Metal shares in the last few sessions seem to be melting in the furnace with a good metal index down about 33 percent to 4,540.9 (on June 20) from the highest 52 weeks at 6,825.65. Nifty Metal is now approaching the lowest level since April 2021. The BSE Metals index has been repaired sharply by 20 percent so far in CY22. BSE Metals Index lost 4.46 percent in today’s trading closed at 15,217.88.

The Russian-Ukraine war caused a strong rally in metal prices until early April. Since then, however, prices have been under pressure due to locks related to Covid and slowdown in China. The central bank raises interest rates to reduce inflationary pressure and economic slowdown which is also expected to be the main reason for the decline.

Cooling in a metal index is caused by aggressive inflation which targets the comments and actions of policy levels by federal banks in India and other large economies,” said Divam Sharma, founder, green portfolio.

This destruction is very clear on iron metals such as steel which has seen significant corrections, especially after India is subject to export duties on steel exports from India.

The government surprised the industry with the imposition of export duties that were valid from May 22. The task is 50 percent at all levels of iron ore, 45 percent on pellets and 15 percent in non-blending steel except part of semi-finished steel.

“The government applies export duties on steel to drop domestic steel prices. The desired impact is seen within a week because the price of steel is improved in all classes, “said Sneha Poddar, AVP, Research, Intermediaries and Distribution, Motilal Oswal Financial Services.

Data shows that the export task has curbed the price of domestic steel with prices for a blend in the trader market that falls for the 10th week last week.

Apart from the accumulation of inventory and decline in retail sales, so far there has been no cutting in export tasks. However, domestic steel producers have partial assistance in the form of a decrease in the price of coal and iron ore, producing higher spreads. The local price of iron ore has fallen because export duties also climb raw materials.

Domestic steel prices continue to softe

According to reports from Edelweiss Research, the price of the Domestic Hot Coil (HRC) in the trader market further down the 1,500a Ton RS (Sunday to Sunday) at RS 61,400 per ton.

“Check our channel shows that retail buyers are still reluctant to buy, expect further price cuts behind the reduction in coal prices,” said Edelweiss report. Because of the imposition of export duties, the price of domestic HRC has dropped 14 percent or the amount of RS 9,350 per ton in the merchant market.

Secondary rebubers, however, are stable in Rs 52,700 per ton because there are new signs from the demand pick-up on the rural side. However, in the last three weeks, the spot spread of raw materials, has increased 22 percent to RS 26,125 per ton as coal coal and the price of domestic iron ore has cooled 25 percent and 30-35 percent respectively.

The price of iron ore in the spiral downward

The price of iron ore in the domestic market has been improved after export duties in iron ore and concentrates are raised by 30 percent to 50 percent. “The task is now subject to iron ore of all values ​​compared to the 30 percent task which is only imposed on the Fe (ferrous) content of 58 percent and above the value before the announcement, which results in a decrease , Head of Investment, Axis Securities.

New locking in China and zero tolerance policy have thwarted further expectations of every sharp rebound in economic activities. The rainy season in many parts of China which usually interferes with construction activities and restrictions caused to contain the outbreak of Covid-19 has reached demand for the world’s top steel producers, squeezing margin Mills.

Chinese export prices witnessed a decline a week for a week. According to Mining.com, ore which is bigger than the sixth session on Friday, marks the most steep weekly decline in six months, because the Chinese steel factory chose to reduce output in the midst of weak profits and worsen the prospect of demand.

The most traded iron ore contract, for September delivery, at the China Dalian Commodity Exchange ended the daytime trading 5.9 percent lower at 821.50 yuan ($ 122.64) per ton, after previously falling to 815.50 yuan, lowest Since May 26, a report from mining. said com.

Reversal cycle

The world has witnessed an increase in commodity prices that have never occurred before such as aluminum and steel due to increased demand, shocks of supply and higher inflation. “Increasing the price of raw materials increases the income of metal companies that cause higher metal industrial stock prices,” said Ravi Singh, Vice President and Head of Research, Sharendia.

However, higher prices affect demand in the medium to long term. “Second, to limit volatility in steel and iron ore, and to calm prices, China introduces several rules for controlling trade such as rising trade costs, margin requirements and limits that results in significant cooling in metal prices,” added Singh from Sharenindia.

The impact of interest rate increases

Experts are worried about the two -edged sword faced by the global economy in the form of increased inflation and interest rate increases throughout the economy.

“The new level is the increase by large central banks can trigger a slowdown in the global economy and impact demand,” said Abhijeet Bora, an analyst at Sharekhan by BNP Paribas. He believes that global inflation headwind can affect the overall environmental demand and income for metal space.

The US federal reserve has raised interest rates together with central banks in Europe and India, which will put further pressure on steel prices.

Demand for softening prospects throughout geography when an increase in the rate of handling inflationary pressure, places focus on the demand for the dynamics of requests,” said Kulkarni from Axis Securities.

The hope of further interest rate increases by the central bank globally is also negative for commodity prices and demand.

Metal stock

Experts do not emit a lot of trust in the overall metal sector, given the number of challenges faced.

The capex plan for steel companies will be under the scanner because lower margins can cause pressure on future cash flows and remember the monsoon is seasonally weak for steel companies.

Aluminum output in China rose to 3.42 million tons (MT) in May 2022, up 3.1 percent of years according to the National Statistics Bureau, and up from 3.36 MT in April. The locking led by Covid has not affected the fusion while the downstream demand has been affected. The price of aluminum has been improved and traded in the range of $ 2,500 per ton. The price of raw materials and energy is expected to remain high in the short to medium term, thus affecting aluminum producer margin.

The decline in aluminum prices has put pressure on stocks such as Hindalco and Nalco.

The market takes into account the slowdown in the US and European markets and, as a result, expects loss of demand for aluminum products,” said Kulkarni, who remains in the steel and aluminum sector in the current macroeconomic economic scenario and prefers downstream metal stocks downstream of Hilin Hilir In Hilsstream Stocks Hilsstream Stocks Hilsstream such as APL Apollo tubes above metal and upstream steel companies.

Metal companies will not see the super normal benefits they enjoy in FY22,” Sharma added from a green portfolio, because the price will be under pressure, while the price of input (including energy costs) will continue to remain high. “We are currently lacking weight in this sector,” he said.

Poddar from Motilal Oswal agrees and advises investors to get out of metal shares and enter later when there are signs of the revival of demand.

On the other hand, Ravi Singhal, Deputy Chairperson, GCL Securities, argues that, “As long as the housing loan rate remains lower than the average over the past 10 years, housing demand will remain high and the government’s focus on infrastructure also helps demand to remain stable. So buying at DIPS is a good strategy. “