Why Metal Stocks are Down for Third Day

Metal stocks fell for the third day in a row tracking a weakness in commodity prices.

Tata Steel and Jindal Steel fell nearly 2 per cent whereas Hindalco Industries dropped over 3 per cent today.

The BSE Metal-sub index traded 1.63 per cent lower as compared to 0.99 per cent fall in the Sensex. It has fallen over 8 per cent in last one month and over 11 per cent in last three months as against 2 per cent gain in the Sensex in last one month and 6 per cent gain in last three months.

In general, commodity prices have fallen to their lowest level in last five years, hit by a strengthening US dollar, rising supply in key markets and concerns over faltering economic growth in China have weighed on metal stocks.

Steel and copper prices have fallen by nearly 6 per cent in the year so far whereas iron ore prices have fallen nearly 37 per cent this year so far. Among other commodities crude oil prices have corrected nearly 12 per cent, coal prices have fallen 22 per cent and palm oil prices have dropped by 17 per cent in this year so far.

China which is the largest consumer of commodities is witnessing a slowdown in its factory activities which has triggered a concern about global commodity demand and impacted the business outlook of metal companies.

Although falling commodity prices are negative for metal companies but it is certainly positive for India. In FY14, India had imported petroleum products of around $102 billion dollar, commodities worth $26 billion dollar, gold and silver worth $33 billion dollar. The falling commodity prices will help India reduce its overall import bill and contain its trade deficit. This will also have a positive impact on inflation and growth in India.