Indian metal firms to gain further as firm prices expected despite dip from record levels

#Hindalco, #Indian Stainless Steel Development Association, #JSW Steel, #metal, #SAIL, #Tata Steel, #Vedanta and Hindustan Zinc

Indian metal producers continue to gain from high metal prices as they remain much higher than a year ago even though they have come down from the record levels they touched recently.

Analysts remain bullish on metals like steel, aluminium, zinc and nickel, which is positive for various Indian manufacturers including Tata Steel, JSW Steel, SAIL, Hindalco, Vedanta and Hindustan Zinc.

In the case of steel, domestic consumption slumped because of the pandemic-induced lockdowns, but Indian companies could cash in on the high global price by increasing its exports.

Aluminium soared to a 13-year high of $3,000 per tonne this month in London Metal Exchange (LME) on supply concerns. The price surge was triggered by the political turmoil in Guinea, a major producer of bauxite that goes into the making of aluminium, and a cut in production by China, the largest aluminium producer, to control carbon emission from mines.

Aluminium prices have been rising since the latter half of 2020 with gradual increase in consumption.

“Demand for metals has increased with stimulus packages in various countries boosting consumption. The supply shortages from China led to an increase in prices. As a result, the profitability of metal manufacturers has improved,” said Harsha Shetty, chief marketing officer of Vedanta Ltd.

Though aluminium prices have fallen to about $2,850 per tonne, they remain over 60 percent higher than a year ago. “The demand for aluminium is increasing globally. Copper has become so expensive that manufacturers, especially of air conditioners, are gradually switching to aluminium as it conducts heat and is light in weight,” said Prathamesh Mallya, AVP research, commodities and currencies, Angel Broking.

The outlook is positive for aluminium producers. “The prices may remain in the range of $2,500-2,600 per tonne for the next few years,” said Shetty. India’s aluminium production dropped marginally to 3.65 million tonnes in FY20. But the exports increased by 25 percent to 1.9 million tonnes in the year. Though final figures are not available for FY21, the production is expected to be 3.5-4 percent lower than previous year.

Revival of construction, automobile and white goods production in China and Western countries increased the price of steel. Other factors like mounting iron ore prices and China’s decision to cut steel production to curb carbon emission, reduce exports to cater to local demand also made steel costly. The country’s decision to encourage import by removing duties benefitted countries like India which relied more on exports after the pandemic.

The global rally impacted India also but prices in the country were about 20 percent lower than the international level as the domestic consumption was weak. Indian steel raised exports to gain from high prices when local demand was low.

According to steel industry sources, exports rose 29 percent in FY21 over the previous year to 10.78 million tonnes while the domestic consumption dropped 6 percent to 94.14 million tonnes.

The robust export trend continues. In April-August 2021, exports rose 13 percent to 6.40 million tonnes compared to the same period in the previous year. Steel consumption for the five -month period increased by 45 percent to 40.84 million tonnes.

In July this year, the benchmark hot rolled coil (HRC) steel prices jumped to about Rs 70,000 per tonne, almost two times the level a year ago, on the back of an increase in iron ore prices. But the prices eased as the state-owned National Mineral Development Corporation (NMDC) cut the iron ore rates.

“Indian prices are Rs 4,000-Rs 5,000 per tonne lower than the international prices. The current average prices are in the range of Rs 62,000-Rs 65,000 per tonne Since the demand is rising the prices may remain at a higher level and may not touch last year’s level,” said Noor Muhammed Noorsha, MD of Kalliyath Steel.

India’s steel demand dropped by 12.6 percent to 89.3 million tonnes in 2020 from a year earlier, while production fell 10.6 percent to 99.6 million tonnes during the year. Indian steel demand is projected to rise to 104.3 million tonnes in 2021, 2 percent above the demand in 2019, and to 111.4 million tonnes in 2022.

This month, nickel prices surged to a seven year-high of $20,500 per tonne in LME as steel demand rose. Besides its use in stainless steel production, nickel is in great demand from electric vehicle manufacturers for making batteries.

Though it has dipped to $19,000 per tonne level, nickel is costlier by 35-40 percent from last year. With the largest supplier Indonesia exploring the possibility of levying export taxes on nickel, prices are expected to remain high Indian stainless-steel production dropped 19 percent to 3.2 million tonnes in 2020. According to the Indian Stainless Steel Development Association it is projected to rise to 3.5 million tonnes in 2021. The association has expressed concern about rising import of stainless-steel products from Indonesia.

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