Top picks from metals & mining sector: ICICI Sec recommends these stocks to buy

The research analysts of ICICI Securities said in a note that “China’s trade data for Nov’22 was reasonably robust on hopes of easing of covid restrictions and stimulus measures by the government. Key highlights: 1) copper imports, in both refined and concentrate forms, rose 10% YoY and 6% YoY respectively; 2) steel exports rose for the second successive month while aluminium (Al) exports declined further; and 3) coal imports fell 11% YoY on higher domestic output. Going ahead, while the China government has reportedly agreed to ease rigid covid-related shutdowns, we don’t see signs of pick-up in domestic demand as yet. Chinese spot HRC prices have crept to a 1.5-month high, largely mirroring futures prices – though real estate demand indicators remain weak. We maintain our cautious view on the ferrous space with JSPL (TP: Rs605) and Shyam Metalics (TP: Rs425) as our key picks. That said, we see declining Al exports from China as a positive for Hindalco, our top pick in the non-ferrous space with a TP of Rs515.”

They further added that “China’s trade data for copper suggests optimism around the possible stimulus. However, the pick-up in steel exports, despite declining global prices, is a cause of concern, particularly when the traditionally weak demand period for construction looms large and winter production cuts in Tangshan are not as stringent as last year. That said, lower Al exports owing to domestic production curtailment is expected to maintain the market balance and support LME Al price. We retain our cautious outlook on the ferrous space with JSPL and Shyam Metalics as our key picks. Among non-ferrous players, we see Hindalco benefiting from lower Al exports from China.”

“HRC prices in traders’ market in the week ended 8th Dec were down Rs800/te WoW on an average, tracking the price reduction up to Rs3,000/te taken by the major steel players. At the current level, steel mills’ average price is at a discount of Rs500/te to the price prevailing in the traders’ market. However, imports from the Far East countries are still at a discount of 10% to the domestic prices, hence market participants expect further price cuts in view of import threat and exports not picking up owing to weak global demand. Longs prices however are supported both from expectations of ramp-up in infrastructure-led demand and cost-push in the secondary sector. As a result, major steel players have either kept prices unchanged or taken a moderate hike,” said the research analysts.

They further claimed that “Regional prices rose US$25-35/te WoW, led largely by higher domestic Chinese steel prices. However, India HRC FOB price fell by US$10/te as the companies try to increasingly tap the export market. We maintain our cautious view on the ferrous space with JSPL (TP: Rs605) and Shyam Metalics (TP: Rs425) as our key picks. We are also positive on APL Apollo (TP: Rs1,225) as, being a downstream player, it is relatively insulated from adverse price movements.”

“In our view, flats appear to be more susceptible to longs owing to weak demand, limited export opportunities and rising production of domestic steel companies. While global steel prices will get a leg-up owing to Vale cutting its iron ore production guidance, we believe the substantial gap between domestic prices and landed cost of imports might keep flats prices under pressure. We maintain our cautious view on the ferrous space with JSPL (TP: Rs605) and Shyam Metalics (TP: Rs425) as our key picks owing to their long-heavy product portfolios,” said the research analysts of ICICI Securities.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.