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Falling commodities to hit metal, steel companies Falling commodities to hit metal, steel companies

Jul-09-2015 | 0 Comments


MUMBAI: Indian metals, mining and resources companies such as Anil Agarwal-led Vedanta Ltd, Kumar Mangalam Birla-owned Hindalco Industries, crude oil producer ONGC and steel producers such as Tata Steel are likely to be impacted as turmoil in the Chinese equity markets — together with the Greek debt crisis — took a toll on global commodity prices.

Crude oil, gold, silver, aluminium, iron ore, copper, zinc, coal and other industrial commodities were on track to finish at their lowest level since late 2001 as weaker demand from one of the world's largest consumers of raw materials (China) led to commodities suffering the worst rout in seven months. China accounts for over 40% of global consumption of such commodities.

The fall in crude oil prices is a blessing for the Indian economy as it would reduce India's current account deficit, aid infrastructure development and help in saving precious forex reserves. However, the fall in prices — especially in the base metals sector — will hurt producers like Vedanta Ltd and Hindalco Industries, feel analysts.

Tracking these developments, India's metal and mining stocks fell as global commodity prices dropped amid a dimming outlook for China's economy, which is the world's largest consumer of steel, copper and aluminium.

"Softening global crude oil prices will immensely benefit India. Being the major import, it will help narrow the country's current account deficit, while inflation rate will see a downtrend and will also indirectly help in narrowing the fiscal deficit. The fall in other commodity prices will also benefit the economy and aid faster infrastructure development," said Nirmal Jain, chairman, IIFL Group. He added that some sectors and companies benefiting from higher commodity prices may be affected. Naveen Mathur, head of commodities at Angel Research, said, "China consumes around 40-50% of all the base metals and a falling demand in China is impacting the prices of these metals. Secondly, the dollar is strengthening due to the Eurozone crisis as a safe heaven. Since all these metals — including crude — are dollar-denominated, their prices are under pressure."

Shares of Anil Agarwal-led Vedanta Ltd, one of the world's largest diversified natural resource majors with operations across zinc, lead, silver, oil & gas, iron ore, copper and aluminium, touched its 52-week low of Rs 140 before closing down 8% at Rs 146.

Even Kumar Mangalam Birla's metals flagship Hindalco Industries touched its 52-week low of Rs 99.2 before closing down 5% at Rs 102.

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