Chinese slowdown tumbles Indian metal stocks

The Chinese slowdown is causing concern over demands for commodities like steel and aluminium. There are also fears that the Chinese government's decision to cool off its overheated economy will have a negative impact on most commodities. The global demand for commodities like steel and aluminium were largely driven by the Chinese markets.

In the recent past, most metal stocks were at the receiving end of the market; shares of steel gaints like Tisco and Sail and aluminium companies like Nalco and Hindalco were battered on the bourses.

Earlier, the concern of oversupply from China had kept metal prices depressed in early 2003. Now, reports of an impending slowdown have led to a correction of prices of steel and aluminium stocks as metal prices are perceived to fall, thereby impacting the industry fundamentals.

In fact, aluminium prices have fallen by 9 per cent from their peak and are currently at $1,660 per tonne. Given that China accounts for almost one-fifth of the global industry, the key question is whether the Chinese slow down means that the steel and aluminium cycle has peaked.

Even at its slower pace of growth, China will continue to require commodities like alumina and steel. China will still need to import 6million tonnes of alumina to produce 6m tonnes of aluminium. Shortage of alumina would mean higher cost of aluminium production.

According to analysts at Enam Securities, the global aluminium industry would witness a shortage of 2million tonnes of alumina over the next two years. Additional supply and higher utilisation would be inadequate to meet alumina requirement - expected to grow four per cent annually for the next two years vis-à-vis 8 per cent growth in 2003.