Metals set to boom after speed-bump
Various structural changes are happening across the world that are going to support metal demand. That's driven by supply chain reshuffling in light of friend shoring and nearshoring.
The performance of metal shares has not been great, this year metal shares have given negative returns. Return of nifty metal has been Year to date is (-13.49%), during the same period metal prices in the global market have fallen which drove the metal shares downward. Going ahead in the near term there are few headwinds. However, after the short-term speed-bump, metal demand may increase and that will provide a boost to the companies. That’s why after quarterly results brokerages are bullish on metal shares.
Right now, some concerns need to be considered due to the global economic slowdown. Recovery in China is weaker than expected, Europe is facing a tough time, Germany went into a technical recession and even in the US GDP growth rate has fallen. Also manufacturing PMI in various countries is below 50. Indicating lower activity in the manufacturing sector. On top of it core inflation in developed countries is still sticky, jobs market is strong. All this suggests that Fed and other central may continue to maintain financial tightening. That would put downward pressure on demand for metals.
Keep in mind, these headwinds are for the short term. Various structural changes are happening across the world that are going to support metal demand. That’s majorly driven by supply chain reshuffling in light of friend shoring and nearshoring (Stability has become a bigger concern than cost efficiency in supply chain optimization).
US is looking to bring countries back to home, EU is looking to become strategically autonomous, India is posing itself as an alterantive to China. In fact, amidst nearshoring, countries in Latin America are becoming destinations for US companies. Due to all this decoupling, China+1 strategy. No matter where the plants will be set up the demand for metals will increase and that will support metal shares.
In India, we are expecting a revival in Capex, higher infra spending, growth in the realty as well as hospitality sector. So all this sets the stage for high metal demand after near-term headwinds. At the same time input costs like fuel, coking coal are falling. S&P Global Ratings stated that it expects a significant fall in metallurgical coal and this will help Indian steel companies as they import 70% of the total requirement.
As a result, brokerages are positive, mostly they have given buy or hold ratings on metal shares.