Metals & Mining Industry: All Set To Acquire A New Shine

Steel production and consumption are regarded as indicators of economic progress and industrial development and the backbone of any economy. Mandar Wagh explains how being the world’s second-largest producer of crude steel, the reopening of the Chinese economy, the government’s focus on infrastructure and the initiatives taken all contribute to the sector’s growth 

Due to its abundant reserves of iron ore, manganese ore, bauxite, chromium and other mineral salts as well as its huge deposits of coal, lead, zinc, silver and gold, India is a natural powerhouse and one of the premier destinations for the metals and mining industry. States with significant mining activities include Andhra Pradesh, Jharkhand, Odisha, Rajasthan, Karnataka, Madhya Pradesh and Maharashtra. India’s strategic location allows for the development of export potential as well as rapid growth in the Asian markets. It provides competitive advantages to end-use sectors like building and infrastructure, automotive and electricity by supplying them with crucial raw materials at affordable pricing. 

The industry has the potential to have a significant impact on GDP growth, foreign exchange earnings, etc. It is therefore a fully-fledged government-backed industry that supports India’s entire infrastructure and development sector. Furthermore, Indian Steel Association, Aluminium Association of India, India Stainless Steel Development Association, Coal Consumers Association of India and Federation of Indian Mineral Industries are some of the organisations that assist to cater the needs of the industry and deal with related activities. 

Market Size

The global metal market expanded from USD 3,940 billion in 2022 to USD 4,230 billion in 2023 at a compound annual growth rate (CAGR) of 7.4 per cent. The metal market is expected to grow to USD 5,500 billion in 2027 at a CAGR of 6.6 per cent. In 2021, the global steel market was estimated to be worth USD 1,307 billion. The steel industry is expected to grow at a compound annual growth rate (CAGR) of 3.47 per cent from USD 1,353 billion in 2022 to USD 1,718 billion by 2030. Among metals, steel has historically held a dominant position. 

As a raw material and intermediate product also, production and consumption of steel are widely considered as indicators of economic progress and industrial development that forms the backbone of any economy. India is the world’s second-largest producer of crude steel, as well as the fourth-largest producer of iron. The steel industry has substantial potential for expansion and is expected to reach the 300 million tonne target by 2030 while coal is expected to continue to be the main source of electricity.
 

Factors Influencing Metal Stock Movements 

Metal and mining sector stocks soared significantly between April 2020 and April 2022 with the sectoral index BSE Metals skyrocketing more than 300 per cent. Some of the factors driving the rally include expectations for a quicker energy transition, infrastructure spending, the storability of metals and a rapid manufacturing-based recovery. The government imposed export taxes on a variety of metals and steel products in May 2022 in an effort to control high inflation. Metal prices, which had previously peaked, fell precipitously in the months of April, May and June 2022. Numerous factors were to blame, most prominently the effects of the war between Russia and Ukraine. 

The war disrupted the chances of global economic recovery, at least in the short term. It has also resulted in economic sanctions against a number of countries, a rise in commodity prices and supply chain disruptions, resulting in inflation and affecting many markets around the world. Later, China had begun to soften its virus policy in order to boost its collapsing real estate industry. Metal stocks then surged once more on hopes that the reopening of the Chinese economy would result in a revival of metal industry pricing and demand. In addition, significant export bookings and speculation that Indian steel mills are considering price increases in response to stronger global cues drove up the shares of metal companies.

Metal Stocks and Equity Markets

Taking into account the performance of the sectoral index BSE Metals, the index has fallen over 7 per cent in the last month and more than 11 per cent over the last year. Among its constituents, APL Apollo Tubes outperformed others by a wide margin, posting 45 per cent gains in the past year. Despite falling short of expectations – owing primarily to higher raw material costs – APL Apollo Tubes reported robust quarter performances and paid a healthy dividend to shareholders. The sector’s poor performance was primarily caused by steep decline of more than 30 per cent in Hindalco Industries and Vedanta Ltd., although shares of Jindal Steel and Power and Coal India also experienced a considerable rally. Hindalco Industries and Vedanta Ltd., the two worst performers, reported weak quarter results, with net profit plunging by a massive margin. 

The journey for domestic metal producers became more difficult as the external environment became more challenging due to higher inflation, rising interest rates and energy prices. In terms of the best-performing stocks in the metal industry over the past month, shares of Indian Bright Steel Company soared over 54 per cent as a result of back-to-back upper circuits, making them the list’s top gainer. Starlit Power Systems, Rhetan TMT and Pennar Industries attracted investors due to their strong uptrend. When compared to the top multibaggers in the sector, shares of Narayani Steels have soared by leaps and bounds, providing outstanding returns of over 1,080 per cent in just one year. The company has a sizeable promoter holding, a very low PE ratio with higher return ratios and earnings per share, which are some of its strengths that have drawn investors.
 

Net Zero Transformation and Other Challenges 

‘Net Zero’ simply refers to reducing greenhouse gas emissions to as close to zero as possible, with any residual emissions being reabsorbed from the atmosphere. The metals and mining industry is being severely impacted by the rapid transition to net zero since it will be required to supply the resources necessary for a greener economy. Businesses with improved ESG ratings are expected to result in greater long-term shareholder and market value and will be rewarded in every industry. 

Moreover, the potential of solar and wind energy is growing quickly, and the electric vehicle transformation is also in full swing. To survive and grow in the market, businesses must adapt to a changing environment. Environmental rules and regulations must be met by mining companies, and they will probably get stricter in the future. Raw material price volatility, higher costs, limited availability of coking coal, irregular power supply, low potential utilisation and low investment in cuttingedge technology are some of the industry’s challenges.
 

Outlook

The Union Budget 2023-24 has placed a strong emphasis on infrastructure and development, which will benefit the metals and mining sector in the long run. Under the Atmanirbhar Bharat 3.0 package, a production-linked incentive scheme has been introduced in the specialty steel sector. The ‘Make in India’ initiative of the Indian government seeks to boost the manufacturing sector’s share of GDP. As part of this plan, the government has designated a number of industries, including the automotive, power and defence sectors, which use a variety of nonferrous metals extensively. The power and cement industries are also assisting in the growth of the sector.

According to a government report, India is the second-largest importer of the fuel despite having the fourth-largest coal reserves in the world. To meet the country’s rising demand, the coal ministry is anticipated to begin the next round of commercial coal mines auction in the second half of March. In an effort to reduce the country’s dependence on China for mineral wealth, the government has taken the step to open up offshore mining to the private sector. The Ministry of Mines of the Government of India has already signed memorandum of understandings (MoUs) with different countries and has provided multiple significant mineral block reports to various state governments as part of its exploration programme to tap into India’s enormous mineral potential. 

Not only the government but also major corporations are making every effort to prosper their businesses and, as a result, the metal industry. Industry leaders are signing MoUs with a number of global leaders to gain access to technology and funding. Steel, zinc and aluminium producers continue to benefit from profitable business opportunities brought on by infrastructure projects. Industrial metals like steel and copper will continue to be linked with economic growth in the country. In reality, China, India and Brazil hold the majority of the ownership in a number of the world’s largest mining companies. 

They should have a significant impact on the prices of mining stocks and commodity metals. Also, India has a reasonable cost advantage in steel and alumina production and conversion costs. There is a considerable potential for new mining operations in the iron ore, bauxite and coal sectors, as well as significant opportunities for subsurface deposit discoveries in the future. Due to reforms like the Make in India campaign, enhanced infrastructure development, rural electrification, smart cities and a commitment to creating renewable energy projects under the National Electricity Policy, the metal sector in India is anticipated to undergo a significant transformation in the coming years.