After a sustained rally, stocks of metal companies finally gave away part their gains on Wednesday with the S&P BSE Metal Index shedding 506 points to 21,382 on concerns over high valuation and rising cost of production.

The BSE metal index has rallied from 20,306 at the start of this month to a high of 22,419 on Monday but started its slide from Tuesday.

Almost all the constituents of BSE Metal index except for Jindal Steel closed in the red. Hindalco, Vedanta, Nalco and APL Apollo Tubes lost four per cent each while SAIL, Hindustan Zinc and Coal India were down three per cent each on Wednesday.

Notwithstanding the sharp fall in metal index, long-term prospects of metal companies remain strong with China cutting production and rising demand across the globe.

Metal companies have been reeling under rising input and logistics cost even as the demand remained robust. However, metal companies especially steel and aluminium producers have managed to pass on the incremental cost partially to end consumers.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said the fall in metal index is due to profit-taking and may be a temporary phenomenon as all indicators are pointing towards strong demand and high prices.

Sharp rise in metal prices

The sustained rise in demand for many metals including steel, zinc and aluminium along with supply disruptions has resulted in sharp rise in metal prices which has turned out to be a boon for domestic metal manufacturers, he added.

Rajnath Yadav, Research Analyst, Choice Broking said domestic metal companies are planning to hike prices to counter the rising cost of production.

While demand in India may remain flat on sequential basis in coming quarters, margins will be sustained due to the planned price hike, he added.

Mohit Nigam, Head – Portfolio Management Services, Hem Securities pointed out that the Nifty metal index rallied 154 per cent in last one year against 55 per cent by Nifty 50.

“Individually, he said, JSW Steel rose 115 per cent, SAIL (249 per cent), Tata Steel (245 per cent), Nalco (253 per cent) and Hindalco (184 per cent),” he added.

Starting next May, he said China will cancel export rebate for several steel products and do away with import tariffs on pig iron, crude steel and recycled steel raw materials.

The Chinese move will give ample opportunities to India, Japan and the US to export more steel worldwide to fulfil rising demand, he said.

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