Slowdown concerns drag Tata Steel, Hindalco; BSE Metal hits 15-month low

Shares of metal companies reeled under severe pressure on Monday with the S&P BSE Metal index hitting a 15-month low amid demand slowdown concerns. Tata Steel, Hindalco Industries, Jindal Steel and Power (JSPL), NMDC and Vedanta have shed up to 35 per cent in the past one month, as compared to 5 per cent decline in the S&P BSE Sensex.

At 11:13 AM, the S&P BSE Metal index, the top sectoral loser among indices, was down 5 per cent as compared to 0.10 per cent rise in the benchmark Sensex index. The metal index hit an intra-day low of 15,140.94 today, its lowest level since April 2021. In the past one month, the index has slipped 21 per cent, data shows.

According to analysts, the increased risks of a global growth slowdown, and a persistently higher inflation have acted as major blows to demand outlook. The aggressive stance of the US Fed has triggered the fear of recession, which is cascading to markets, including commodities, across the globe.

The global economy had entered 2022 on a weaker footing. As the new Omicron Covid-19 variant spreaded, countries reimposed mobility restrictions. Moreover, rising energy prices and supply disruptions resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies.

Further, the ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption and the ongoing tension between Russia and Ukraine have limited the growth prospects.

“Global growth is projected to slowdown from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022—0.8 percentage-point lower than what was envisioned in the last World Economic Outlook (WEO) of January 2022, largely reflecting forecast markdowns in USA and China,” Tata Steel said in its FY22 annual report.

For 2022, the outlook is highly uncertain due to the war in the Ukraine. The war in the Ukraine has a major impact on the European Union (EU) due to its reliance on Russian energy and its geographic proximity to the conflict area. There are further downside risks from Covid virus infections and rising interest rates. The World Steel Association predicts that steel demand will increase 0.4 per cent globally. Demand in the EU is expected to decline by -1.3 per cent, Tata Steel said.

“Meanwhile, demand and consequently pricing is seasonally weak at present. The government’s policy of imposition of export duty on iron ore, pellets, and certain categories of steel will further depress domestic prices. Unless there is a meaningful correction in coking coal prices, margin can remain subdued in the next six months,” according to analysts at Motilal Oswal Financial Services.

The brokerage firm believes coking coal prices will cool off in the next three-to-six months, and expects an improvement in margin in H2FY23.

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