Is the Metal Rally Over?

Shares of metal companies were under pressure at the bourses on 20 May, with the S&P BSE Metal and the Nifty Metal indices falling 4% in intra-day trade. Most metal stocks witnessed selling from recent highs.

Steel Stocks Take a Beating

Domestic steel stocks took a beating on after China, the world's biggest producer of steel products, sought stricter oversight of commodity markets to curb exorbitant prices.

On Wednesday, 19 May 2021, China's cabinet vowed to strengthen its management of the commodity supply and demand to curb price increases and prevent them from being passed on to consumers.

The steelmaking hub of Tangshan in China has already announced fresh curbs. This includes ordering sintering units to stop work from midnight to 10am.

The Chinese attempt to rein in skyrocketing prices of steel and iron ore caused a flutter in the market. Steel prices in China have fallen 8-10% in the past week.

Data showed that September iron ore prices on the Dalian Commodity Exchange shed as much as 9% to 1,102 yuan (US$171.2) per tonne. Dalian's most-active contract hit a record high of 1,358 yuan on 12 May.

Iron ore had rocketed to a record high this month amid booming steel market in China and a recovery in global steel demand.

Copper Prices Volatile Due to Supply Chain Disruptions

Copper prices capped downside on supply concerns from Chile. However, the metal pared gains on demand growth concerns after China signalled action to curb rising inflation.

Copper prices fell 3% as rising inflation pushed investors into a risk-off sentiment. This offset the impact of potential supply disruptions in the top producing region of South America.

Aluminium Prices Also Hit

Aluminium prices also fell on account of the announcement by China to curb the increases in commodity prices.

Earlier this month, aluminium prices touched a lifetime high on the MCX and near a 10-year high on LME near US$2,500/tonne.

This came on the back of a weaker dollar, tightness in the physical market, supply concerns in China, and decline in stocks at LME warehouses.

Chinese aluminium smelters are facing environment-led production restrictions. A capacity cap is also limiting future additions.

With a strong sequential demand recovery, global utilisation levels have reached a decade high. There is limited spare capacity and a thin pipeline of fresh additions.

While a volume loss from these restrictions are not significant, it adds to the deficit in the market and raises a risk of future restrictions and similar actions by other provinces in China.

How the Stock Market Reacted

Among individual stocks, Tata Steel, Steel Authority of India (SAIL), and Jindal Steel and Power (JSPL) slipped 5% each.

Coal India, National Aluminium Company, NMDC, Vedanta, and JSW Steel from were down between 2% and 4%.

The Nifty Metal index was down 3% and the S&P BSE Metal index was down 3.7%.

With this decline, the S&P BSE Metal index has now corrected 10% from its record high level of 20,429, touched on 11 May 2021.

For more details about the steel sector, you can have a look at the steel sector report on our website.

You can also compare metal companies with their peers.

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Tata Steel vs JSW Steel

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SAIL vs Tata Steel BSL

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