Metals and mining sector bounces sharply riding on global demand wave 

NEW DELHI: India's metals and mining segment has seen a sharp bounce back over the past few months and is currently riding a wave of spiking demand as the global economy begins getting back on its feet. The sharp rise in demand, mostly pent-up, has also led to an increase in prices in many key segments, including steel.

Market data shows that prices of steel, iron ore, and non-ferrous metals rallied throughout the quarter ended December 2020. Apart from pent-up demand and domestic economic recovery, the targeted stimulus in China and restocking demand in the domestic market are the prime drivers of the price rise.

"The metals and mining sector is currently witnessing a dream run, where targeted stimulus in China will continue to prop up demand, while continuous printing of the dollar, coupled with the low-interest rate  regime, should favor investments in commodities. Demand revival in autos, white goods, infrastructure and trade re-stocking with lower coking coal prices should result in dream profitability for most companies," said Emkay Global analysts Vishal Chandak and Abhishek Mody in a recent note.  

Steel prices have already touched an all-time high in the domestic market and are hovering around Rs 57,250 per tonne. Through the quarter, high volume segments such as primary rebar and hot rolled coils (HRC) rose by a massive Rs 12,000 per tonne and Rs 15,500 per tonne respectively.

Strong steel production in turn led to a rise in iron ore prices too, up by Rs 1,270 per tonne over the quarter. An iron ore shortage in Odisha only worked to strengthen the trend, with the recent auction of 19 mines in the state resulting in lesser output than pre-auction levels. 

The mining industry also did well, though Q3 performance is likely to be more mixed than peers in the metals space. “While NMDC has ramped up both production and prices to record, driven by strong steel production, Coal India saw an increase in offtake mom. However, e-auction premiums remained 
volatile,” it added.

Higher dividends

The deleveraging of the balance sheet should be the focal point of all major steel mills. We expect cash-rich stocks such as Coal India, HZL, NMDC, MOIL and Nalco to declare higher dividends, while non-ferrous firms such as Vedanta and Hindalco to focus on deleveraging.