Metals companies are feeling the heat as commodity prices continue to fall
Weighed down by a sharp fall in metal prices globally, stocks of commodity-based companies have seen huge price erosion. Shares of metals companies like Hindalco, Vedanta, Tata Steel and JSPL have fallen sharply in recent weeks, falling as much as 50% from their recent highs and analysts expect them to release figures in muted for the first quarter ended in June.
Their woes are unlikely to end any time soon as the Bloomberg Commodity Index has fallen almost 14% in the past three weeks, indicating that weaker achievements are in sight for metals producers.
With growing fears of a recession in the United States, prices for a range of metals – from copper to steel – have fallen as much as 40% from their recent highs.
Additionally, the combined impact of the Covid lockdown in China, which is the top metals producer, and tightening interest rates elsewhere, has clouded the outlook for global metals demand.
The imposition of export duties on steel by the Indian government, to increase domestic availability, has only exacerbated the pain of steel companies.
Global brokerage firm Jefferies recently said the sharp decline in metal prices will likely lead to a sharp contraction in metals company margins in FY22-24.
“Metals stocks have a strong correlation to the consensus earnings path and we believe the earnings cycle is turning to the bottom,” analysts at Jefferies India wrote in a note recently.
Ratings firm Icra expects FY23 operating profits for metal companies to fall 30% as the government raised iron ore duties by up to 50% and some steel middlemen to 15 % on May 21.
Domestic steel prices fell 22% from their peak in May, while hot-rolled steel prices in Asia fell 20% and HRC prices in Northern Europe fell 36% .
As global copper prices fell to their lowest level in nearly 20 months on Wednesday, dropping as much as 4.9% to $7,291.50 a tonne, on the London Metals Exchange, aluminum took a slid 0.5% in official activity to $2,379 a tonne, nickel fell 2% to $22,200 and tin lost 3.9% to $25,000, but zinc was a little firmer at $2,993.