Metal Stocks Outlook: Global steel oversupply, weak demand to weigh

12 Aug 2022

Base metal stocks may come under pressure next week due to concerns of global oversupply in steel from surge in the metal's exports from China amid weak global demand.

Metal stock investors will also weigh the commentary made by the managements of Hindalco Industries and Steel Authority of India Ltd this week after they declared their results for the June quarter.

Aluminium and copper producer Hindalco said that it the cost of production will rise in the high teens in Jul-Sep due to the flow-through effect of high coal costs in the June quarter. It said that the current Jul-Sep quarter will likely be the company's worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that it had to buy during May-Jun was getting consumed in the current quarter.

On the other hand, steel maker SAIL said that its imported coking coal costs were down in July to 38,000 rupees per tn from 39,500 rupees per tn in Apr-Jun. It expected the cost to come down further by 4,000-5,000 rupees per tn in the current month and further from September onwards.

But SAIL also specified that the high-priced coal inventory at the end of the June quarter is getting consumed in the current quarter and the full benefit of the coal price fall will be realised only in the December quarter.

The Nifty Metal index ended this week 4.6% higher.

Axis Capital said in a report this week that with steel demand currently being weak globally the surge in exports from China had fueled concerns on oversupply. It said hopes of a stimulus-driven demand recovery in China was fading away.