Why did the metal index rally 5%

Metals have been in the limelight for some time now. Most of the metal stocks have either doubled or tripled since January 2021 and that has been triggered by strong demand and pricing power for steel companies and aluminium. This offset the spike in input costs that most metal companies faced. On 29 July, there was a sharp rally in metal stocks with the overall NSE metals index rallying 5%.

Data Source: NSE

The table above captures the rally uniformly across metal stocks on 29 July. Clearly, the rally was driven by the Bloomberg news item about China planning export curbs on Steel. 

This means two things. Firstly, China itself would rely more on imports of metals to meet its insatiable appetite for metals. Secondly, less of Chinese steel will be available for exports, so the global steel market opens up for India.

Effective 01 August, China is imposing 10-25% export duties on hot-rolled coils. It wants to reduce carbon emissions from manufacture of steel and that will reduce China’s supply in the world metals market; keeping prices buoyant. 

Domestic tailwinds are also positive. Brokerages are expecting steel companies to report higher EBITDA/tonne in Q1. Tata Steel is expected to post record EBITDA/tonne of Rs.33,000 against Rs.27,775 in Q4. Demand for aluminium, lead and nickel is already robust on EV demand. Hindalco is also expected to post 71% growth in EBITDA/tonne. Overall, it looks like Q1 could be a record-breaking quarter for metals.