Tue. Sep 29th, 2020

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Price hikes and rising demand make a good therapy for metals stocks

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For metal companies, things are gradually changing for the better. Demand has begun to inch up, allowing companies to raise prices. The Nifty Metal index, which has largely under-performed this year, has gained nearly 6% so far in August.

One of the major issues for metals companies have been a fall in demand in the domestic market due to the lockdown. Lower demand and lower prices tend to hit operating leverage hard, and some companies in fact recorded steep losses in Q1. Of course, costs savings cushioned the hit.

Also, rising exports have kept domestic supplies in check and global prices have been been climbing. Some of that has naturally rubbed off on India as well.

Domestic steel companies recently raised prices by 500-1,000 per tonne, following a price hike in July. This shows their increasing ability to pass on rising prices even in a slow-moving market. Nevertheless, the recent increase only pushes up price levels to what they were three months ago. “It is interesting to note that in the past three months, while prices across regions (except US) have increased 20% on average, domestic prices have stayed flat,” said analysts at Edelweiss Securities in a note to clients.

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