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    Metal stocks regain shine on hopes of China demand revival

    Synopsis

    International steel prices have recovered in the past week by 3 per cent.

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    At the current pace, JSW expects sales volume of 15 million tonnes (MT) and production of 16 MT for FY21, assuming no production decline in the coming quarters.

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    Mumbai: Metals shone in a dull Mumbai market even as equity gauges across Asia’s industrial powerhouses climbed Tuesday, shortening the odds on a V-shaped recovery in China after the latest aggregate data from the ‘factory to the world’ signalled revival in demand.

    Jindal Steel and Power (JSPL), JSW Steel, NMDC, Tata Steel and Coal India powered the Nifty Metal index to gains of 2.7 per cent on a day the 50-share benchmark ended lower. Jindal Steel surged 14 per cent at Rs 109.95 after the company reported a consolidated net profit of Rs 305.62 crore in the March quarter, compared with a net loss of Rs 2,713.34 crore in the year-ago period.

    Positive commentaries by JSW Steel and Jindal Steel have offset the impact of recent rating downgrades, with investors looking at the likelihood of a Beijing-led revival in manufacturing and infrastructure industries across Asia.

    Analysts at Edelweiss Securities said China’s trade data and macro-economic indicators for April indicate that the worst seems to be over.

    “While April-20 has been reasonably better for China, indicating that economic activity after the Covid-19 lockdown is resuming, it remains to be seen if domestic demand sustains in subsequent months,” said Edelweiss.

    After falling by over 10 per cent in the past two months, international steel prices have recovered in the past week by 3 per cent. Industrial output in the world’s biggest consumer of steel, aluminium, zinc and cement climbed about 4 per cent in April, reversing double-digit declines in earlier months as vast swathes of the Chinese industrial hubs remained shut through the first quarter of the calendar year.

    Back home, production is slowly reviving. JSW Steel and JSPL have reported rising demand from overseas. With more than half their revenue generated overseas, these companies now operate at 85 per cent of capacity, and output could reach 100 per cent from June.

    At the current pace, JSW expects sales volume of 15 million tonnes (MT) and production of 16 MT for FY21, assuming no production decline in the coming quarters. With the current capacity of 18 MT, its production was 16 MT in FY20. JSPL has guided for sales volume of 7.25 MT, a 15 per cent on-year expected jump. JSW Steel’s realisation improved 7 per cent sequentially in the March quarter, while volumes dropped 5 per cent.

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