Metal stocks rally over 4%. Here's why

Shares of metal companies such as Hindustan Zinc, APL Apollo Tubes and Jindal Steel and Power rallied up to 4.5% in Wednesday's trade amid higher export bookings and reports that Indian steel mills are eyeing price hikes on the back of improved global cues and the firming up of international prices.

Shares of Tata Steel, Hindalco, SAIL and Vedanta also rose up to 3% in today's trade.

"Global news flows would continue to dominate the outlook for the Indian metals sector. A faster reopening in China and stimulus has provided a new lease of life for the sector, although on ground demand improvement is still elusive. Post CNY demand would be key for further rerating," said brokerage firm CLSA.

"We expect steel prices to rise in the near term (in line with or at a discount to import parity) before softening in the following quarters. While we turn incrementally positive on ferrous, we continue to prefer Hindalco over steel names. We upgrade Tata Steel to over-perform and JSPL to under-perform," the brokerage said.

Meanwhile, domestic brokerage firm ICICI Securities said, "Our channel checks indicate that demand from Europe is likely to improve as buyers are looking to replenish the stocks post new year holidays. European mills are firmly quoting a minimum price of EU€650/te for HRC. As a result, Indian players and Indian steel mills have raised HRC export offers by US$45-50/te WoW to Europe."

The brokerage firm ICICI Securities retained its cautious outlook on the ferrous sector with JSPL (TP: Rs 750) and Shyam Metalics (TP: Rs 425) as its key picks owing to their longs-heavy product portfolios.

ICICI Securities is also positive on APL Apollo with a target price of Rs 1,225 as being a downstream player, it is relatively insulated from adverse price movements.

Also, according to CRISIL Ratings, global steel prices (free-on-board, China) are set to stabilise in calendar 2023 on-year, after falling over 40% to $570-590 per tonne in December 2022 from the early-April peaks of $1,000 per tonne on tepid steel demand.

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