Jul 12, 2001|
Non Ferrous: Exhibiting weakness
Over the past few days, base metal companies, Hindalco and Sterlite, have seen a decline in their share prices. This is largely due to a slowdown in the global economy, which has led to weakening of the commodity cycle.
Over the first quarter of the current fiscal, point to point, Hindalco and Sterlite have outperformed the BSE benchmark index. While Hindalco and Sterlite have risen by 11% and 4.6% over this period the Sensex has fallen by 3.1%. On a relative scale the outperformance is even higher.
The first half of the quarter was favourable with base metal prices rising. Aluminium and copper prices recorded a high of $ 1,593 / tonne and $ 1,730 / tonne during this period, a rise of 9.3% and 4.9% respectively, since beginning of the quarter. However, with the 'slowdown' malaise spreading across the globe, commodity prices have come under pressure with demand weakening and commodity inventory rising. Aluminium and copper prices have declined by 9.8% and 10.4% respectively from the highs by the end of the quarter.
Weakness in commodity prices have continued into the second quarter. Much of the fortunes will depend on revival in the U.S economy, which continues to sputter along as economic indicators reflect conflicting trends. A revival in the world's largest economy is now not expected before the last quarter of this calendar year or first quarter of 2002. The Japanese economy has once again slumped into negative growth. Although, recently, the Government left economic growth unchanged, it believes, there still could be some downside. Key European countries, Germany and France, have registered slower economic growth. All of which does not augur well for international commodity prices, which could continue to exhibit weakness.
Back home too, the economic growth is waning with the GDP growing by 5.2% as compared to the estimated 6% in FY01. Much of the slowdown occurred in 4QFY01, consequently, the new fiscal has started on the back foot with the malaise spreading. Turnaround in fortunes will depend on a revival in the global economy. Also, surprise factor of strong growth in China could provide support to base metal prices.
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