Tag: copper

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Editorial

Why are Zinc and Aluminium Stocks Rallying? Will Base Metal Stocks Move More?

India’s base metal market is booming. Steel, Aluminium, Zinc, Copper, and other such metals are known as base metals. They are used extensively in industries. The base metal market was facing headwinds as COVID-19 restrictions were being lifted throughout the world. Competition from China, capacity rebuilding, reserve stock shortage, and unfavourable international market prices were a few of the many problems facing the sector. As China seems to battle environmental concerns, cutting down on production capacity and trimming exports, the world seems to benefit from it. In this article, we talk about the recent surge in base metal prices. 

Why Are Base Metal Stocks Rallying?

Indian base metal shares have been rallying for quite some time, facing timely corrections arising from profit bookings. The steel industry is the most polluting one in China. As the country battles environmental concerns, it is now increasing export duties along with cutting down much of the steel production. This has created a supply crunch globally and has made way for other major steel-producing countries to ramp up production. Higher steel prices and increasing production translates into better realization and profit margins for Indian companies. Steel companies that have higher exports are benefitting from it. Shares like Tata Steel, SAIL, JSW Steel, and other steel companies rallied anywhere between 8%-10% in nearly two weeks. 

Coming to Aluminium, China is facing a shortage of the raw material, magnesium. China is also the largest exporter of aluminium. Parallel to the steel sector, China has a huge part to play in the Aluminium stock rally as well. The National Aluminium Company (NALCO), Vedanta, and Hindalco Industries rallied anywhere between 15%-25% in two weeks’ time in mid-October. During the same period, Hindustan Zinc rallied ~23% and Hindustan Copper moved up by ~19% 

The following is the share price appreciation of some of the important base metal stocks between October 6, 2021, and October 18, 2021.  

Company Name% Change In Share Price
Tata Steel+10.3%
JSW Steel+8.4%
SAIL+12.1%
National Aluminium Company+27.0%
VEDANTA+28.8%
HINDALCO+14.1%
Hindustan Zinc+23.1%
Hindustan Copper+19.2%

What Should Investors Watch Out For?

While India’s domestic demand and market price for base metals remained relatively stable, a shortage of supply in the international market is pushing certain metal producers to export. This is the case for almost all base metals. The price moment for Steel stocks, Aluminium stocks, Copper stocks, and that of other base metals is running nearly parallel. 

The demand for metals remained robust, yet the metal manufacturers are faced with rising input and logistics costs. Nevertheless, the manufacturers have been successful in transferring the extra costs to customers. 


The metal stocks rally broke down after profit-booking and China’s vow to curb coal prices. This increased selling pressure significantly since the uncertainty around coal and base metal supply was reduced. Rising coal prices were earlier adding to manufacturing costs for base metal manufacturers. 

As is the case with many sectors, China seems to be pulling the strings for most. One should be cautious around any policy changes that China makes. These include import or export duties, production levels, and other trade limits that the country poses. Nevertheless, the domestic demand for metals seems healthy, yet the volatile global market situation could turn out to be beneficial for Indian stocks,  

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Editorial

Global Steel Prices Volatility, China-Australia Trade War and Indian Metal Market: Analysis

India’s metal stocks and the NIFTY METAL index have been rallying. Steel prices are soaring and iron ore prices have started to slump. Iron ore is the key raw material used to manufacture steel, yet both are following opposite trends. In December 2020, we at marketfeed discussed the soaring steel prices and how it was impacting the Indian economy. While there have been some shortfalls that are globally driving down steel prices, one crucial factor is at play, China. This piece gives an overview of the steel market and how it could impact Indian metal stocks. 

China’s Economic Turbulence Impacts Global Steel Prices

The last few weeks have been tough for the Chinese economy. It first faced the Evergrande Crisis and is now facing a severe power crunch. Even though we are amidst a global energy crisis, it seems to have impacted China more than other countries. Nevertheless, there is a weird trend that exists right now in the metal market. Iron ore, a key ingredient for making steel, has its prices falling while steel prices are soaring. 

The story starts with China’s trade war with Australia. China produces ~51% of the world’s steel. To make this steel, it imports 60% of the iron ore from Australia, which controls ~38% of iron ore production. The trade war started in May 2020, when China restricted barley imports from Australia, accusing it of breaching WTO rules by subsidizing barley production in China below the domestic production cost. 

