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Metal sector commences CY23 on buoyant note

ICICIdirect Research 16 Jan 2023 DISCLAIMER

What's Buzzing 

China easing Covid related restrictions and reopening had led to an uptick in global metal prices thereby auguring well for Indian metal players. 

Context 

Easing of Covid related curbs by the world’s largest metal consumer China has spurred hopes of a demand recovery and aided an uptick in Indian metal & mining stocks. China has already downgraded Covid management to the less strict category B and also scrapped all restrictive measures for incoming travellers and goods. 

Our Perspective: 

Aided by the relaxation of Covid-19 related restrictions in China, CY23 has started on a positive note for the metal sector. Over the last couple of months, steel prices in China have seen an uptick of ~20% and are currently quoting at ~US$620/tonne. Chinese steel prices have bounced back sharply from a low of US$515, which it hit in November 2022. Also, recently, Chinese regional players have taken price hikes for February 2023 shipments, mainly on hopes of a demand recovery in China post the Chinese New year. Baosteel has raised prices for HRC, CRC and heavy plates by US$15/tonne for February 2023 shipments. Aided by an uptick in global steel prices, during the first week of January 2023 Indian steel players have already taken a price hike of ~Rs 1500-2000/tonne for the domestic steel market. Post this hike, domestic HRC prices are currently quoting at a three-month high of Rs 56500-57000/tonne. Also, seasonally, Q4 is the strongest quarter in terms of sales volumes for domestic steel companies. An uptick in prices, during this period, augurs well for domestic steel players. With improving sentiments in China coupled with healthy domestic steel demand, steel prices are likely to remain firm, going forward also. There was also a steady uptick in base metal prices. Over the last one month, copper prices on the LME have increased by ~9% and are currently hovering at ~US$9170/tonne while aluminium prices on the LME have seen an uptick of ~6% and are currently hovering at ~US$2570/tonne. In general, an uptick in global metal prices augurs well for domestic metal companies and is likely to have a positive rub-off on the financial performance of the companies, going forward.

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