Metal Stocks On The Rise Amid China Demand; Tata Steel, JSW Steel, Vedanta Surge; What Analysts Say?

The leading metal stocks including Tata Steel, JSW Steel, Vedanta, Hindalco, and SAIL witnessed significant gains, with share prices rising up to 8%. Among them, Tata Steel and Hindalco emerged as top Nifty-50 gainers, boasting gains of more than 1%, while Vedanta saw an impressive surge of over 9%.

Analysts attribute this surge to growing expectations of a pickup in demand from China, fueled by positive cues from China Data, which have significantly lifted sentiments for the metals pack. Base metal prices, including those of Copper and Aluminium, have seen a notable uptick on the London Metal Exchange, further driving the earning prospects of non-ferrous companies such as Hindalco, Vedanta, and NALCO.

Hindalco Industries, Vedanta Ltd, and National Aluminium Company (NALCO) have been particularly standout performers, witnessing their share prices rise by 19-42% since their lows in March. Analysts at Jefferies India Pvt Ltd have emphasized the recent recovery in global PMIs, especially in China, as a key driver of optimism for potential acceleration in demand growth for commodities. They remain constructive on the sector, with a preference for copper and aluminium.

Moreover, Jefferies analysts have revised their earnings per share estimates for Hindalco upward by 9-15% for FY25-26. This positive outlook is reinforced by the rating agency ICRA, which predicts steady industry earnings of 17.5-7.5% in FY2025, driven by consistent realizations and a slowdown in input prices.

ICRA anticipates robust domestic demand growth of approximately 10% in FY2025, surpassing the anticipated global demand growth of around 2% for the same period. Operating margins for local manufacturers are expected to remain steady at 17-17.5%, further strengthening the stable view for the industry.

The outlook on non-ferrous metals demand and profitability has also sparked some optimism around the ferrous pack. Global steel demand is expected to pick up, supported by favourable PMI data from China. However, international steel prices are yet to show a significant uptick.

This global demand pickup, especially led by China, is crucial for domestic steel manufacturers as well. Despite strong demand in India, weak international and China prices continue to exert pressure on domestic steel prices. Analysts remain cautiously optimistic, closely monitoring the recovery in steel prices.

Meanwhile, the potential recovery in China's demand is expected to have a ripple effect, positively impacting the outlook for iron ore and coal demand and prices. The share prices of NMDC Ltd and Coal India are already reflecting this sentiment.

The metal sector is witnessing a resurgence driven by positive sentiments surrounding China's demand pickup and favourable global economic indicators. Analysts and rating agencies are optimistic about the sector's growth prospects, with expectations of steady earnings and robust domestic demand driving confidence among investors.

Disclaimer: The opinions and suggestions provided above represent the views of individual analysts and do not reflect those of GoodReturns or the author. We recommend investors consult with certified experts before making any investment decisions.

*Inputs from Mint*