Metal shares rally; Tata Steel, Hindalco, Vedanta surge up to 10%

At 11:37 am, Nifty Metal and the S&P BSE Metal index were up 4 per cent each, as compared to a 0.50 per cent rise in the benchmark indices Nifty50 and the S&P BSE Sensex

Shares of metal companies were in focus as they rallied by up to 10 per cent on the bourses on expectation of higher demand and amid reports that China may soon impose export duties on steel products.

As per reports, China is considering imposing more export duties, between 10-25 per cent, on steel products including Hot-Rolled Coil from August 1.

"The country is the biggest steel exporter but, now, is curbing carbon emissions by placing production limits on Steel, one of its most polluting industries," reports say. This, analysts say, may help Indian producers by capturing the Steel market share that China is giving up.

On the earnings front, analysts expect domestic steel companies to report a healthy quarter (in terms of EBITDA/tonne), driven by higher steel prices for April-June quarter of the financial year 2021-22 (Q1FY22).

At 11:37 am, Nifty Metal (up 3.8 per cent) and the S&P BSE Metal index (up 4.2) were up 4 per cent each, as compared to a 0.50 per cent rise in the benchmark indices Nifty50 and the S&P BSE Sensex.

Hindalco (up 10 per cent at Rs 456.45) and Tata Steel (up 6 per cent at Rs 1,451.55) have hit their respective record highs on the BSE in the intra-day trade. Vedanta, Steel Authority of India (SAIL), NMDC, Jindal Steel and Power and JSW Steel, meanwhile, were up in the range of 4 per cent to 6 per cent.

The stock of Tata Steel was quoting higher for the sixth straight trading session and has rallied 18 per cent during the period.

"Base metals prices traded firm with most of the metals recovered on higher demand outlook and lower supply concerns. Lead and Nickel prices rose the most on higher demand from electric vehicle (EV) segment. Nickel prices rose to seven year highs with Tesla Inc bet for future orders. Base metals traded higher on lower supply concerns from China floods and quarterly earnings from mining companies," said Tapan Patel- Senior Analyst (Commodities), HDFC securities.

Meanwhile, given the lower base of Q1FY21, on a year-on-year (YoY) basis for Q1FY22E, the earnings growth of metal and mining companies is expected to be significantly higher.

ICICI Securities expects Tata Steel to report a healthy performance in Q1FY22E. "For the quarter, we expect Tata Steel's standalone operations to report an EBITDA/tonne of Rs 33,000/tonne (compared to an EBITDA/tonne of Rs 27,775/tonne in Q4FY21 and Rs 5,920/tonne in Q1FY21). Standalone operations is expected to report steel sales volume of 2.9 million tonne (MT) while European operation steel sales are likely to come in at 2.4 MT," the brokerage firm said in result preview.

It added: For Q1FY22E, we expect Hindalco's domestic operations (standalone operations + Utkal) topline to come in at Rs 12,752 crore (up 71 per cent YoY but down 12 per cent QoQ). EBITDA margin is likely to come it at 15.1 per cent (13.0 per cent in Q4FY21, 12.0 per cent in Q4FY21). Subsequent EBITDA of domestic operations (standalone operations + Utkal) is likely to come in at Rs 1,930 crore, up 116 per cent YoY, 2 per cent QoQ. Novelis is likely to report sales volume of 950 KT and EBITDA/tonne of US$510/tonne.