Base metal prices slip in last 12 months, supply to remain tight in CY23

The prices of base metals lost their shine over the past year as supplies recovered after earlier disruptions and rising input costs and increased availability of raw materials also played their part. The supply of global base metals will remain tight in calendar year 2023, industry experts opine, due to supply issues and low inventory position.

In the past one year, the prices of most base metals – including aluminium, copper, nickel, iron ore and hot rolled coil (HRC) steel – were trading lower by up to 40.3% on the London Metal Exchange (LME), Commodity & Energy Exchange (CMX) and Multi Commodity Exchange of India (MCX).

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“Steel and major non-ferrous metals (aluminium, copper and zinc) have seen declining prices. Rise in coking coal and iron ore prices due to supply chain disruptions had led to steel price increases in the first quarter of calendar year 2023. However, as major raw material producing regions are out of their cyclone season, ample availability of material has led to decline of input prices,” Hetal Gandhi, director-research at Crisil Market Intelligence and Analytics told FE.

“This coupled with demand slump from China along with decline in April PMI by 5% sequentially, has led to global steel prices softening. Similarly, domestic steel prices are under pressure with limited trading activity as buyers anticipate further price correction,” Gandhi added.

According to ICRA, global prices of base metals contracted by a steep 18-28% in FY23, compared with the record highs in March 2022, amid considerable volatility. Although the fiscal commenced on a healthy note, the metal prices witnessed significant headwinds in Q2 and Q3 of FY23 given an uncertain global economic outlook and demand slowdown in China.

With China reopening, some positive sentiments built up in January this year, when metal prices touched almost their six-month high. However, the rally was short-lived as metal prices plummeted again in February and March 2023, owing to uncertainty over the strength of China’s recovery and continued weak global sentiments, it added.

However, the price falls had a varying impact on different companies.

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For instance, Hindalco Industries, the metals flagship company of Aditya Birla Group, has posted a 37% fall in net profit at `3,851 crore for the fourth quarter ended March 31, impacted by lower metal prices and higher input costs.

“In the fourth quarter of last financial year, the LME prices were high due to the war (Ukraine-Russia) and demand was also very high,” Hindalco Industries MD Satish Pai said.

In the year-ago quarter, aluminium prices rallied after the start of the Russia-Ukraine war and averaged at about $3,275 a tonne on LME. However, it began dipping in FY23, and by the fourth quarter of FY23, aluminium prices were down 27% at $2,395 from the previous year.

Tata Steel had also posted an 84.07% fall in consolidated net profit at `1,566.24 crore for March quarter, compared with a net profit of `9,835.12 crore a year ago.

“There were multiple challenges we have had to deal with in the last 12 months. In India, we had the export duty, which hurt us in Q2 and Q3. And because of the Ukraine war, coal prices shot up to $650 in March last year, which had impacted steel prices. In Europe, electricity and gas prices went up 4-5 times, and demand got compressed because of the war and inflation, among others,” Tata Steel CEO & MD TV Narendran had said in a post earnings interview.

The steel demand in India grew 13.3% on a year-on-year basis to 119.86 million tonne in FY23, and going forward it is expected to grow by about 7-8%.

“Going forward, FY24 would be much better as the India story in terms of demand is good, rise in government capex, pickup in manufacturing and energy transition among others. I don’t see any slowdown of demand in India, and lower energy prices will aid manufacturing in India, even the external demand may remain uncertain,” JSW Steel Joint MD & CEO Jayant Acharya told FE.

According to Jayanta Roy, senior vice-president and group head, corporate sector ratings at ICRA: “While Chinese apparent consumption slightly improved in Q4 CY2022, the global demand outlook of base metals remains uncertain, and would hinge on the housing sector recovery in China and improvement in global sentiments.”

Globally, the base metals supply is expected to remain tight in calendar year 2023, owing to persistent supply issues, resulting in a low inventory position. In CY2022, there was an aluminium production cut in China’s Yunnan province, owing to power related issues, while copper supply was also hit owing to geopolitical issues in Peru.

The prices of base metals lost their shine over the past year as supplies recovered after earlier disruptions and rising input costs and increased availability of raw materials also played their part. 

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