Australia further angered China by asking for an independent inquiry into the origin of the coronavirus. Essentially, Australia was accusing China of deliberately creating the COVID-19 pandemic. China retaliated by disrupting the imports of seafood, wood, beef, wine, and coal from Australia. Eventually, Australia restricted the supply of iron ore to China. This meant that China wouldn’t be able to produce as much steel as before. This sent steel prices on a rollercoaster globally. 

To correct the supply-demand mismatch of metals in China, it has decided to release metal reserves of copper, aluminium and zinc. It shall release 170,000 tonnes of this metal into the market and more depending on how the market reacts.

The iron ore that Australia would sell to China would go to other steel manufacturing economies like India, Brazil, the US, etc. Steel, aluminium, copper, and iron ore prices have slumped in India due to fears of weak demand from China amidst an economic crisis. Nevertheless, steel demand in India is healthy, since it has managed to revamp domestic production. India is boosting its economy with multiple infrastructure projects, which ultimately require a significant amount of steel. 

In Q1 FY22, India turned net exporter of finished and semi-finished steel to China for the first time in years. This could mean soaring profits for domestic steel companies in India and for their shareholders. China is currently focussing on reducing carbon emissions and is therefore importing semi-finished and finished steel from India. This would mean better profit margins for Indian steel players. 

India’s Metal Markets

International steel prices are much higher than domestic prices in India. This could mean a bumper export season for domestic steel and iron companies, eventually making good profits. For the past few days, the winds in the metal markets blew in favour of Indian companies. This caused a rally in the Indian metal stocks, followed by a major correction. Between September 1, 2021, and September 16, 2021, the NIFTY Metal Index rallied by 4% or 247 points before going down amidst uncertainties surrounding the US Interest rate hike and the Evergrande crisis.

Tala Steel, SAIL, NMDC, JSW Steel, APL Apollo Tubes are some big players that can benefit from the current situation in the global markets. These companies are players in the core steel industry. They have a replenished inventory of steel products and a large consumer base, both domestic and international

The government has advised SAIL and NMDC to sell off its ‘residual iron ore fines’ from all its mines. This will not only generate supply in the market but also add to revenue (even though a small amount) of the two companies. India’s domestic steel demand is likely to remain healthy as the government has announced many infrastructure projects and some incentive schemes for them. 

Currently, Indian steel companies have two marketplaces to benefit from. First, there is the global market where there is a shortage of steel supply. Second is the Indian market which is seeing fast growth in the number of infrastructure projects.

In a December 2020 issue, we discussed how India’s steel production shortage caused domestic prices to cross the international prices. India could neither export steel because of the price gap nor import it because of the import duties imposed in the country. The situation is now much better as India has plenty of steel and iron ore reserves that can be exported and meet domestic demand at the same time. Price fluctuations in the international market are not likely to impact the domestic metal market. An investor should watch out for core steel companies with high export numbers and no production bottlenecks. 

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Editorial

China and the Fall in Commodity Prices

Since the beginning of 2021, many countries have reopened their economies and introduced large stimulus packages amidst the (ongoing) Covid-19 pandemic. There was also strong demand for various industrial raw materials from large importers such as China. As a result, the prices of commodities such as iron, steel, copper, and crude oil had skyrocketed and hit record highs. marketfeed had prepared a detailed article in February on the various factors that led to the rally in commodity prices. 

However, the monumental gains posted by certain commodities since January have been wiped out over the past week or so. Copper prices have corrected over 15% from their all-time highs. The prices of palladium, platinum, and even corn futures have also fallen sharply. Let us understand the primary reason behind the fall in commodity prices.

China’s Efforts to Slow Inflation

On June 16, the Chinese government asked state-owned companies to limit their exposure to foreign commodities markets. These firms will be forced to release strategic reserves of metals such as zinc, copper, and aluminium in batches to industrial consumers in order to stabilise prices. When China (the world’s top consumer of metals) cuts down on imports, it will surely lead to a decline in global prices. Soon after this announcement took place, the prices of metals fell heavily. We saw the Nifty Metal index fall by around 9% last week! 

