The Hindu Business Line : Metals hammered a day after recovery

Kolkata, Nov. 11 Metals, miners and metal-related stocks on Tuesday slumped after Monday’s recovery on a sentimental boost provided by announcement of long-term stimulus package by China.

Such promise was too woolly to rev up demand in the short term, analysts said.

On Monday, China’s $600 billion bid to keep recession at bay had sparked rise in stock markets across Asia, including India, and helped Australia’s miners gain even after Rio Tinto said it would cut production by 10 per cent because of a fall in demand.

Sentimental Booster

According to Mr Amitabh Chakraborty of Religare, Chinese package, is only a sentiment booster. He was not very optimistic about metals outlook in the short-to-medium terms and felt current global demand contraction would take time to ease out.

Cut in production across the metal and ore spectrum had arrested sharp fall in prices temporarily, but these will impact the balance sheets negatively going forward, said Mr Ajay Jaiswal of Mricrosec. In the domestic market, spot prices of HRC have come down to between Rs 32,000 and Rs 34,000 a tonne from Rs 42,000 to Rs 44,000 as on October 14.

According to Mr Rajesh Agarwal of CE Equisearch, how deep the fall in demand would be in the next few quarters is not clear. Local metal producers have cut prices. It is apprehended that some of them would announce production cuts too. Tata Steel has announced production cuts for Corus, but not for its plant here, analysts pointed out.

Production Cuts

Welspun Gujarat Stahl Rohren has trimmed its steel plate production target for FY09 by 43 per cent and will not produce commercial grade plates for sale due to lower prices. Indications are that SAIL may have to resort to production cuts. JSW may reduce production by 20 per cent this month. Bhushan Steel has reportedly cut production of galvanised steel by 20-30 per cent and stopped purchase of raw materials. Last week a Brazilian miner stopped shipment to China after finding it difficult to exercise 12 per cent upward price revision.

Layoffs

A growing list of base metals miners have been sacking staff as projects are getting delayed, mines have shut down and production cuts are already in place.

Analysts felt miners and metal companies are likely to continue with cut in output and postpone capacity expansion as long as demand and prices slide.

Prices of billet, mainly used in construction sector, fell 25 per cent to a three month low of $645 a tonne for China FOB.

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