Nifty Metal forms Death Cross; brace for more pain ahead!

The index hit a 52-week low of 16,901.9, following a steep 29 per cent correction in two months from its 52-week high of 23,742.99.

The tide has turned for metal stocks. After a massive outperformance last year, the metal counters are melting sharply, so much so that the BSE Metal index formed a Death Cross on Tuesday.

The index hit a 52-week low of 16,901.9, following a steep 29 per cent correction in two months from its 52-week high of 23,742.99.

The Death Cross is a chart pattern that indicates the transition into the bear grip. This technical indicator occurs when the short-term moving average (say, 50-day) of a stock/sector crosses from above to below a long-term moving average (say, 200-day).

The formation of Death Cross is signalling more pain ahead for investors.

The majority of the stocks from metal, iron, steel or related sectors are in a tight bear grip. Data from Ace Equity suggests that more than 100 stocks from metal and related sectors are down more than 20 per cent from their latest peaks. More than 20 names have plunged between 50-65 per cent.

Among wealth destroyers,

Metals, Nova Iron, & Power, Product and India Steel Works lead with over 60 per cent fall from peaks.

Renowned names, including National Steel, Jindal Stainless,

(Hisar), (SAIL) and & Iron Ores and have eroded more than half of investors’ wealth.

ETMarkets.com

ETMarkets.com

Among other big names, (48 per cent down), (47 per cent down), Jindal Saw (44 per cent down), KOICL (42 per cent down), (41 per cent down) and NMDC (40 per cent down) are key wealth eroders.

ETMarkets.com

ETMarkets.com

Bluechip firms

, & Power, Tata Steel, Vedanta, and JSW Steel have also plunged 30-45 per cent from their 52-week highs.

ETMarkets.com

Market analysts do not see any recovery in these counters in near term, thanks to restrictions and curbs induced by the Covid-19 scare in China — the largest consumer of metal in the world. Meanwhile, India’s iron ore prices are likely to stay decoupled from seaborne ore prices due to the export duty of 15 per cent imposed by the government on iron ore and pellets, said experts.

China’s steel spreads remain muted, which should support steel prices and limit the downside from current levels. However, China’s steel demand is the key to revival, noted Equirius Wealth.

“The rally in coking coal prices – triggered by the Russia-Ukraine war and weather-related disruptions in Australia – has now ended, probably faster than expected. India’s non-integrated steel companies have emerged as the lowest-cost producers in the world.”

The decline in coking coal demand in the past few weeks could be attributed to the return of coking coal supply from Russia and weak global demand.

Nomura believes that coking coal demand in India weakened in May and is likely to remain weak in 1HFY23. This, it said, is putting pressure on profitability given the onset of monsoons.

“Demand for coking coal from Australia is likely to remain weak even as steel output from China gathers pace as Chinese mills are procuring coking coal from Russia at lower prices, against Australian coking coal,” it added.

Key economic indicators in China remain significantly weak, said Nomura. “In the first week of June, steel inventory with traders rose due to weak demand owing to festival holidays and weather conditions.”

Equirius Wealth said it remains positive on non-integrated steel players, with Jindal Steel & Power as its top pick. NMDC is our top sell call in the ferrous space as the company is likely to be the most impacted by falling ore prices in India, it added.

Nomura, meanwhile, has a ‘Reduce’ rating on JSW Steel with a target price of Rs 500, whereas Sharekhan has suggested holding SAIL with a target price of Rs 80. Sharekhan also has a buy rating for

with a target price of Rs 1,740.

“We retain our preference for non-ferrous counters with Hindalco (Target Price: Rs 555), Vedanta (Target Price: 414) and GMDC (Target Price: Rs 230) as our key picks,” said Edelweiss Securities.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)