Now, why did China introduce such a measure?

China’s Producer Price Index (PPI) increased by 9% in May, the highest growth in nearly 13 years. However, the rising prices of various industrial raw materials (inputs) are making Chinese products less competitive. The companies that manufacture these industrial commodities are unable to pass on their high costs to consumers. This is because inflationary pressures pose a risk to overall economic growth in China. 

The Chinese Communist Party’s Global Times (a state-owned publication) had reported that the country’s manufacturers were suffering because high input costs were deeply affecting their margins. For example, home appliances are usually sold at a discount around April, but companies were forced to raise prices. They can hike prices as their costs go up, but this practice/trend cannot last for a long period. Moreover, the end price is subject to certain contracts and other factors, which cannot be altered quickly. Thus, a strategic release of metal reserves will help China control prices and keep inflation in check.

Other Measures Taken by China

On May 24, 2021, Chinese regulators had warned metal manufacturers to maintain good market order. The regulators began to strengthen inspections of both futures and spot markets while cracking down on irregularities and malicious speculation. This had led to a sharp fall in metal prices. [Spot markets are where commodities are traded for immediate delivery. A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future].

Why are Actions Taken by China so Important?

As most of you are aware, China is a major player in the global commodities markets. They import large quantities of iron ore, steel, and other metals for their development activities. The country is also notorious for hoarding steel and driving up its prices. Markets around the world keenly watch out for every statement or action made by Chinese authorities. When the country was industrialising rapidly at the turn of the century, its demand for raw material triggered a commodities supercycle. A supercycle is an extended period of high demand growth that producers (or suppliers) struggle to match. This ultimately leads to an increase in commodity prices.

Despite its high influence, experts say China may not be able to take on market forces (or cool down prices) in the long term. Investment banking firm Goldman Sachs believes that China ‘does not have the muscle to change the price trend’ of commodities. The firm further said prices were rising because of a global demand-supply mismatch. On June 22, ace investor Rakesh Jhunjhunwala said the steel supercycle had just begun and will last for 5-7 years. He is super bullish on the metals sector as a whole.

There is a complete lack of transparency over the quantity of reserves China holds, and how much would be sold over a certain period. Thus, experts and traders are unable to make an accurate forecast. Even though China does not have enough inventory to change the global outlook for commodities, it can certainly influence overall sentiment. 

Let us know your views on the topic in the comments section of the marketfeed app.

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Editorial

5 Reason Why Commodity Prices Are Increasing and Impact on Stock Market

Last year, the prices of commodities such as crude oil, silver, copper, etc saw a significant fall due to the Covid-19 pandemic. All major economic activities were disrupted as countries went into complete lockdowns. Now, the situation has more or less turned for the better, and commodity prices are witnessing a strong recovery. Copper prices have rallied by over 60% since the beginning of the year and have hit their 10-year high. The price of Brent crude oil, which fell to $20 per barrel in April 2020, has shown a sharp rise to ~$65 (as of Feb 23). The prices of Silver and Platinum have also shown monumental gains over the past year. 

Let us understand some of the reasons behind this surge in commodity prices.

Factors Behind the Rally in Commodity Prices

  • During a period when countries were under strict lockdowns, China began to open up its factories. They had a headstart in manufacturing activities. In fact, the Chinese factory output in November 2020 hit a 20-month high. Thus, there was a huge rise in demand for commodities from the country, which led to a rise in its prices. There were also reports stating that China has been hoarding steel and is controlling its prices.
  • As lockdown restrictions were lifted globally, the demand for industrial commodities started rising. The different sectors of the economy began to ramp up production activities. At the same time, supply chain disruptions or logistical issues continued. Commodity traders blamed the global container shortage as a major reason for high transportation costs. This ultimately led to a surge in the prices of essential commodities such as steel, copper, tin, and aluminium.
  • Recently, oil-producing nations have limited their supply to energy-dependent countries such as India. This has caused crude oil prices to increase exponentially.
  • The passing of the $1.9 trillion US stimulus package can also be attributed to the sharp rise in commodity prices. Financial analysts state that the package would lead to further demand for commodities as people will spend more (or more money will be in circulation).
  • Investing in the commodities market is a great way to diversify your portfolio. Over the past few months, hedge funds have invested billions of dollars into this market. This is primarily due to the optimism surrounding vaccine rollouts and economic recovery. It has been recommended as one of the best asset classes to hedge against inflation, leading to a sharp increase in returns.
  • As most countries are on the path towards building renewable energy infrastructure, the demand for metals is at an all-time high. This is driven by an increase in the production of batteries, solar panels, and electric vehicles (EVs).

