What Is Fueling The Sharp Selloff In Metal?
Metal stocks have been under intense selling pressure since last month after the government imposed a 15 per cent export duty on several finished steel products. Rating agency CRISIL has estimated that India's steel exports could reduce by 40 per cent to 12 million tonnes (MT) in the current financial year due to the duty-related measures taken by the government last month.
The finished steel export reached a record high of 18.3 million tonnes in FY 2021-22, with prices at their all-time high back then. However, on May 21, the government announced waiving off customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry. Also, the duty on iron ore exports was hiked by around 50 per cent and for a few steel intermediaries to 15 per cent.
"India's steel exports will drop by 35 per cent to 40 per cent to 10-12 million tonnes this fiscal following the 15 per cent export duty imposed on several finished steel products last month. Exports of iron ore and pellets will also fall this fiscal and lower domestic prices," the CRISIL research analysis said.
A slowdown in China following lockdowns during the pandemic and subdued real estate demand has also led to an excess supply of various industrial metals, which has affected the price of metal stocks.
Metals shares have been very volatile, and their high/low prices come back every 4 to 5 years as they are cyclic. During the peak, their price-to-earnings ratio (P/E) ratios are often very low and command cheap valuations, explained AK Prabhakar, head of research at IDBI Capital.
"Metal companies have seen the raw material cost for products like coke and coal go up. In addition to the subdued international and domestic demand, the 15 per cent export tax has been one of the main reasons for mega fall in metal shares," Prabhakar stated.
"China has surplus metal inventories. With lockdown and real estate not doing well there, excess supply is entering the market, which never happened in the last two years," Prabhakar added.
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