The S&P BSE Metal index has underperformed the benchmark Sensex by a wide margin. Since fear of the coronavirus (COVID-19) outbreak gripped the markets, the index has fallen by about 43 per cent compared to 29 per cent in the case of the Sensex.
At the London Metal Exchange (LME), the price of aluminium, copper and zinc have also fallen sharply, ranging between 10 per cent and 25 per cent; steel prices are still holding out, but there are signs of a correction in the weeks ahead.
In the last three months, steel prices increased by 15 per cent; the last round of hike in March (at Rs 500-800), is still holding. However, the market believes that a correction is likely in April.
Analyst reports suggest that margins are likely to contract from the first quarter. What’s more, China has increased export tax rebates. This indicates that it’s keen on pushing exports from the country. The domestic hot rolled coil (HRC), a benchmark for flat steel, is anyway at a two per cent premium to the landed price of imports from South East Asian countries.
Jindal Steel & Power managing director V R Sharma said demand was stable at the moment but sentiment was down as people are scared because of the virus outbreak.
Metal prices likely to remain volatile over coronavirus concerns
Sharma does not expect prices to go up further but is not overtly worried. The next one month, he believes, will be good for exporters. “Lots of enquiries are coming from China,” he said.
On Chinese imports into India in light of the rebates, Sharma said, it was not a threat. They would have to meet BIS standards.
Within the domestic steel industry, secondary players that account for 55 per cent of the production, however, are most vulnerable; they are fragmented and have exposure only to small projects.
Large players, on the other hand, have huge projects and institutional funding. So, a price dip will impact secondary players significantly if the virus outbreak is not contained.
However, there are also concerns on supplies as more and more states announce lockdowns which reflected in steel long April contract on ICEX. It surged Rs 620 on Friday or 2.6 per cent from the previous close to Rs 28,740 a tonne. The contract had, however, closed in February at Rs 31,740 a tonne.
Margin pressure for aluminium to continue
Aluminium, which has anyway been weak, may see further corrections in the short-term. S K Roongta, chairman, Balco, said, the virus outbreak may have an adverse impact on demand in the short-term.
“In the long-term, the infrastructure push will bring back demand.”
The apprehension is that projects may slow down. “The aluminium conductor sector continues to be under pressure of low margins and low volumes due to lack of orders. The wire and cable segment, too, is feeling the heat as new orders have slowed,” said metal industry expert and consultant, Sandeep Daga, director, Regsus Consulting.
An industry official said that, usually, companies and bulk users finalise supply contracts with manufacturing companies at the end of the financial year.
“Negotiations have been going on but because of a sudden fall in metal prices and talk of global recession, most bulk users are not finalising supply contracts. The domestic industry was facing a slowdown for over a year now and already cutting inventories. Things are only worsening,” the industry official said.
Copper plunges as China yet to get back to work
In the last one month, LME copper prices have fallen by about 15 per cent. Hindustan Copper officials said, with virus-hit China slow in return to work, copper demand has taken a plunge. China is the largest user of copper in the world.
“The price of the red metal has fallen drastically on the LME. Consumer spending is showing a contraction as COVID-19 marches across the globe. Additionally, the outbreak has caused supply chain disruption which is sure to have an adverse effect on the copper industry,” they said.
ICRA senior vice-president, Jayanta Roy, said, “Prices have dropped due to concerns on health of the global economy on the back of the virus outbreak, but possibly supply disruptions have not been taken into consideration. The world’s largest copper producer, Codelco, has announced that it will reduce its operations. This is to comply with a state of emergency announced by the government in an attempt to curb spread of the virus. Sooner or later, that will have an impact on supply.”
Dip in iron ore business
A senior official of Essel Mining & Industries, said, “We (the iron ore mining industry) are witnessing a dip in business no doubt, but are hopeful that business conditions will improve over the next three months as China starts reporting fewer new COVID-19 cases.”
As of now, work at mining sites is on as usual and there is no curtailment on mining activity. The Aditya Birla Group company has iron ore mines in Odisha.
Prices have, however, dropped. The widely used 10-30 mm lump prices have fallen Rs 400-500 per tonne since January to Rs 4,500 per tonnes now. This price level is the same as the March 2019 price point. Prices of iron ore fines, on the other hand, have remained unchanged in the Odisha region. The dominant player, NMDC, has lowered prices by Rs 50 a tonne for fines and Rs 60 a tonne for lumps. But on a month-on-month basis, prices have increased by Rs 380 a tonne.
Global zinc stock is at a minimal level but prices have been driven by sentiment.
According to Rahul Sharma, director-India, International Zinc Association, all domestic steel manufacturing units that are major consumers of zinc are based in remote areas, and out of the COVID-19-impacted area or cities.
