We saw a glimpse of metal stocks such as Tata Steel Ltd (NS:TISC), Vedanta Ltd (NS:VDAN), JSW Steel (NS:JSTL), and Hindalco Industries Ltd. (NS:HALC) doing well yesterday. I see a few reasons why these stocks did well yesterday and could continue to do in the coming days.
The first main reason is the return of the optimism on the US-China trade deal. This deal is quite essential for the steel industry as the US is the largest importer of steel in the world. Had the US applied tariffs on its steel imports, it would have resulted in weakening the whole steel industry. Further progress in trade talks will provide additional benefits to the steel industry.
Investor’s sentiments were also boosted by China’s manufacturing numbers that came better than expected on Friday.
Another important factor that came as a boost to the steel industry was India’s decision not to sign the Regional Comprehensive Economic Partnership (RCEP). The domestic steel industry had been opposing the RCEP since the start as signing the deal would have meant that China would get free access to dumping cheaper steel products in India. Hence, all in all, these are positive news for the steel industry in general.
However, there are some risks that investors should think before buying steel stocks now. Rising input costs could put pressure on the profitability of steel producers; hence, it’s a significant risk to these companies. The steel industry also depends on the well-being of the auto sector. The auto sector has shown signs of a massive contraction in the last few quarters, and if this trend continues in the future, it could impact steel consumption.