US-China trade war, fragile prices hurt metal sector performance

Metal sector growth in the country slowed drastically in Q4FY19, with net sales growing at only 0.9 per cent compared to a 9.5 per cent rise recorded in the corresponding quarter of FY18.

Net profit for the sector plummeted to 17.8 per cent in Q4FY18. In the corresponding period of FY18, net profit had moved up by 3.9 per cent. The US-China trade conflict is to be blamed for the fall in prices of metals along with dragged sales and net profits of players in the sector, according to CARE Ratings.

“The escalating trade war between China and the US has resulted in the fall of base metal prices, thus leading to a fall in realisations. Copper prices fell by 10.6 per cent, whereas aluminium prices fell by 13.9 per cent during the quarter. This  is  in  line  with  the  subdued  growth  in  industrial  output  of metals at 0.3 per cent  for the quarter, which is much lower than the 8.4 per cent growth recorded in the industry in Q4FY18,” showed a review of corporate performance by CARE Ratings.

The only positive for the sector was an improved performance by the steel industry, which registered 7.9 per cent sales growth during Q4FY18, largely backed by higher volumes as prices saw some moderation during the March 2019 quarter on a year-on-year (YoY) basis. Domestic steel consumption in the period was firm, growing 8.8 per cent in Q4 YoY.

For aluminium and aluminium products, net sales during the quarter dipped 5.7 per cent to Rs 3,157 crore. The non-ferrous metals sector witnessed a steeper decline in sales by 14.7 per cent. Steel and iron products proved to be the outlier, where sales rose 7.9 per cent to Rs 86,210 crore in the quarter.

The metals sector’s depressing performance was emblematic of the country's GDP growth during the quarter. Data released by the Central Statistical Office (CSO) showed that GDP growth dived to a five-year low of 5.8 per cent, down from 7.7 per cent in the same quarter of FY18.

In FY19, GDP growth at 6.8 per cent was also the slowest in five years. The CSO data illustrated that lacklustre performance — primarily in agriculture and mining sectors — crimped overall growth. As against a growth rate of 5 per cent in FY18, the agriculture, forestry and fishing sectors ticked a modest growth of 2.9 per cent in FY19. Mining and quarrying grew a measly 1.3 per cent in the last fiscal year, barely a fourth of the 5.1 per cent growth rate logged in FY18.