Metal stocks remained in focus on Friday amid strong earnings announcements and improved business outlook, having scaled a series of peaks recently.
The Nifty Metal index -- whose 15 components include metal giants Tata Steel and Vedanta -- closed 0.70 percent lower for the day, but clocked a weekly gain of 7.78 percent -- its best week in nearly three months.
Out of the 15 Nifty Metal members, Hindalco, Nalco, Vedanta, SAIL and Tata Steel registered double-digit weekly gains, rising between 12 percent and 14 percent.
Among other weekly gainers were Jindal Steel, APL Apollo and Ratnamani Metals, rising between 5.44 percent and 8.59 percent for the week.
What's driving metal stocks, really?
According to reports, China is considering imposing more export duties, between 10 percent and 25 percent, on steel products including hot-rolled coils with effect from August 1.
Analysts say expectations of higher demand on account of lower supply from China is driving optimism on steelmaker stocks.
The removal of export rebates in China is a positive for steel prices, Pinakin Parekh, CFA, ED-metals and mining at JPMorgan India, told CNBC-TV18.
“China is telegraphing to the industry 'we want to export less steel', so export rebate removal was positive. And over the next three to four months, as Chinese demand recovers and steel production falls lower, there is an expectation of some kind of formal export tax coming in on the main steel products that China exports,” Parekh added.
Shares of metal companies, especially steelmakers, have been rallying amid reports suggesting China's plans to impose export duties on steel products.
"Metal stocks have been treading significantly higher amid the robust demand outlook as the economic recovery is gathering pace and as there are 'risk-on' sentiments in the global markets," Sugandha Sachdeva, VP-Commodity & Currency Research at Religare Broking, told CNBCTV18.com. The hike in export duty on steel products by China is likely to benefit Indian producers, letting them absorb some of China’s market share, she said.
"Strong demand from China for rebuilding its damaged infrastructure due to flooding, declining inventories at Shanghai as well as a push to green energy initiatives are powering global metal prices significantly higher. Besides, supply disruptions at several key producers are also acting as another tailwind for a broad-based rally in the metal pack," Sachdeva added.
The Nifty Metal gauge has spiked 77.30 percent so far this year.
"In metals, the way the markets are positioned right now... There is still a little bit of uncertainty on the sustainability of margins and the prices for FY23-FY24," said Rahul Singh, CIO- Equities at Tata Mutual Fund.
"If you look at valuations, the EV/EBITDA will look cheap, but then obviously, commodities will look cheap at the peak and expensive at the bottom of the cycle," he told CNBC-TV18. "But it's a little bit of confidence coming in the fact that these prices could stay on a little bit longer and it's this peak that can become a plateau."
First Published: IST