Metal Stocks Decline for 2nd Day After Rally – What's Next?

Other shares in metals that are traded like Nalco, Vedanta, and Hindalco further dipped for the second consecutive session on February 25, More concerns rose on tariffs and third quarter earnings for the current fiscal were quite subdued. In the forefront of this were the 15 companie’s constituting the Nifty Metal index, 11 of them closed in the red resulting in the index falling by 1.2 percent.

With history in mind, analysts suggest there will be continued swings in price because of a mix of a shortened work week and expiry of the derivatives allotment, which tend to create more drastic price changes than usual throughout the market.

The pan European index on Monday recorded a drop of 2.17 percent at closing and the sharp cut was even severe during Wednesday’s data release. The selling is occurring after we saw the segment rising more than 5 percent during the session between February 14 to February 21 witnessing five consecutive bullish sessions on the back of optimism around domestic demand outpacing supply easing raw materials inflationary pressures.

Along with massive selling in the range of key constituents like JSW Steel, Tata Steel, and further Hindalco, the other steel players are selling when the market moves down. Tata steel management has been suggesting that, With enormous domestic consumption, it is most clearly pressurecasedid by the global turmoil and cost escalation.

The prices of copper and steel have fallen recently due to a robust US Dollar and reduced expectations from the Federal Reserve in terms of their rate cuts in 2025. These factors compelled Fedopoly to take more drastic actions. 

As a consequence, companies situated in India that are prone to excessive reliance on imported raw materials will be struggling greatly. Jindal lection has already suffered with diminished margins already. Q3 FY25 earnings are set to miss due to inline coal iron ore prices, which are far too high. But long term, we expect robust returning tides against this temporary blip,” He noted.

Shares of Hindalco Industries Limited dropped the most in the market and closed with a near 4% loss at intraday shares amounting to Rs 617.3. The share price of the National Aluminium Company Limited also dropped by 3.6 percent and reached an intraday price of Rs 182.70. In the last two days, this company shares had shed 8.56 percent.

Companies like Jindal, alongside other companies in that segment, suffered from the wider losses and fell up to 3% in stocks, along with Zedanta.

Karthick Jonagadla, smallcase Manager and Founder & CEO at Quantace Research spoke on the factors leading to the sell-off in metal stocks: US Tariffs & Retaliatory Risks: The US set a high barrier in trying to use threats for retaliatory tariffs on BRICS which heavily impacts the sentiment from dollar denominated assets. For instance, the threat of a 25 percent tariff being placed on all steel and aluminum imports greatly reduces sentiment domestically. Shift in Trade Routes & Oversupply Concerns: Analysts now project that up to 4 million tons per year, originally bound to the US market, could flood into India routinely. Competetive pricing pressures along with this sudden oversupply is bound to drive domestic steel prices lower, as exports of Chinese steel to India are on the rise by 22.8% year over year from April-November 2024. Domestic Policy Awaited: Indian steel companies have been left in limbo with proposals of potential safeguard duties ranging between 15-25% on imports of steel from China. What investors should do? Karthick Jonagadla pointed out that option chain data further suggests that key heavyweights in the Nifty Metal index are trading about sensitive levels and noticing this, one should get positioned in the metal sector. TATASTEEL: Rs 139, ADANIENT: Rs 2280, HINDALCO: Rs 620, VEDL: Rs 440, JSWSTEEL: Rs 970.

He further stated, “Any breach of these levels may trigger increased selling pressure, in which case, Metals will move more sharply. These heavyweights make 70 percent of the weightage in the Metal Index.”

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