Metal Stocks Outlook: Rally slowing, may come to a halt next week

5 Aug 2022

Next week the market will try to make sense of conflicting news on China’s economy to gauge the absence or revival of the country’s steel requirements. Domestic steel makers stand to improve their sales if there is a revival in China’s realty construction.

While some believe the news of Chinese proposals to revive the realty and infrastructure projects, others are taken over by news reports of property crisis in China worsening.

This week saw the metal stocks rally weaken considerably with the Nifty Metal index rising but only by 2% on the week. The index has risen sharply last week by 7.7%.

Global conditions apart, analysts were upbeat on domestic steel demand given the fall in steel prices since May. “Whatever demand got stuck due to high steel prices prior to May when the exports tax was introduced and prices cooled off thereafter may be released in the current quarter,” said a metal sector analyst with a leading brokerage firm.

However, till such time clear signs of demand recovery is visible the market is likely to stay cautious. The traders will also have an eye out for any signs of recovery in demand for steel from Europe.

There is one thing that all analysts are sure about. The high operating margins of metal companies in the quarters of 2021-22 (Apr-Mar) will not be replicated in the current financial year. “That period is over,” said the metal sector analyst.

These factors will hold metal stocks in check next week which will see one trading holiday on Tuesday.