Metal stocks shine in a weak mkt; Hindustan Copper, Hindalco jump up to 17%

Metal stocks bucked the falling trend on the National Stock Exchange (NSE) on Monday as they jumped up to 17 per cent at the bourses in the intra-day today. At 10:45 am, the Nifty Metal index was ruling 2.5 per cent higher as compared with a 0.5 per cent cut in the benchmark Nifty50 index. The index earlier hit a high of 3,665 levels, up 3 per cent on the NSE.

Among individual stocks, Hindustan Copper hit a fresh 52-week high of Rs 101 apiece, up 17.4 per cent on the NSE, in an otherwose subded market. That apart, Hindalco jumped 5.6 per cent; SAIL (5.2 per cent); and Nalco (3.6 per cent). JSW Steel, Hindustan Zinc, Ratnamani Metals and Tubes, Tata Steel, MOIL, and Jindal Steel were up in the range of 2 per cent and 3 per cent.

Last week, iron ore prices surged to near 10-year highs in the global market as China returned to the global market after the lunar new year. As per media reports, iron ore with 63.5 per cent ferrous content gained nearly seven per cent since the beginning of the year; while the 62 per cent ferrous content ore has increased 5.61 per cent. In India, steel prices increased 55 per cent between June and December last year.

"We expect China to open up on a positive note post-CNY as a major positive. HRC and rebar prices in China surged 6 per cent and 4 per cent, respectively, while Dalian iron ore futures index shot up 6 per cent amid better demand prospects. All in all, we remain positive on the ferrous space," said analysts at Edelweiss Securities. 

The brokerage added: Data points post-CNY—the uptick in bank loans and the sales surge in home appliances are in line with our thesis of accommodative policies and demand growth in China, respectively. We expect higher financing to aid the manufacturing sector. Given not-so-high inventory levels, firm iron ore prices and low profitability levels, we see Chinese steel prices recovering soon from the trough pre-CNY. Besides, lower export rebate (if implemented) is expected to bump up Chinese export price. This would be beneficial for regional prices, which in turn would spill over to domestic prices.

Those at Equirus Securities, meanwhile, forecast a 2 per cent increase in China's steel production in 2021. Assuming similar BOF production as 2019, they estimate incremental BOF production at 72mt for 2021E which would require 115mt of incremental seaborne iron ore. 

"We believe seaborne iron ore market demand is likely to increase by 6-8% in 2021E to 1.6bn tonnes, while incremental supply from top-6 players is around 49mt. This translates into a deficit of 67mt in 2021E; we estimate incremental supply from other players at 40mt in 2021E, which is likely to reduce the deficit gap. However, prices are likely to stay elevated for the next 9-12 months. We estimate 2021E seaborne iron ore deficit at 27mt and raise our iron ore price assumptions to US$ 150/100/t for 2021/2022E," it added.

In Indian context, the brokerage says the global steel prices could be at an inflection point as profitability of global steel players are typically hit due to higher ore prices.

"The strongest driver for Indian steel companies, apart from macro-related factors, is rebound in Chinese steel spreads. While we remain structurally constructive on China’s supply-demand equilibrium, we expect Chinese steel spreads to be at similar levels as in the past 4-5 months, providing tailwinds to integrated steel players," it added.