Metals' slide hits markets hard

Leading metal stocks fall on slowing global growth

Metal stocks have come under pressure on concerns that a slowing global growth may reduce demand for industrial metals. At a time when benchmark indices have lost a little less than three per cent this week, metal counters have lost between 8-12 per cent.

Earlier this week, citing weaker exports, China scaled down its gross domestic product (GDP) growth target for 2012 to 7.5 per cent, compared to eight per cent last year, making it the country’s lowest target in six years. While Europe’s GDP declined 0.3 per cent in the last quarter of 2011, economic growth in Australia came in at 0.4 per cent.

Shares of JSW Steel and Hindalco are the worst hit, having lost 11 per cent in the last three trading sessions. Those of SAIL, Hindustan Zinc, Sesa Goa and Tata Steel have taken a hit of 8-11 per cent during the same period. Experts feel the worst is not yet over for metal stocks and see a further downside.

Says Sailav Kaji, director (institutional equities) and chief strategist at Padmakshi Financial Services, “The lower growth forecast for China is the main culprit. If consumption goes down, commodity prices will cool off, impacting metal stocks.” Meanwhile, industrial metal prices have started showing weakness. For instance, on the London Metal Exchange (LME), spot prices of aluminium have already declined 5.34 per cent to $2,173 a tonne on Wednesday, against $2,295 a tonne last week. While prices of tin have declined more than five per cent to $22,450 a tonne, those of zinc, lead, copper and nickel have slipped three-five per cent during this period.

Says Ambareesh Baliga, chief operating officer at Way2Wealth Securities, “There is weakness in global markets and metal prices are trading lower. There is a global growth slowdown which is not supporting metal prices. The sector, I believe, will likely remain subdued for the next three-four months and further corrections cannot be ruled out.”

“There would, at least, be a further correction of five per cent on the metal counters before they bottom out,” adds Kaji. Interestingly, during the latest bull run, metal stocks were among the fast-appreciating counters. Many of them had rallied as high as 40-50 per cent at a time when benchmark indices gained around 17 per cent.