Metal stocks - Keep watch

We are often asked by investors – Is there any steam left in metal stocks? Surely yes! We see that spot metal prices of aluminium and copper jumped by 25.7% and 35.3% YoY on TTM basis. The “China factor” has helped domestic aluminium and copper prices to remain buoyant. Also, friendly government policies favouring domestic industry has helped companies to benefit from the buoyant global metal prices. 

 Industry is also expecting domestic demand – which has been slack – to pick up. The key levers for the same being the push for Smart Cities project, increasing infrastructure outlay and push for electric vehicles in automobile industry. 

 We see that not all companies saw the ramp-up in production during the period June 2016 to May 2017. But for aluminium, Bharat Aluminium increased its production substantially by 41.7% while Hindalco and Vedanta saw lack luster growth in production. 

Copper production witnessed more positive traction. Hindustan Copper turned out to be a leader in the same, with robust 24.4% increase in production. Hindalco also reported growth in high teens.

We expect metals to perform well due to higher realizations. Also, we expect next two years to see government projects from planning stage to hit the ground, leading to higher execution on investment commitments.