The S&P BSE Metal index has risen by as much as 22.4 per cent during the past three months, signalling a potential recovery is in the country’s metals sector. In fact, companies comprising the index added 11 per cent in just the past one month.
Stock markets generally get a whiff of industrial developments in advance, and in any case steel companies have been raising prices for three months on the trot after bottoming out.
Base metal companies are also hoping for a revival in demand and an improvement in their order books. During the past month, the LME metal index added 4.8 per cent while prices of metals like steel and iron ore were up 3.5 to 5.8 per cent.
Zinc heading for supply shortfall
Major economies such as the US and China have shown a growth in zinc demand in 2019. In the first 10 months, refined zinc usage has moved up slightly, rising 0.3 per cent to 11.33 million tonnes.
“The market is heading towards a supply shortfall in a scenario of surging demand. With current (global) zinc metal inventories at very critical levels, it’s a situation that is unsustainable,” said Sunil Duggal, CEO, Hindustan Zinc Ltd (HZL).
“The price levels were historically high at around $3,000 a tonne at current stock levels. The current price (around $2,300/tonne), if it prolongs, will trigger mine closures as anything near $2,000 is a distress situation for marginal miners, and will hit supplies and exacerbate the deficit,” he added.
Zinc is currently trading at $2,300 a tonne on the LME. In India, as the use of galvanized products increases with the expected infrastructure push, zinc demand will rise.
Around 50 per cent of zinc is for galvanisation, which is used to tackle rust and corrosion in steel.
With a slightly positive outlook in construction, zinc demand, whose growth declined in FY2019 and H1FY2020, is expected to end FY2021 on a positive note, said Icra senior vice president, Jayanta Roy.
Aluminium to bottom out
Apparent aluminium demand growth in India moderated to around 2.5 per cent in H1FY2020, largely as a result of a slowdown in automobile sales and production in the country, according to Icra. The growth in FY19 was six per cent.
Around 30-40 per cent of aluminium demand comes from transmission and distribution lines while the rest is driven by packaging, construction and automobiles.
Balco chairman, S K Roongta said, prices in November-December were at $1,700-a-tonne levels. “It can’t go below that,” he said.
At these levels, some smelters will shut down and overall there will be balancing of demand-supply, he explained. That could increase prices but a major surge is not expected, however, he said.
Copper, Lead waiting for orders revival
LME copper prices have fallen sharply after April 2019 and the metal remained under pressure till November 2019-end. It has however moved up since those levels to $6,153 a tonne.
According to Hindustan Copper officials, the upside trend of copper LME prices will continue. There are several factors that can be attributed to it.
“The effect of a partial trade resolution between the US and China may have helped LME copper rise. In case of a full resolution, a substantial upside is expected,” the officials said.
They also added that a decline in warehouse stock of copper and projected deficit in 2020, clubbed with an increased infrastructure spending in China and India, would expectedly keep the copper price on the higher side.
Sandeep Daga, Director, Regsus Consulting, a Mumbai-based firm that also does surveys of base metal producers and leading consumers in India said, “Macro-economic data are stabilising globally. This comes after several quarters of a steep industrial slowdown. While the sentiment could be lifting up, the order book has not shown material change so far.”
Monthly survey for the lead business in India, conducted by his Metal Survey, suggests that the demand from the battery sector remains in the low gear. However, lead producers benefitted with an improved order-book in recent months, though the momentum may not sustain.
Steel shines on pick-up in infrastructure
The recovery in zinc is driven by the same factors as steel. A demand pick-up on the retail side and government projects are the main reasons driving prices.
Companies have been increasing prices since November after having hit the bottom in September.
“After international prices started moving up, buying started immediately. That is how the increase in prices got absorbed,” said JSW Steel joint managing director and group chief financial officer, Seshagiri Rao, said. He added that there was positive momentum for the next quarter.
Infrastructure, construction and real estate account for 55-60 per cent of steel demand, which is seeing a revival. The balance 40 per cent is accounted for by automobile, machinery and capital goods, which is however expected to take a longer time to recover.
In the last two weeks, prices of long steel products (ex-Ghaziabad) quoted on the ICEX commodity exchange went up nine per cent to trade at Rs 32,000 a tonne. The price is of Gobindgarh mandi, the largest secondary market for steel products, and indicates that secondary players see prices firming up.
According to Icra’s Roy, the demand growth in steel for FY2021 is likely to be 5-6 per cent, which in the first eight months of the current fiscal has been 3.65 per cent.
Iron ore gets pricing power
Iron ore major NMDC has revised the iron ore prices by about Rs 200 per tonne, its first increase after seven months. Lump ore prices are at Rs 2,800 per tonne now, while the fines prices have increased to Rs 2,560 per tonne. The last upward price revision was in May 2019 after which, it had to cut prices. Now the price is at last May’s level again.
Large steel companies have started stocking iron ore while small steel manufacturers have started panic-buying anticipating a shortage of iron ore in the market. NMDC has seen its sales grow seven per cent to 3.04 MT in December 2019.
Industry representatives expect prices to increase by as much as 10-15 per cent over the next three months as the difference between domestic and imported iron ore is still high.
Source: Business Standard