What is the Impact of Rising Commodity Prices?

The commodities market is receiving a lot of attention from investors around the world. They are collectively pulling money from the stock markets and infusing billions into commodities (due to its high returns). Investment groups and hedge funds are also investing heavily in bonds due to higher yields. However, this may be a short-term phenomenon until financial institutions reshuffle their portfolios.

As India came out of its Covid-related lockdowns, we witnessed pent-up demand for commodities- which led to a further rally in its prices. This has caused fears of inflation in our domestic market. The high price of steel has heavily impacted the automobile and infrastructure sector. We saw companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra, and Hero MotoCorp introducing price hikes for their vehicles in January. The continuous surge in prices of raw materials would also affect the real estate sector in the long term. Developers would face an increase in overall project costs, and homebuyers would have to pay more for acquiring assets. The general rise in demand with a fall in supply is helping no one.

One of the most serious issues that Indians face today is the continuous increase in fuel prices. The price of petrol has even crossed the psychological barrier of Rs 100 per litre in several cities. The rise in global crude oil prices and high taxes (or excise duties) are concerning. This ultimately leads to a surge in prices of essential items such as food. With no solution in sight, the middle-class and poor sections of society continue to suffer. Let us look forward to seeing how the situation unfolds in the weeks to come.

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Tesla to Make Cars in Bangalore – Top 10 Global News

1. Stocks Extend Gains; Oil Climbs on Cold Snap

Global stocks rallied as investors took comfort in the vaccine rollout while freezing temperatures in Texas roiled energy markets. The FTSE 100 Index jumped 2% and the pound strengthened after the U.K. recorded 15 million vaccinations against coronavirus. Japan’s Nikkei 225 Stock Average topped 30,000 yen for the first time since August 1990 on data showing the economy is charging ahead. Meanwhile, an Arctic blast in the U.S. threatened to disrupt energy supplies, sending crude oil to a 13-month high. Texas began rolling power blackouts for millions of households for the first time in a decade.

Futures on the S&P 500 Index increased 0.3% as of 1:48 p.m. London time.

The Stoxx Europe 600 Index increased by 1.2%.

The MSCI Asia Pacific Index advanced 0.6%.

The MSCI Emerging Market Index gained 0.6%.

2. Tesla to Start Making Cars in India, Targeting Vast Market

Tesla is closing in on an agreement to make electric vehicles in India for the first time, opening up a new growth opportunity after setting up production in China. Tesla has picked Karnataka, a southern state whose capital is Bangalore, for its first plant, the state’s chief minister said over the weekend. The automaker has been negotiating with local officials for six months and is actively considering car assembly in the suburbs of Bangalore. The company is conducting due diligence for office real estate in the region and plans to set up an R&D facility. Tesla has focused on Bangalore because it’s shaping up to be a hub for electric vehicles and aerospace manufacturing talent.

3. Blackouts in Texas as Big Freeze Upends Energy Markets

Millions of households in Texas are suffering rolling power blackouts for the first time in a decade as an unprecedented Arctic freeze wrought chaos in U.S. energy markets. The largest cities from Houston to San Antonio were without power for spells of up to an hour at a time as supplies in the U.S.’s second-largest state fluctuated wildly. The extreme cold caught the highly decentralized Texan electricity market by surprise despite a heads up a week ago about the impending frigid temperatures from the U.S. National Weather Service. With the equivalent of 2 million households being cut off at a time, the situation is expected to worsen throughout Monday.

