Metal companies plunge as China growth worries deepen

Mumbai: Shares of metal companies were among the top losers Wednesday as fresh concerns over the economic prospects of China, one of the largest consumers of commodities like steel, aluminium, and copper among others, prompted traders to cut their bets.

The Nifty Metal index fell 1.81% Wednesday. Among steel producers, JSW Steel, SAIL and Tata Steel slumped 3-4%. Shares of aluminium producers Nalco and Hindalco tumbled 6.5% and 3.8%, respectively.

Analysts said technical indicators are pointing to further weakness since the Metal index has fallen below 8,000. The index closed at 7,878.40 Wednesday.

“Today the Nifty Metal index formed a bearish candle on daily charts which is broadly negative,” said Amol Athawale, deputy vice president of Technical Research at Kotak Securities.

China’s factory activity expanded at a quicker pace in December due to stronger gains in output and new orders, but business confidence for 2024 remained subdued, a private-sector survey showed Tuesday. The purchasing managers’ index (PMI) for China’s manufacturing sector was 49 in December, down from 49.4 the previous month, according to the country’s National Bureau of Statistics.

Analysts are still uncertain about the outlook for 2024 as the revival in the Chinese economy will play a significant role for Indian metal companies.

“The volatility in the Chinese economy will be a huge factor in determining the future of these stocks as the excess production in China needs to be soaked up for Indian companies to perform better,” said Pankaj Pandey, head of research at ICICI Direct.China is witnessing an inventory build-up in the steel sector due to declining real estate demand.

Pandey said the risk-reward ratio for metal stocks looks attractive currently. His top stock pick in the sector is NMDC. Steel companies could see stronger volume growth in the second-half of FY25 on increased construction activities, said Tushar Chaudhari, lead research analyst at Prabhudas Lilladher.