Metals: Rebound in global manufacturing activity pushes prices high; Indian stocks including Vedanta soar

The surge in demand for industrial metals is attributed to the resurgence of manufacturing activity in the world’s two largest economies, the USA and China. Recent data indicates a strong rebound in manufacturing activity in both countries. 

Also Read: Chinese Investors Snap Up Copper, Gold Stocks to Drive 10% Gains

In the USA, manufacturing grew for the first time in one-and-a-half years in March, with significant increases in production and new orders. Similarly, China’s manufacturing activity expanded for the first time in six months in March, signaling a recovery despite ongoing challenges in the property sector.

However, analysts are anticipating that China will announce more stimulus measures to revive the challenges in the housing sector, which could further fuel demand for metals. 

The latest Purchasing Managers’ Index (PMI) readings, which reflect manufacturing activity, have shown notable improvements. In China, the PMI reached its highest level since March of the previous year, driven by increased export orders and a surge in factory output. 

Also Read: Gold price rise: Baffled by the increase, Chris Wood in Green and Fear explains likely reasons behind it

Consequently, Goldman Sachs has revised its outlook for China’s economic growth, anticipating a stronger expansion than previously estimated.

Meanwhile, in Europe, Germany’s industrial production exceeded expectations in February, driven by recoveries in the construction and automotive industries. This positive trend suggests that Europe’s largest economy is on track to overcome recent manufacturing challenges and regain momentum.

Also Read: India’s manufacturing hits a 16-year high in March

Back in India, the manufacturing PMI improved to 59.1 in March from 56.9 in February. The growth of new orders accelerated to the quickest in nearly three-and-a-half years during March.

Metals boom

The rebound in manufacturing activity in major economies has driven a surge in demand for metals, resulting in a sharp spike in prices in just a few months.

The price of copper has soared more than 15% over the past two months, reaching near a 15-month peak on the London Metal Exchange. Concurrently, the metal achieved an all-time high on the Shanghai Metal Exchange this week.

Global investment bank Citi forecasts the potential for an “explosive price upside” for copper in the next three years, driven by increased urbanisation and industrialisation, particularly in China. The bank expects copper prices to rise, with projections reaching $10,000 per metric ton by the end of 2024 and climbing to $12,000 in 2026.

Also Read: Chart Beat: Aluminium prices may take a while to shine

As demand for copper surges due to increased usage in power cables, wind turbines, electric vehicles, and solar panels, supply disruptions from China’s mine closures threaten to impact global supply. Chinese smelters, responsible for over half of the world’s refined copper production, face disruptions, contributing to supply concerns.

Zinc prices have surged by 12% in the past two weeks, reaching a near-one-year high. Reduced supplies from refiners, grappling with lower profits for processing the metal, have driven this upward trend.

Tin prices rose to their highest levels in over a year, with stockpiles declining to the lowest levels in nine months. The three-month Tin on the London Metal Exchange reached a year high of $32,745 per metric ton on Wednesday. 

In today’s trade, Shanghai aluminium surged to its highest level in almost two years. Concurrently, three-month aluminium on the London Metal Exchange is on the course for the fifth straight weekly gain, as per the media reports. 

Indian metal shares gain momentum

Amidst the ongoing surge in metal prices, Indian metal stocks have experienced a significant uptick as evident in the sharp rise of the Nifty Metal index, which surged over 17% in less than a month. Contributing to this rally are strong Q4 business updates, further bolstering investor confidence.

Notably, Hindustan Zinc, a subsidiary of Vedanta, witnessed a remarkable 37% surge in its shares over the past 8 trading sessions alone. In today’s trading, the stock soared an additional 8.4% to achieve an all-time high of ₹450 per share. Similarly, Hindustan Copper, a state-owned mining company, saw its shares skyrocket by 55% in less than a month.

Vedanta, India’s leading diversified natural resources company, also witnessed a sharp 46% return in less than a month. The recent ‘buy’ rating and target price upgrade by global brokerage firm CLSA to ₹390, up from ₹260, further fueled investor optimism. 

According to CLSA, Vedanta is well-positioned to capitalise on the commodity upcycle due to its diversified exposure. Additionally, the company’s initiatives to enhance capacity and profitability across segments are viewed favorably by analysts.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 12 Apr 2024, 03:17 PM IST