Decoding the Metal Stocks’ Slump: Understanding the Erratic Metal Sell-Off

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Decoding the Metal Stocks’ Slump: Understanding the Erratic Metal Sell-Off

By Malvika Gurung -- It appears as though the 3-year strong rally cycle for metal stocks has approached its end, a majority of metal scrips are under sell-off pressure since past sessions, and this trend is likely to continue over the next few quarters, considering market experts’ views.

The BSE Metal sectoral index has shed 20.6%, almost 21% in under a month, while the Nifty Metal index has dipped significant levels too.

Metal stocks like the state-owned SAIL (NS: SAIL ) have plunged over 22% in the past month and 24% YTD, Tata Steel 's (NS: TISC ) scrip is down 14% in a month, National Aluminum Company's (NS: NALU ) shares have tumbled 25%, and Hindalco (NS: HALC ) has corrected 16% YTD.

Multiple market experts have attributed this erratic sell-off in metal stocks to these major factors:

  • Covid-19 Lockdowns & Economic Slowdown in China: China is a top metal consumer. However, rising Covid-19 lockdowns have led to production halts and economic slowdown in the country, denting demand.
  • Surging US Dollar Index : The dollar index has skyrocketed to multi-year highs. Metals (commodities) being global assets are largely impacted by an increase in the dollar’s value, making it dearer to import them, and dampening demand.
  • Supply Higher than Demand: According to economics, as supply exceeds demand, price falls. Due to a bleak global economic outlook, thanks to the Russia-Ukraine crisis and rising Covid-19 restrictions in China, demand for metals has fallen.

According to an international copper study report, the usage growth of refined copper has been lowered to 1.9%, indicating a surplus in global markets for the next two years, cited Mint.

Metal stocks have fallen despite sectoral heavyweights reporting reduction in their debt, stated Profitmart Securities.

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