Metal index extends gain, up 6% in 1 week on hopes of earnings improvement

National Aluminium Company, Steel Authority of India, Hindalco, Jindal Stainless and Tata Steel from the BSE Metal index were up in the range of 2 per cent to 4 per cent in intra-day trade on Friday.

Shares of metal companies were in focus on Friday, with the BSE Metal index advancing nearly 2 per cent in intraday trades and extending the rally in an otherwise weak market on expectations of earnings improvement. In the past week, the BSE Metal index outperformed the market by surging 6 per cent as compared with a nearly 1 per cent decline in the BSE Sensex.

 

National Aluminium Company, Steel Authority of India (SAIL), Hindalco Industries, Jindal Stainless and Tata Steel from the index were up in the range of 2 per cent to 5 per cent in intraday trade. Finally, they ended higher between 1 per cent and 4 per cent. In the past week, these stocks have rallied between 5 per cent and 11 per cent. On Friday, the BSE Metal index was the top gainer among sectoral indices, up 1.2 per cent against a 0.56 per cent decline in the benchmark index.

 

For the October-December quarter (Q3FY25), metal sector’s profit after tax was down double digit on year-on-year (Y-o-Y) basis, amid pressure on profitability at the ferrous players driven by muted steel realisations.

 

However, earnings before interest, taxes, depreciation and amortisation (Ebitda)/tonne is expected to bottom out from Q4FY25 onwards, driven by gradual recovery in steel prices, along with an anticipated decline in iron ore and coking coal costs by ₹350/tonne and $10/tonne. Moreover, the likely imposition of higher import duties/tariffs would benefit domestic steel players, according to ICICI Securities.

 

Indian steel market witnessed a soft quarter with blended realisation for Indian steel players going down sequentially in Q3, given price cuts by the companies - higher price cuts for flat producers vis-a-vis longs price increase. Steel companies guided for a $10-15/tonne decline in coking coal consumption cost for Q4FY25, said analysts at JM Financial Institutional Securities.

 

The brokerage firm believes spreads are likely to benefit from a decline in coking coal in Q4, amid a marginal increase in metal prices, aided further by higher volumes seasonally.

 

Media reports suggest the Indian government could impose a temporary tax of 15-25 per cent on steel from China in 6 months because of the challenges faced by domestic producers from increasing cheap imports. The incremental import duty, if implemented, could be a significant positive for the industry, aiding steel prices which in turn will increase margins, according to analysts.

 

The US’ 25 per cent tariff on steel imports could also lead countries like South Korea and Japan to divert their exports to India, further strengthening the case for an import duty. However, the US steel tariff is unlikely to impact industry prices/demand in a meaningful way as the US is a relatively small market, the brokerage firm said.

 

Meanwhile, Hindalco Industries expects a recovery in Novelis’ performance in Q4FY25, led by higher volume, better product mix, and the benefit of new contract pricing. For India operations, healthy demand, gradual completion of ongoing growth projects and cost-saving initiatives will be key catalysts. In the medium term, analysts at Elara Capital expect aluminium to outperform ferrous because of a better demand-supply scenario which should benefit Hindalco.