Metal shares extend gain on demand recovery; Jindal Steel, Tata Steel up 4%

Shares of metal companies were trading higher at the bourses on Wednesday on expectation of higher demand due to recovery in global economic activity, and China's infrastructure spend. That apart, domestic steel demand improved notably in July-September quarter (Q2FY21) compared to April-June quarter (Q1FY21) with the opening up of the economy. This has aided capacity utilisation of domestic steel players.

Individually, Jindal Steel and Power and Tata Steel were up 4 per cent, while Hindalco, Vedanta, Steel Authority of India (SAIL), NMDC, Coal India and JSW Steel were up in the range of 2 per cent to 3 per cent on the National Stock Exchange (NSE).

At 12:22 pm, Nifty Metal index was up 2.8 per cent, as compared to 0.92 per cent rise in the Nifty50 index. In the past one week, metal index has outpaced the market by surging 8 per cent, as against 0.28 per cent gain in the benchmark index. From March lows, Nifty Metal index has rebound 62 per cent while Nifty50 index has recovered 58 per cent.

The base metal prices on the London Metal Exchange (LME) have sharply rebounded from April lows. Prices of base metals - copper, aluminium, lead, zinc and nickel exceeds prepandemic levels (March 2020) owing to rising demand, particularly from China and weaker US dollar.

The prices have surged in recent months mainly due to a pick-up in Chinese demand even as recovery in the rest of the world remains weak. China, which produces and consumes roughly half of the world's industrial metals, recovered from the pandemic much earlier than other countries.

"After contracting in March 2020 quarter China's economy registered 3.2 per cent growth in the June 2020 quarter from a year-earlier while all other major economies reported contraction. China's industrial output growth accelerated to 5.8 per cent in September 2020 when compared to a year earlier, hinting at strong underlying demand," CARE Ratings said in sector report.

"Over the next 6 months, prices may remain firm at the current levels as demand recovery in China and the rest of the world continues to gather pace. Increase in raw materials prices may push prices upwards. An anticipated infrastructure development-led stimulus package by some of the other large economies like US, UK and India may spur demand for industrial metals and rally in metal prices," the rating agency added.

However, slower than expected recovery in the rest of world, delay in vaccine for Covid-19, health and economic concern, escalation of US-China trade tensions are considerable headwinds for base metals. The resurgence or a second wave of Coronavirus in China could lead to fall in all base metal prices, it said.