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Axis Securities Report
Non Ferrous metals are in focus with an expectation of a U.S. interest rate cut in June 2024. Recent news on Aluminium production concerns at Yunnan and Copper smelter production cuts in China has provided support to the prices of these nonferrous metals.
The CME Fed watch tool now has a 62% probability of a 25 basis points rate cut on the June 12, 2024 Fed meeting. Fed rate cut will be supportive of dollar-denominated base metals. On the other hand, China’s demand uncertainty continues to linger as its property sector continues to remain sluggish.
However, its impact is felt more on the steel and its raw materials (iron ore and coking coal) prices. China’s steel demand remains slower than expected. China’s 3MMA YoY growth in ‘floor space started’ fell to -9.9% in Dec-23. However, continued policy support has led to the easing of this fall, as the floor space started has slowly recovered from -45% YoY in August 2022 to -9.9% in Dec-23.
As per the China Iron and Steel Association, the total steel inventory of key enterprises in mid-March-24 stood at 19.5 million tonne, up by 9.7 kt as compared to early March-24. Hot rolled coil prices in China have corrected by 8% since Jan-24 to $535/tpnne.
Iron ore inventory at Chinese ports stood elevated at 142 mt as of March 29, 2024. Iron ore prices traded below $100/tonne on the of April 01, 2024, at a 10- month low level due to lower steel demand and increased supply from Australia.
Coking coal prices have also eased from the peak of $367/tonne in Oct-23 to spot at $245/t offering some respite to steel spot spreads.
Against this backdrop, we prefer non-ferrous names as they have more fundamental tailwinds than ferrous space.
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