Infra push, China’s export taxes boost metal stocks

MUMBAI: Expectations of aggressive spending by India on infrastructure alongside a Chinese move to hike export tariffs and remove export tax rebates for steel products from next month have given metals the record rally seen this week —the first in years, analysts said.

China’s move, analysts believe, will favour Indian steelmakers, helping them gain in terms of market share as well as profit. Buoyed by global cues the BSE Metal Index this week gained 8.40% and the Nifty Metal Index gained 7.78%.

The BSE Metal Index gained 81.14% and the Nifty Metal Index 77.30% year to date. On a monthly basis the BSE Metal Index gained 12.57% and the Nifty Metal Index 10.63%.

“The big outperformer during the week was the metals sector, which got a big boost with China announcing the removal of export tax rebates and raising of export tariffs for steel products to ensure domestic supply amid production cuts,” said Milind Muchhala, executive director, Julius Baer, a global investment bank

India saw its June crude steel production improve 21% year to date to 9.4 million tonnes, up 2% from May.

Global crude steel production for June increased 11.6% year-onyear to 167.9 million tonnes. The robust growth was largely attributed to low base effect across globe. China accounted for 55.9% of global steel production, down 560 bps year-on-year and 110bps on a month-on-month basis.

“While steel consumption was flat m-o-m to 6.2 million tonnes, it increased 28% y-o-y on covid related low base effect. Current domestic HRC (hot-rolled coil) at ₹65,500 per tonne fell 3% m-o-m. Domestic prices are still at a 17-20% discount on imported steel. The discount between imported vs domestic iron ore remained around 46%,” said Phillip Capital in a report dated July 27.

Steel companies are seeing a demand revival, particularly from the automotive, white goods and infrastructure sectors. The construction sector which is expected to pick up steam with the onset of the festive season is also expected to boost demand for metals.

Analysts said higher local demand is likely to impact the export of steel, which stood at 17 million tons last year. Indian steel companies are likely to divert more supply to meet domestic demand.