Metal stocks experienced a significant uptick during afternoon trading, with the Nifty Metal index gaining 2.70% to reach 9,637.90 points. The rally was primarily driven by a weakening dollar and China's plans to reduce steel capacity.

Key Highlights

• Tata Steel emerged as the top gainer, jumping 5.47% to ₹167.06
• Jindal Steel & Power rose 4.18% to ₹1,015.95
• SAIL climbed 4.09% to ₹128.13

Factors Driving the Rally

Weakening Dollar

The surge in metal stocks can be attributed to a weakening dollar, which typically boosts commodity demand. As the dollar loses strength, international buyers can purchase more units for the same dollar amount, potentially increasing demand for metal commodities.

China's Anti-Involution Plan

China's announcement of an anti-involution plan to reduce steel capacity has provided additional support to the market. The plan aims to:

• Cut steel capacity by 50 million tons
• Target an 8.5% reduction in production

This move is expected to tighten the global steel market, potentially benefiting Indian steel producers.

Analyst Perspectives

CLSA's Outlook

CLSA has adjusted its EBITDA estimates for metals and mining companies, ranging from -4% to +8%. The brokerage anticipates that market tightening will improve profitability for Indian mills. CLSA's preferences include:

• JSPL (Jindal Steel & Power Ltd): Favored for its capacity addition-driven growth
• Aluminum plays: Hindalco and Vedanta

Citi's Stance

Citi maintains a positive outlook on the sector, adjusting target prices by -3% to +6%.

Market Activity

Tata Steel stood out as the most active stock in terms of both volume and value, with trading worth ₹913.37 crores.

Conclusion

The metal sector's robust performance, led by Tata Steel, reflects the positive impact of global economic factors and strategic industry moves. As the market digests these developments, investors will be closely watching how these trends unfold and affect the long-term prospects of metal stocks.

The metal sector witnessed a mixed performance in the June quarter, with ferrous and non-ferrous segments experiencing contrasting fortunes. While steel producers celebrated robust profit growth, their non-ferrous counterparts grappled with margin pressures due to declining commodity prices.

Ferrous Sector Surges Ahead

Steel companies emerged as the quarter's standout performers, surpassing market expectations with an impressive aggregate EBITDA of Rs21,000.00 crore. This success can be attributed to two key factors:

1. Higher domestic prices
2. Reduced coking coal costs

The steel industry benefited from a favorable cost environment, with imported coking coal prices dropping by $10.00-15.00 per tonne. This decline in raw material costs significantly boosted the operating margins of steelmakers.

Among the major players, Tata Steel and JSW Steel reported strong earnings. However, SAIL (Steel Authority of India Limited) underperformed due to inventory drawdowns.

Government Intervention Bolsters Domestic Steel Industry

In a move to protect the domestic steel industry, the government imposed a 12% safeguard duty on select flat steel products in April. This policy intervention yielded immediate results, leading to a substantial 29% year-on-year decrease in finished steel imports, which fell to 1.40 million metric tonnes.

Non-Ferrous Segment Faces Challenges

While their ferrous counterparts celebrated, non-ferrous metal companies faced a challenging quarter. The segment experienced a sequential EBITDA decline of 15.2%, bringing it down to Rs20,900.00 crore. This downturn was primarily due to:

• A 3% year-on-year and 7% sequential decline in average LME aluminum prices, which fell to $2,444.00 per tonne
• A drop in alumina prices to $359.00 per tonne

Steel Price Adjustments and Future Outlook

Despite the overall positive performance, the steel industry is bracing for potential headwinds in the coming quarter. Domestic majors have proactively increased prices for August:

• Hot-rolled coil prices up by Rs1,000.00-2,000.00 per tonne
• Cold-rolled coil prices also increased by Rs1,000.00-2,000.00 per tonne

However, steel demand is expected to weaken in the current quarter due to monsoon-related disruptions, which could impact the sector's performance.

Sector Performance at a Glance

The metal sector's divergent performance in the June quarter underscores the importance of raw material costs and product pricing in determining profitability. As the industry moves forward, it will be crucial to monitor how these factors evolve and impact the sector's overall health.