Metals Stocks Outlook: May correct next wk on Apr-Jun earnings cues

22 Jul 2022

Shares of metal companies will react next week to forthcoming financial results announcements and the results declared so far in addition to following global cues from China on steel production and price movements.

This week, metal stocks recorded a strong upmove on positive global cues as banks in China were told by the Chinese regulator to extend loans to real estate projects raising hopes of higher demand for base metals. The Nifty Metal index ended the week 5.4% higher.

But with the peak of earnings season setting in with Tata Steel Ltd’s results on Monday the market will be taking cues from the earnings performance of metal companies.

For steel companies the picture appears bleak so far as their Apr-Jun record is concerned. Today, JSW Steel Ltd reported a steep 86% decline in its consolidated net profit in the June quarter due to a surge in operating costs. The fact that the company’s topline rose sharply by 32% on the back of a volume growth did not help.

Apart from earnings metal analysts will be tracking the uncertain scenario on movement of metal prices and the prices of the commodity materials that make up for input costs for metal companies

According to Jatin Damania, vice president-fundamental research at Kotak Securities current flat steel prices are at premium to import parity and there may be further correction in prices following the 20% price decline in the past two months due to weak demand and partially due to the export duty levy by the government on steel and iron ore products.

“On the other hand, costs are also deflating at a swift pace with 40-50% correction in coking coal and domestic iron ore prices in the past two months,” he said. But due to current bleak demand environment the steel price weakness may outpace cost deflation and margins may contract.

Brokerage Motilal Oswal Securities too said in a note that metals showed no signs of an apparent demand recovery. It said that China’s crude steel production fell 3.3% on the year to 90.7 mln tn in June.