Metal cos may put up a mixed show
Metal sector results for July-September are likely to be a mixed bag. Aluminum prices are much lower than the previous quarter and hence would impact margins for aluminum companies.
By TNN |
MUMBAI: Metal sector results for July-September are likely to be a mixed bag. Aluminum prices are much lower than the previous quarter and hence would impact margins for aluminum companies.
The gap in spot and long-term contract prices is increasing, which could result in another correction in prices. Copper and zinc prices are more or less flattish in the global markets. Volume growth would contribute to growth as demand keeps growing.
Aluminum majors like Sterlite Industries and Hindalco could see some impact on margins as global alumina and aluminum prices have softened considerably. Copper could see reduction in spot Tc/Rc (treatment and refining charges).
Hindalco and Sterlite shares have fallen over 4% during the last one month, while Nalco shares gained a modest 2%. In the case of steel, prices remained flat during the quarter. Any growth is likely to come from increased volumes.
Margins are also likely to remain flat. Some players could see margin improvement mainly on the back of changes in product mix. Performance of steel shares during the last one month has been mixed — Tata Steel has fallen 1%, while SAIL and JSW Steel has risen 12% and 8%, respectively.
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Dealers said the strong performance of the SAIL stock has been partly on hopes that the government may trim its stake in the company. Brokerage house Merrill Lynch has retained its buy rating on the stock. It expects a 390-bps jump in the company’s operating margin during the quarter, led by strong volume strong growth and improved realisations. But unlike other key sectors, banking and cement, where most analysts have a common view, the outlook on the metal sector — steel in particular — is mixed.
“Going forward, given the strong output from China, we are expecting steel prices to weaken. Hence, we have a bearish outlook for the sector,” brokerage house ASK Raymond James said in its results preview note. Brokerage house ICICI Securities has rated Tata Steel as its top pick.
“We expect Tata Steel and JSW Steel to record robust revenue growth, driven by strong steel realisations — especially JSW Steel, which sells mostly on spot basis. In addition, we expect input costs to decline as most of the producers have already signed FY07 coking coal contracts at lower prices as compared with FY06 levels,” the ICICI Securities note to clients said.
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