Metal shares in demand

Shares of 11 metal and mining companies rose by 0.47% to 5.44% at 13:09 IST on BSE as commodities prices in the global market extended their recovery.

Vedanta (up 5.44%), NMDC (up 2.27%), Hindustan Zinc (up 1.94%), Steel Authority of India (up 1.77%), JSW Steel (up 1.71%), National Aluminium Company (up 1.64%), Hindustan Copper (up 1.55%), Hindalco Industries (up 1.13%), Bhushan Steel (up 1.12%), Tata Steel (up 0.70%) and Jindal Steel & Power (up 0.47%), edged higher.

The S&P BSE Sensex was up 17.75 points, or 0.07% at 24,624.74.

Iron ore scaled fresh four-month highs and is on course for its third consecutive weekly gain, boosted by firmer steel prices in China and expectations that the government may launch more measures to stimulate the economy.

Meanwhile, the High Grade Copper for May 2016 delivery was currently up 1.15% at $2.234 per pound on the COMEX.

Favourable announcements in the Union Budget 2016-17 announced early this week also boosted metal stocks. In Union Budget 2016-17, Finance minister Arun Jaitley withdrew export duty on iron ore fines and iron ore lumps with iron content below 58%, which were previously charged export duty of 10% and 30%, respectively. The low grade iron ore, exported by Vedanta from Goa, has few takers in the country, which still relies of high quality iron ore to produce steel. Hence, cut in export duty on low grade iron ore augurs well for the company. The finance minister also hiked import duty on aluminium to 7.5% from 5% in a bid to save the industry from cheap imports, which is also a positive development for Vedanta.

The doubling of clean energy cess on coal from Rs 200 to 400 per tonne in Union Budget 2016-17 would further increase the input cost for domestic steel makers and hurt margins. On the flip side, the thrust on infrastructure sector in the Budget will help generate much needed demand for steel industry which is reeling under competition from imports and poor domestic demand.

Union Budget 2016-17 addressed rising import issue of the aluminium sector by increasing the custom duty on primary aluminium to 7.5% from 5% and increasing the Basic Customs Duty on other aluminium products to 10% from 7.5%. The increase in custom duty will help to check imports of aluminium. On the flip side, the reduction in export duty on bauxite to 15% from 20% would decrease domestic ore availability.

The government raised the Basic Customs Duty on zinc alloys to 7.5% from 5% in the Union Budget 2016-17.

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