“As of now, no manufacturing unit has curtailed steel production. So, if the government is able to contain COVID-19, then we will not see any impact on zinc consumption in the country for sure,” Sharma said.
At the London Metal Exchange (LME), the price of aluminium, copper and zinc have also fallen sharply, ranging between 10 per cent and 25 per cent; steel prices are still holding out, but there are signs of a correction in the weeks ahead.
In the last three months, steel prices increased by 15 per cent; the last round of hike in March (at Rs 500-800), is still holding. However, the market believes that a correction is likely in April.
Analyst reports suggest that margins are likely to contract from the first quarter. What’s more, China has increased export tax rebates. This indicates that it’s keen on pushing exports from the country. The domestic hot rolled coil (HRC), a benchmark for flat steel, is anyway at a two per cent premium to the landed price of imports from South East Asian countries.
Jindal Steel & Power managing director V R Sharma said demand was stable at the moment but sentiment was down as people are scared because of the virus outbreak.
Metal prices likely to remain volatile over coronavirus concerns
Sharma does not expect prices to go up further but is not overtly worried. The next one month, he believes, will be good for exporters. “Lots of enquiries are coming from China,” he said.
On Chinese imports into India in light of the rebates, Sharma said, it was not a threat. They would have to meet BIS standards.
Within the domestic steel industry, secondary players that account for 55 per cent of the production, however, are most vulnerable; they are fragmented and have exposure only to small projects.
Large players, on the other hand, have huge projects and institutional funding. So, a price dip will impact secondary players significantly if the virus outbreak is not contained.
However, there are also concerns on supplies as more and more states announce lockdowns which reflected in steel long April contract on ICEX. It surged Rs 620 on Friday or 2.6 per cent from the previous close to Rs 28,740 a tonne. The contract had, however, closed in February at Rs 31,740 a tonne.
Margin pressure for aluminium to continue
Aluminium, which has anyway been weak, may see further corrections in the short-term. S K Roongta, chairman, Balco, said, the virus outbreak may have an adverse impact on demand in the short-term.
“In the long-term, the infrastructure push will bring back demand.”
The apprehension is that projects may slow down. “The aluminium conductor sector continues to be under pressure of low margins and low volumes due to lack of orders. The wire and cable segment, too, is feeling the heat as new orders have slowed,” said metal industry expert and consultant, Sandeep Daga, director, Regsus Consulting.
An industry official said that, usually, companies and bulk users finalise supply contracts with manufacturing companies at the end of the financial year.
“Negotiations have been going on but because of a sudden fall in metal prices and talk of global recession, most bulk users are not finalising supply contracts. The domestic industry was facing a slowdown for over a year now and already cutting inventories. Things are only worsening,” the industry official said.
Copper plunges as China yet to get back to work
In the last one month, LME copper prices have fallen by about 15 per cent. Hindustan Copper officials said, with virus-hit China slow in return to work, copper demand has taken a plunge. China is the largest user of copper in the world.
“The price of the red metal has fallen drastically on the LME. Consumer spending is showing a contraction as COVID-19 marches across the globe. Additionally, the outbreak has caused supply chain disruption which is sure to have an adverse effect on the copper industry,” they said.
ICRA senior vice-president, Jayanta Roy, said, “Prices have dropped due to concerns on health of the global economy on the back of the virus outbreak, but possibly supply disruptions have not been taken into consideration. The world’s largest copper producer, Codelco, has announced that it will reduce its operations. This is to comply with a state of emergency announced by the government in an attempt to curb spread of the virus. Sooner or later, that will have an impact on supply.”
Dip in iron ore business
A senior official of Essel Mining & Industries, said, “We (the iron ore mining industry) are witnessing a dip in business no doubt, but are hopeful that business conditions will improve over the next three months as China starts reporting fewer new COVID-19 cases.”
As of now, work at mining sites is on as usual and there is no curtailment on mining activity. The Aditya Birla Group company has iron ore mines in Odisha.
Prices have, however, dropped. The widely used 10-30 mm lump prices have fallen Rs 400-500 per tonne since January to Rs 4,500 per tonnes now. This price level is the same as the March 2019 price point. Prices of iron ore fines, on the other hand, have remained unchanged in the Odisha region. The dominant player, NMDC, has lowered prices by Rs 50 a tonne for fines and Rs 60 a tonne for lumps. But on a month-on-month basis, prices have increased by Rs 380 a tonne.
Global zinc stock is at a minimal level but prices have been driven by sentiment.
According to Rahul Sharma, director-India, International Zinc Association, all domestic steel manufacturing units that are major consumers of zinc are based in remote areas, and out of the COVID-19-impacted area or cities.
“As of now, no manufacturing unit has curtailed steel production. So, if the government is able to contain COVID-19, then we will not see any impact on zinc consumption in the country for sure,” Sharma said.
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