Metal index corrects for 4th day in a row; NMDC, Tata Steel slips up to 8%

The Nifty Metal index, the top loser among sectoral indices, was down 2 per cent, as compared to the 0.35 per cent rise in the Nifty 50, at 9:53 AM.

Shares of metal companies were trading weaker on Tuesday, down by up to 8 per cent on the National Stock Exchange (NSE) in today's intraday trade.

Stocks of companies operating in the sector were under pressure due to profit booking by investors on concerns of disappointing earnings in the September quarter (Q2FY25) due to weak metal prices, apart from the lack of any new fiscal measures aimed at boosting demand and consumption in the Chinese economy, by the National Development and Reform Commission (NDRC), at a press conference today.

In Q2FY25, metal firms may witness sequential margin contraction as analysts model flat sales volumes quarter-on-quarter (QoQ), while metal prices witnessed correction (with average steel HRC down 8 per cent/6 per cent YoY/QoQ and average LME Aluminium declined by 6 per cent QoQ but stood up by 10 per cent YoY in Q2FY25).

On a YoY basis as well, all metal companies, except aluminium names, could report margin contraction.

However, the recent stimulus package announced by China has improved sentiments somewhat, ensuring an uptick in China hot rolled coil (HRC) exports by around $43 per tonne. Further, the possible cut of steel production by China in winter, expiry of Bureau of Indian Standards (BIS) certification for some steel mills exporting to India, and the planned maintenance shutdown by major mills of South Korea, should also support HRC prices in the near term, according to analysts.

NMDC, Tata Steel, National Aluminium, JSW Steel, APL Apollo Tubes, Hindalco Industries and Jindal Stainless are down, between the range of 2 per cent and 8 per cent on the NSE in intra-day trade.

At 09:53 AM, the Nifty Metal index, the top loser among sectoral indices, was down 2 per cent, as compared to the 0.35 per cent rise on the Nifty 50. The metal index dipped 3 per cent intra-day, after falling for the fourth straight day. 

Since October 1, the Nifty Metal index has tanked 6 per cent, as compared to the 2 per cent decline in Nifty 50. Prior to that, during the calendar year 2024, the Metal index had zoomed 28 per cent, as compared to the 19 per cent rise in the benchmark index.

Analysts at Elara Capital expect lower iron ore and coking coal prices to partially offset cost pressure for its coverage steel universe. "However, weak steel prices are likely to be a major challenge. Flat steel prices have shown a downward trend for the third consecutive quarter, falling in the range of 5-6 per cent quarter-on-quarter (Q-o-Q)," the brokerage firm stated.

This was further compounded by a sharp QoQ decline of 9-11 per cent in prices of long and semi-finished products. Thus, the brokerage firm expects blended realisation of steel firms to drop Rs 2,700-3,100 per tonne QoQ in Q2FY25E. Analysts also expect a YoY volume decline of 2-14 per cent, with Tata Steel being the only exception.

After a robust increase in Q1FY25, LME aluminium prices softened in Q2, rising approximately 10 per cent year-on-year (YoY) but declining approximately 6 per cent QoQ.

Analysts at Elara Capital expect Hindalco Industries India operations to offset the negative impact of weak aluminium prices through better volume, hedging strategy, higher premium and improved realisation of downstream products.

Further, Novelis' EBITDA per tonne may decline approximately 4 per cent YoY and approximately 5 per cent QoQ, due to lower volume, weak prices and disruption at its Switzerland plant. Overall, the brokerage firm expects consolidated EBITDA margin to rise around 300bps YoY and around 25bps QoQ.

However, the onset of the busy construction season in the domestic market is set to bolster demand, supporting steel prices. Further, lower coking coal and iron ore prices are likely to ease pressure on profit margins, providing relief for steelmakers, the brokerage firm said in its quarterly preview of the sector.

The increase in Chinese HRC prices has turned the import parity premium of the domestic HRC prices compared to Chinese prices from around 7-8 per cent in September 2024 into an import parity discount of around 3 per cent at present.

"This will essentially support the domestic HRC prices to form a bottom and arrest a further fall in the prices in the near future. While the impact of this Chinese stimulus on steel spreads might be neutral as steel raw material prices have also rallied," said Axis Securities in metals and mining Q2FY25 result preview.