharp correction in copper prices has been linked to the build-up of copper inventory on the LME.

While zinc inventories have remained more or less stable in this period, the negative sentiment towards copper have taken its toll on other metals as well.

And this has led to an adverse impact on domestic listed companies such as Hindalco, Nalco, Hindustan Zinc and Hindustan Copper. Analysts said earnings of these companies would get affected by falling metals' prices.

They also said concerns over an economic slowdown this year in the US, which is one of the major consumers of base metals, and lower imports of metals by China next year are the other factors that have further dampened the outlook on base metals for 2007.