Metal stocks climb up to 5% amid signs of recovery in China

Shares of metal companies such as Jindal Stainless, Tata Steel, and Hindustan Copper rose up to 5% in Thursday's trade amid signs of recovery in China.

"China's economic data is showing signs of recovery with manufacturing PMI rising to an 11-year-high and property prices starting to stabilize. After a 23% fall in CY22, China export steel price is up 14% in CYTD 2023," global brokerage firm Jefferies said.

Shares of JSW Steel, Hindalco, SAIL and Jindal Steel also surged up to 3%.

"China export HRC steel price fell 23% in 2022 but has recovered 14% CYTD to $665. Asian steel conversion spread has also improved from trough of US$ 185/t in 2QCY22 to US$ 224/t at spot, but is still 10% below LT average and should improve further, especially if China macro turns favourable," Jefferies said.

“Meanwhile, India's HRC steel price, after falling 13% in 2022, has also improved 8% CYTD to Rs 60K/t but is still at a 3% discount to landed imports from China,” the brokerage said.

India had turned a net importer of steel in 2HCY22 as domestic prices were at a premium to landed imports, and the government had imposed a 15% export tariff in May 2022.

"With domestic prices now at a slight discount to imports and the government scrapping the export tax in November, net imports declined in January. Our estimates factor in India HRC steel price of Rs 61.0-61.5K/t in FY24-25E, broadly in line with spot," the brokerage firm said.

In Q3, steel companies saw a decline in their net profit. Tata Steel in Q3 FY23 reported a consolidated net loss of Rs 2,224 crore for the December quarter, while the company had posted a profit of Rs 9,572 crore in the last-year same period.

Meanwhile, JSW Steel also reported an 89% year-on-year (YoY) fall in net profit at Rs 490 crore for the three months ended December 2022. Vedanta also reported a 42% YoY decline in its consolidated net profit to Rs 3,092 crore for the quarter that ended December 31, 2022.

"We see the recent underperformance as a buying opportunity in Indian metals; our top pick is Tata Steel, followed by Hindalco," said Jefferies.

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