Antique Stock Broking in a note said the demand scenario for non-ferrous metals sector is expected to recover in 2024 and that lower costs on account of softening crude derivatives and e-auction premiums should translate into lower thermal coal prices, aiding Indian non-ferrous companies.
The brokearge noted that spot non-ferrous metal prices, except for copper and silver, have strengthened month-on-month, amid lacklustre performance of the Chinese economy, ramp-up of aluminum production and exports, 5 per cent rise in US factory orders and a weaker dollar index.
China’s aluminum production rose 5.7 per cent YoY to 3.7 mt in July and its muted domestic demand led to a surge in Chinese net aluminum exports, which grew 27.8 per cent YoY to 330 KT. Though the dollar index has weakened marginally MoM, depreciation of the Indian rupee YoY would aid higher domestic and export realisations, the domestic brokerage said.
On a three-month basis, alumina prices have risen 6 per cent while LME aluminum prices have softened 9.3 per cent, which favours integrated players like Hindalco and Nalco that externally sell alumina.
Antique Stock Broking said most countries, including the US, have tightened non-tariff trade barriers against Chinese aluminum imports. It noted that India’s trade ministry has recommended imposition of anti-dumping duty on aluminum foils imported from China. Such impositions could curb imports and aid Indian domestic metal makers, it said.
"Softened input commodity prices (crude derivatives could partially offset the rise in caustic soda prices) and lower thermal coal costs would aid profitability of domestic non-ferrous companies. Aluminum prices are expected to be supported by higher demand in the West and lower LME inventory levels," it said.
Antique has maintained 'Buy' on Hindalco Industries Ltd (target price: Rs 780) and Nalco (target price: Rs 236); and suggested a 'Hold' on Vedanta (target price: Rs 457). Sell Hindustan Zinc shares, it said while suggesting a target price of Rs 385.
"Our preferred picks in the sector are Hindalco and Nalco," it said.