GR Exclusive: Metals And Mining Sector Poised For A Strong Comeback In 2024; Here's What Analysts Say

As we step into 2024, expectations for the metals and mining sector are soaring high, driven by policy reforms, incentives, and ambitious expansion plans by industry giants. Analysts predict a substantial fill in production gaps and a significant reduction in dependence on imports. The sector is poised for a notable performance from Q3FY24 onwards, fueled by positive global macroeconomic factors, a weaker Dollar, lower bond yields, and robust demand from economic powerhouses China and India.

Global brokerage Jefferies has expressed cautious optimism for the metal and mining sectors in 2024, attributing its positive outlook to stability in China and a promising macroeconomic backdrop in the West. Despite the challenges faced in 2023, the brokerage anticipates a turnaround fueled by a combination of factors, including a weaker dollar, lower bond yields, and encouraging developments in emerging markets.

Jefferies identifies key factors contributing to a more favourable global macro environment in 2024. A weakened Dollar, lower bond yields, and the possibility of the Federal Reserve rate hold or reductions are expected to create a conducive atmosphere for the metals market. The stability in China, coupled with India's surging demand, ongoing energy transition, and restrictions on mine supply, are anticipated to further bolster the sector.

The brokerage emphasizes the potential impact of increased investment and supportive fiscal policies in China, foreseeing accelerated economic growth and the prevention of deflation. This positive outlook aligns with Jefferies' projections of a healthy 6-15% volume Compound Annual Growth Rate (CAGR) for Coal India, Tata Steel Ltd, and JSW Steel Ltd over the fiscal years 2024-2026.

Shreyansh V. Shah, Research Analyst at StoxBox, envisions a promising outlook for the metals and mining sector, particularly starting from Q3FY24. He points to a confluence of factors such as the weaker dollar, lower bond yields, potential Fed rate holds or reductions, China's stable economic environment, and India's booming demand as catalysts for healthy double-digit volume growth. This growth is expected to be complemented by an improvement in metal prices, contributing to robust EBITDA margins for listed companies in the sector.

StoxBox identifies JTL Industries as a fundamental pick expected to outperform in the sector. The company's commendable clientele profile, coupled with being debt-free, positions it as a standout player. JTL Industries specializes in steel tubes and pipes with applications in critical sectors like infrastructure, solar power, energy, water transportation, and railways - all key areas of focus for the government's growth agenda.

Another stock poised for strong performance, according to Shreyansh V. Shah, is Hindalco. The company's Aluminum segment has shown a notable improvement of around 4%, supported by stable industry indicators. The copper segment has witnessed healthy growth at 8% on a volume basis, attributed to previous acquisitions of copper facilities in FY22 that pushed volumes absorbed by the industry.

While expressing an overall positive sentiment towards the sector, Jefferies suggests a strategic preference for Coal India amid global uncertainties. The brokerage remains optimistic about Coal India's performance, projecting earnings per share (EPS) for the fiscal years 2025-26 to be 19-21% above street estimates. With a 7.3x fiscal year 2025 earnings per share and an attractive 7% dividend yield, Coal India is positioned as a robust investment option.

Jefferies has upgraded JSW Steel Ltd from Underperform to Hold, raising the price target from Rs 700 per share to Rs 800 per share. The brokerage has also maintained a "buy" call on Coal India, Hindalco Industries, and Tata Steel, with revised price targets reflecting confidence in their performance.

Jefferies' report highlights the resilience of Indian Hot Rolled Coil (HRC) steel prices in 2023, with strong domestic demand playing a pivotal role. Despite increased imports from October to November, the report anticipates a decline as the premium of Indian steel prices for landed imports has reduced from 11% to 4% at the spot.

In a world facing challenges in commodity volume growth, Jefferies identifies Indian metal and mining companies as an "oasis of growth." New capacity expansions are expected to drive robust volume Compound Annual Growth Rates (CAGR) for JSW Steel and Tata Steel in India, ranging from 12% to 15% between fiscal years 2024 and 2026. Coal India is also projected to experience a healthy 6% volume CAGR over the same period, driven by India's strong economic growth outlook and rising power demand.

Shreyansh V. Shah sheds light on the recent performance of the metal index, acknowledging that it might not have replicated the stellar performance witnessed in 2022 or 2021. However, he highlights that the share prices of most metal companies, both in the ferrous and nonferrous space, have continued to rise. This upward trend has coincided with an uptick in steel and base metal prices over the last few months.

Jefferies anticipates a positive earnings outlook for the metal and mining sectors, driven by strong volume growth in steel and a rebound in global steel spreads. The brokerage projects impressive EBITDA and EPS Compound Annual Growth Rates (CAGR) for JSW Steel and Tata Steel over the fiscal years 2024-2026. Coal India's earnings outlook has also improved, with a 5% CAGR expected over the same period, despite a high base.

Jefferies underscores a cyclical recovery at Novelis as a key driver for a 10% EPS CAGR for Hindalco over fiscal years 2024-2026. The brokerage's estimates assume specific conditions, including an India steel price of Rs 58.0-58.5K, a coking coal price of $275, and an aluminium price of $2,300.

Despite the metal index not reaching previous peaks, the ongoing rise in share prices is indicative of a positive trajectory. Analysts project that the expected boost in demand will offer sustained support to both overall demand and prices. As a result, the sector's outlook remains positive in the medium term.

As 2024 unfolds, the metal and mining sectors appear poised for recovery, buoyed by a combination of global macroeconomic factors and strategic developments in key markets. Jefferies' optimism, underscored by upgraded ratings and revised price targets, signals a positive trajectory for investors in the metal and mining sectors, particularly in India, which stands out as an oasis of growth in a challenging global landscape.