What does the Metal and Mining sector look like in India?
- According to TradingEconomics, GDP from mining stood at USD 1052 Billion as of April 2020 which is about 10-11% of the GDP(PPP)
- India produces 95 minerals – 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals (including building and other minerals).
- India ranks fourth in terms of iron ore production globally also India became the world’s second-largest crude steel producer in 2019 with production at 111.2 MT(Million Tonnes). India is the third-largest producer of coal standing at 55.4MT.
- India’s iron and steel export in FY20 (till January 2020) stood at US$ 7.96 billion. India is the 14th largest exporter of steel, this leaves a huge potential for India to produce and meet global demand and pump up exports
- India Exported $3357.61 Million worth of Aluminium in FY20. India Exported Zinc worth 360.24 USD Million in 2019
Steel and Economic Growth.
How does steel signify economic growth? Construction, Automobile and Spares, Transport and Logistics, Energy and Appliances are some of the industries that heavily rely on iron,steel and aluminium. A healthy crude steel consumption is a sign of growth in a developing economy.
Already developed economies, with low GDP growth rates do not indulge in mining activities for “domestic” consumption. Developing economies like India, China, Vietnam have high levels of domestic consumption as compared to other developed economies.
A COVID restrictions ease and economic activites begin normalizing, you can expect Heavy Industries and Capital Goods sector to reopen as well. Moreover, India is also expecting to meet global steel demands post-COVID period, with currently the importer of steel from India being China.
Metals and Mines on Dalal Street
- NIFTY METAL is the benchmark for Metal and Mining Stocks on National Stock Exchange.
Following are the Top stocks by Market Capitalization in NIFTY METAL .
|Hindustan Zinc Ltd.||106871.4|
|Coal India Ltd.||79961.4|
|JSW Steel Ltd.||57648|
|Tata Steel Ltd.||46261.7|
|Hindalco Industries Ltd.||39427.2|
Following are the top gainers in NIFTY METAL in terms of annual(%) returns:
|Jindal Steel & Power Ltd.||95.01%|
|Mishra Dhatu Nigam Ltd.||77.70%|
|APL Apollo Tubes Ltd.||64.09%|
|Hindustan Zinc Ltd.||21.44%|
|Ratnamani Metals & Tubes Ltd.||20.29%|
Following are the top losers in NIFTY METAL in terms of annual(%) returns:
|Coal India Ltd.||-37.05%|
|National Aluminium Company||-18.93%|
|Welspun Corp Ltd.||-11.77%|
|Steel Authority of India||-3.46%|
Metal Stocks Performance in COVID.
- The COVID pandemic managed to jolt almost all stocks in the NIFTY METAL benchmark except for TWO. Steel Authority of India(SAIL) with Net Profit (+)383% YoY and Jindal Steel and Power(JSPL) with Net Profit (+) 406.16% YoY What is it that made these two companies exceptional?
- SAIL and JSPL both adopted an export-oriented approach. SAIL’s exports increased by a staggering 349% in July(YoY) from 0.8 ton to 3.1 ton and JSPL’s exports increased by 203% in July(YoY). Naveen Jindal of JSPL announced aiming for 80% export of output for time being.
- Last year Indian Iron and Steel Industry faced a de-growth of 6-7% however after the COVID restrictions eased Indian companies focused on increasing exports because of reduced domestic demand in the country.
- According to EEPC India, Indian steel export increase two-fold in June. JSPL export sales contributed to 39% of the total standalone Sales in July 2020 to 2,50,000 tonnes.
- Hindalco (Aluminium) is exporting over 80% of its output amid contracting domestic demand. Read More Here.
- NMDC India’s prime iron ore producer reported increased production by 13% and increased sales by 7% in July post lifting of lockdown restrictions.
- Nifty Metals index this year has gained nearly 6% so far in August
Future Prospects of Metal Stocks?
- Despite 100% FDI through the automatic route introduced in 2019, Steel industry didn’t see much of it due to absence of domestic expertise, lack of MSMEs and inefficient productivity.
- According to a Crisil report, steel companies with 22 MT capacity were referred to the National Company Law Tribunal (NCLT) in the RBI’s first round of resolution of stressed assets. The MSMEs in Steel Sectors are finding it difficult to get the Credit from Banks and thus impacting their production.
- After a long slump, Metal prices, as well as demand, have started to pick up. Import demand exists in developing economies such as China and ASEAN countries(South East Asian Nations) where construction and infrastructure sectors have resumed show and the demand for capital goods has arisen.
- China and Vietnam were top destinations of Indian steel exports accounting for nearly 63.5% of total steel exports during June 2020 as compared to only 6.2% in June 2019. Essentially, current global prices are China-driven.
- Steel demand in the developing economies excluding China is expected to fall by 11.6% in 2020 but will see a substantial recovery of 9.2% in 2021 according to the World Steel Association. This leaves prospects for India to pump exports into already existing markets of ASEAN.
- A major chunk of domestic demand for industrial metal in India comes from the Automobile Sector. In fact, Passenger vehicle sales are up 69%. Read more on how the Automobile Sector is picking up after COVID lockdown relaxations.
- Base metal prices had slumped after the COVID lockdown, the price has started moving up as market normalises and global production gains momentum which is seen as a positive, however precious metals like Gold which crossed its highest-ever Rs. 57,000 mark this week adds to volatility surrounding markets which may continue till the vaccine isn’t obtained.
- MSME, Small Cap and Secondary metal enterprises are unlikely to report any significant production anytime in the future as they are grappling with additional challenges of low working capital and depleting cash reserves under lock-down. The focus should be directed on larger and established metal or mining stocks until volatility doesn’t die down.
- The gap between international domestic price was 7-8 per cent (source: Business Standard). This leaves Indian steel prices a potential to recover the gap. Domestic hot-rolled coil (HRC), a variety of steel sold, moved up by Rs 2,000 a tonne from end-July.
With projects pending all over the country, rising exports to developing economies and the declaration of Atmanirbhar Bharat, India plans to become a producer hub for the world. This goal will be fueled by all major industries in India, one such being the Iron and Steel Industry. You can expect a fair share of growth once the economy restarts to its full scale. As India continuously aims to increase its Net Export, the future for the Metal and Mining industry seems bright and shiny.