Metal & mining stocks to face headwinds as China’s export glut weighs on prices

Mumbai: Investors must brace for limited gains in shares of metal and mining companies as earnings could come under pressure in the coming quarters on weakening prices, said analysts. With Chinese steelmakers flooding the global market, analysts expect prices to be under pressure for now. , , , and remain top picks though analysts warn against sharp upside in the near term.

Nomura said Indian steel mills cut HRC (hot rolled coil) prices for August by ₹3,500 per tonne to ₹58,500 from the previous month and CRC (cold rolled coil) by ₹2,500 per tonne to ₹66,000. The government in May had slapped an export duty of 15% on various steel products and imposed a 45% duty on iron ore pellets to rein in the prices.

“Lower steel and iron ore prices are expected to severely impact realisation and margins of steel and iron ore companies and resultantly would put pressure on earnings in FY23,” said Abhijeet Bora, analyst at Sharekhan. “Weak earnings would in turn impact growth capex and valuations.”

The Nifty Metal index rallied 20% in the last one month compared to an 8% rise in the Nifty index. Stocks such as Hindalco, Tata Steel, JSW Steel, and

have gained more than 20% in one month. Reports of the government mulling a partial withdrawal of export duty on steel contributed to the improved sentiment in steel stocks.


Securities said sustained high levels of steel and aluminium exports from China are concerning. This could add pressure to metal prices globally.

“Robust steel and aluminium exports from China are cause of concern,” said Amit Dixit, analyst, Edelweiss Securities. “While regional steel prices are already at their lowest level since November 2020 and the LME alumimium price has remained range-bound, we remain circumspect of the ferrous space owing to the twin-trouble of higher export volume and lower prices from China.”

Barring Tata Steel, analysts have downgraded the ratings on most of the metal stocks owing to the weak near-term outlook. Tata Steel’s European operations will benefit due to supply constraints amidst the Russia-Ukraine conflict, said analysts.

Some analysts will turn bullish on the prospects of metal companies if the government softens its stand on exports.

“If the government withdraws the extra export duty that was levied, I think the opportunity will be tremendous for the Indian metal companies, not only to service the domestic demand but also to cater to the international market, given the fact that the issues in China with respect to the environment,” said Gaurang Shah, Chief Investment Strategist,

. “Also, some time back, metal companies had witnessed pricing pressure because of the raw material cost going up, but now that has come down to a reasonable level.”

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