Metal stocks feel LME heat

Stocks of metal producing companies came tumbling down on the bourses on Monday as the London Metal Exchange (LME) opened the week with what is perceived to be heavy profit booking in metal prices.

As prices of base metals such as copper, aluminium and zinc dropped by between 9 per cent and 13 per cent on the London Stock Exchange from their Friday's close, shares of metal-producers such as Sterlite, Hindalco and Tata Steel dropped by 10 to 15 per cent on the bourses on Monday.

"Profits of these companies are highly dependent on prices of market prices of their finished products, which happens to be metals," said Sourav Malhotra, advisor with Angel Broking.

Since the beginning of the year, prices of most stocks have gone up as they kept track of global base-metal prices used in the manufacture of alloys and finished products, which soared on concerns of depleting inventories worldwide.

Copper, for example, has nearly doubled on the LME since the beginning of the year, going from around $4,300 a tonne in early January to $ 8,700 on Friday. However, it abruptly dropped by 9 per cent in morning trade on the LME on Monday, touching $ 7,700.

"It could only have been profit-booking by funds and investors who have been sitting on tremendous gains in the commodities markets for the last few months," said a Mumbai-based broker, "anyway, the prices recovered by noon there."

Prices of other base metals such as zinc, aluminium and nickel have also moved up by around 35 to 50 per cent over the last five months as global manufacturers reported low inventories owing to high demand from countries such as China.

With price-increases promising a huge boost to bottom lines of metal companies, stocks of copper-manufacturer Sterlite Industries have given astronomical returns.

While Sterlite has appreciated by nearly 275 per cent in the last six months, Hindalco, a manufacturer of aluminium, has more than doubled since early November last year. Both dropped by around 14 per cent in Monday's fall.

"The global price fall is more likely to be temporary and the stocks are likely to go back to their levels along with metal prices," Malhotra of Angel Broking added. Prices of base-metals had recovered close to their Friday levels after the stock markets closed on Monday here.