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Non-ferrous metals: Cyclical curse - Views on News from Equitymaster
 
 
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  • Aug 29, 2001

    Non-ferrous metals: Cyclical curse

    Commodity stocks are among the worst affected in a slowdown, as fortunes of these companies are closely related to the business cycle. To make matters worse the global slowdown has been accompanied with a weakening in the domestic economy. Consequently, commodity prices, including non-ferrous metals, have taken a hit.

    Both aluminium and copper pivotals, Hindalco and Sterlite, are having a rough time on the bourses. Both companies in their latest quarterly announcements have declared lower profits. While Hindalco reported a negative 2.9% growth in topline for the quarter ended June'01, turnover of Sterlite grew by 7% over the same period. However, bottomline of Hindalco and Sterlite declined by 8.4% and 41.5% over the concerned period.

    The poor performance in the previous quarter could largely be due to the slackening of demand. Aluminium production, which could be a proxy for demand, declined by 13% while copper reported a modest decline of 1.7% over the April'01 to June'01 period. Although international prices of the non-ferrous metals were declining the average aluminium prices for the period were higher by a marginal 1.5% YoY. Copper prices, on the other hand, on an average, fell by 5.2% YoY over the same period. With realisations under pressure both companies reported a drop in operating margins and profits.

    The outlook on the global economy continues to be sketchy. Most market participants expect a turnaround in fortunes in the first quarter of the new calendar year. However, could there be more weakening before a turn for the better? Over the past two weeks, non-ferrous metal prices have remained firm, which could hint at a possible bottoming of prices. Consequently, the concerned stocks have shown some stickiness in prices over this period.

    Nevertheless, the current quarter will prove to be challenging for the sector, as the domestic economy continues to remain sluggish. Further, for the quarter to date, international aluminium and copper prices have decreased by 9.6% and 18% YoY.

     

     

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