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Informist, Friday, Jan. 9, 2025

MUMBAI – Analysts believe valuations of Indian metal companies are too high at the moment and see limited upside in their stocks in the near term. Further updates on tariff threats by US President Donald Trump will likely determine the direction of these companies, analysts said. Meanwhile, investors will also assess the December quarter earnings preview reports put forward by brokerages.

In December, Chinese steel prices fell owing to the fragile domestic demand and mills resuming production in North China as air quality improved, said IDBI Capital Markets & Securities. In India, the announcement of safeguard duty for three years structured as 11-12% has resulted in a recovery in the domestic steel prices by 10% on month, although the price recovery was concentrated in the last week of the month, it said.

"The rise in iron ore and coking coal prices are expected to impact Q3FY26 (Oct-Dec) margins," the broking firm said. "Given the rich valuations of steel companies, which limit potential upside, we maintain a neutral outlook on the sector," it said. 

On Friday, the Nifty Metal index ended lower by 37.20 points, or 0.3%, at 11094.80 points. Jindal Stainless and Welspun Corp. fell the most during the last week. National Aluminium Co. was the biggest gainer. The Nifty Metal is likely to see a negative move in the coming week, Vipin Kumaar, assistant vice-president – technical and derivatives at Globe Capital Market, said. The support is seen at 10750-10600 points and resistance is seen at 11350-11500 points.

"We expect continued strength in aluminium prices due to supply tightness, and production cap in China would result in yet another quarter of relative outperformance of aluminium producers over steel in Q3FY26 (Oct-Dec)," Elara Capital said in its preview report. Steel companies faced headwinds in the December quarter, led by softer prices and rising raw material costs, resulting in margin compression, the broking firm said.

Hot rolled coil prices declined by INR 2,060 per tonne on quarter, while coking coal prices in Australia rose 9%, increasing cost pressures, the brokerage said. The adverse spread between realisation and input cost is likely to weigh on profitability, it said. Hot rolled coil prices, after touching a five-year low in early December, recovered by INR 5,250 a tonne. Seasonal demand support, along with the recently announced safeguard duty, shows a near-term trough is likely to form in Oct-Dec, Elara said. "However, recovery is unlikely to translate into a meaningful consensus earnings upgrade," the broking firm said.

Meanwhile, analysts at Emkay Global Financial Services expect the metals and mining firms to see a divergent December quarter, with earnings of ferrous companies under pressure from weaker realisations and higher coking-coal costs, driving a decline in profitability. In contrast, non-ferrous companies are expected to post healthy earnings, led by aluminium and zinc price gains, supporting strong performance for Vedanta and National Aluminiu Co., while Hindalco Industries should see a special quarter owing to lingering Novelis headwinds, the brokerage said.

TOP HEADLINES

* JSW Steel Oct-Dec consol crude steel output rises 6% on year to 7.48 mln tn
* Tata Steel's India ops produce record-high 6.3 mln tn crude steel in Dec qtr
* HC notice to govt on Vedanta's plea in CB-OS/2 block case, orders status quo
* PTC Industries gets order from ISRO's Vikram Sarabhai Space Centre
* Fitch hints at ratings upgrade for JSW Steel post arm's JV with Japanese co
* Aluminium shelf imported for growing mushroom attracts customs duty, says SC
* Godawari Power terminates inter-corp loan pact as Deccan Gold repays loan
* PRESS: CCI says Tata Steel, JSW Steel, SAIL involved in price collusion
* Shyam Metalics stainless steel sales rise 19.07% on year to 9,393 tn in Dec
* Vedanta Oct-Dec aluminium, alumina production at record high
* Lloyds Metals promoter Sky United raises stake to 13.49% after 1.38% shr buy
* Hindustan Zinc mined metal production up 4% on year at 276,000 tn in Oct-Dec
 

Following are the resistance and support levels for key metal stocks for next week as per calculations based on their prices on the National Stock Exchange:

End

Reported by Gopika Balasubramanium

Edited by Deepshikha Bhardwaj

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