Steel stocks get $ jitters, dip sharply

Share prices of domestic steel companies are falling swiftly as the strong surge in dollar is taking the sheen out of the base metal prices on the London Metal Exchange (LME). The trailblazer metal stocks — Tata Steel, Sterlite Industries and Hindalco Industries — are trading at their 52-week lows even as the benchmark equity indices, Sensex and Nifty, are trading a good 15 per cent above their 2008 July lows.

The prices of base metals, including copper, zinc, aluminium and lead, have crashed by over 10 per cent on LME since the start of July 2008. The BSE Metal Index is down by 8.76 per cent since July 15. “The current fall in commodity prices are mainly due to the unwinding of positions by hedge funds, who are now taking positions in dollar-denominated assets in search of better returns,” said the chief executive officer of a leading commodity mutual fund.

The dollar surged to a one-year high against a basket of currencies on the revival of the US financial sector. The sector had been buoyant after the US government seized the control of mortgage giants Fannie Mae and Freddie Mac. The US Dollar Index (USDX), which is listed on the ICE Futures Index on the New York Board of Trade, was traded at 79.57, up 12 per cent from its 2008 lows of 71.33.

According to analyst Gopal Agarwal, an important factor to be watched would also be the growth of China. “Commodity prices are falling on anticipation that both India and China, the world’s largest consumers of commodities, are slowing down. However, if China manages a 10 per cent growth then there would be a sharp rise in the commodity prices,” he said.

Meanwhile, stocks fell for a second day on Wednesday, led by metal producers, as a drop in commodity prices heightened concern that global economic growth is slowing. The BSE Sensex fell 238.15 points, or 1.6 per cent, to 14,662.61, adding to yesterday’s 0.3 per cent decline. The S&P CNX Nifty Index on the NSE slid 68.45, or 1.5 per cent, to 4,400.25.