Metal firms cheer rebound in prices
Commodity prices have seen a trend reversal, especially industrial ones that were not doing well in recent years after China’s economy started cooling and several metal producers started cutting production on the closing of mines.
Now, however, the demand-supply balance improving in favour of prices and it appears China might have a better time after the depreciation of its currency, at a six-year low. Indian metals companies see their margins improving. Steel companies are currently enjoying protection from import but rising prices of iron ore and coal are taking away the benefits from the other side.
In the past three weeks, base metals saw a sharp initial rally and most industrial raw materials have risen 10-25 per cent. “all base metals are in an uptrend and the most important driver is obviously China’s economy, looking far more stable. Also, investors are coming back to commodities,” said Andrew Cole, principal analyst at Metal Bulletin Research.
And, rising metal prices have brought a smile back to their Indian manufacturers. Says an official from Hindustan Copper, “Higher copper prices means better realisations. Demand for copper continues to be strong and enquiries are flowing in, despite the price rise. We see this trend continuing. Demand is more from the white goods and electrification segments, two major ones for copper consumption. Even if prices have moved up, the market is comfortable with the hike.”
While most metals bottomed since the beginning of this financial year, zinc has seen a V-shaped rally. Sunil Duggal, chief executive at Hindustan Zinc, the world leading and India’s only zinc-lead-silver producer, said: “Zinc prices have recovered sharply and that has certainly helped our bottom line. Any rise in price in commodities does impact the user industry. Zinc is an essential metal, being used in various forms, and the rise in prices have been taken in the right stride by the user industry.”
Steel companies received various protections to face cheaper imports, such minimum import prices, anti dumping duties and so on. However, coking coal prices have more than doubled in the past three months. The average coking coal price for November is $260/tonne, from $115 only three months before. Iron ore is $74 a tonne, a 25 per cent rise in three weeks. All this has taken away a large part of the protection benefits.
Internationally, though, steel prices have gone up. Ashish Jain, equity analyst, Morgan Stanley Research, said: “We believe the industry will be able to raise product prices”, as local prices are still 14 per cent lower than the import price and international prices are rising. Companies dependent on outside ore supply might not do as well as those with captive supply.
Sanjeev Ranjan, managing director at the International Copper Association, is, however, worried for the short term, especially due to demonetisation. 'There might be some disruption in demand for a short period. We will have to wait and watch how the consumption pattern pans out, as liquidity will be affected due to demonetisation,” he said.