4. JPMorgan: Markets Most Complacent in Two Decades

Global investors are the least fearful they’ve been in two decades, and perhaps the most greedy. A JPMorgan gauge of cross-asset complacency based on valuations, positioning and price momentum is nearing the highest level since the time the dot-com bubble burst and some companies found out burning cash faster than they made it wasn’t quite effective as a long-term survival strategy. Some of that get-rich-quick spirit has already been on display in 2021 from Bitcoin’s flirting with the $50,000 mark to the craze for cannabis firms and speculative warfare over penny stocks. Global equities have added $7 trillion since New Year, digital currencies have ballooned to a market value of $1.4 trillion and high-yield bond sales are raking in records.

5. Bumble, Copper, and Weed: Investments in the Spotlight

Matchmaker app Bumble, where only women are allowed to make the first move, soared as much as 85% on its debut Thursday. That values the company at about $14 billion including debt. With inflation expectations picking up, industrial metals such as copper are on a tear. Copper hit an eight-year high on Wednesday as factory-gate prices in China rose for the first time in a year. Metals used in industrial products are typically beneficiaries of economic upswings and are also a common way to hedge against inflation risk. Platinum, which is used in catalytic converters to curb vehicle pollution, also hit a six-year high this week. A change in control of the U.S. government has boosted Canadian cannabis company Canopy Growth Corp. Its shares jumped as much as 15% in New York trading Tuesday after saying it expects to gain broad access to the U.S. market this year. Canopy has a medical-cannabis operation and makes consumer products such as cannabis-infused chocolates and drinks. 

6. Vegan Chocolate Race Heats Up: Nestle Plans Rice-Based KitKat

Nestle is adding its first vegan milk chocolate to its products as the world’s biggest food company expands beyond meat alternatives. The Swiss food giant will start offering plant-based KitKat bars this year, called KitKat V. The product will be for sale online and at selected stores in a handful of markets including the U.K. as a test run before a possible wider rollout. The bar, which uses a rice-based formula as a milk substitute, took about two years to develop. The main challenge in making alternatives to milk chocolate is ensuring it blends well with cocoa and sugar for a creamy texture.

7. Dubai Airports Traffic Slumps 70% in 2020

Dubai International Airport reported a 70% slump in traffic last year as restrictions in place to stem the spread of the coronavirus pandemic put the air travel industry into a tailspin. The number of travellers through the Middle East’s tourism hub fell to 25.9 million in 2020. That included 17.8 million passengers during the first quarter of the year before the pandemic started to impact travel. Since then, restrictions on air travel have battered airlines and airports around the world. Despite the drop in traffic, Dubai International Airport is the largest intercontinental hub in the world.

8. Expat Exodus Threatens Gulf Economies, S&P Says

Gulf Arab states lost up to 4% of their population last year in an “exodus” of expatriate workers that could complicate the diversification of the region’s economies, S&P Global Ratings warned in a report. The share of foreigners relative to citizens in Gulf Cooperation Council countries is set to drop further through 2023 because of subdued non-oil sector growth and workforce nationalization policies. GCC countries’ productivity, income levels, and economic diversification may stagnate in the long term without significant investment in the human capital of the national population and improvements in labour-market flexibility.

9. Jaguar’s Electric Shift May Leave U.K. Plant With No Car to Make

Jaguar Land Rover laid out plans to electrify its lineup under a new chief executive officer, with its namesake luxury-car brand ditching combustion engines just four years from now. JLR, owned by India’s Tata Motors, will invest about 2.5 billion pounds ($3.5 billion) a year into electrification and related technologies. The Land Rover line will get its first fully electric model in 2024, and by the following year, all Jaguars will be entirely powered by batteries. The shift is poised to be challenging for the carmaker, which was grappling with Brexit, stricter emissions rules and a dip in exports to China even before the coronavirus pandemic hit.

10. U.S. Infection Rate Eases to Lowest Since October

The pace of the coronavirus outbreak in the U.S. continued to ease as the country’s week-to-week average fell to its lowest in almost four months. A top Biden administration health official warned Americans not to get complacent as the potentially more lethal variant first found in the U.K. spreads across the country. California’s positive test rate fell to its lowest since November, and New York state’s hospitalizations, stuck among the nation’s highest, dropped by more than 1,000 over the last week. The U.K. affirmed its plan for schools to reopen early next month as the nation’s vaccine program meets its first target. The Czech government prolonged its lockdown as the country struggles to contain one of Europe’s worst outbreaks.

Curated from Bloomberg.com