Metal companies see Chinese economy reopening as boost to commodities

Hindalco, Vedanta and Hindustan Zinc remain upbeat about future demand

The re-opening of the Chinese economy as it moves away from its Zero-Covid policy could help stabilise commodity prices, some of the country's top metal companies say. They also view the re-opening of the world's second-largest economy as a positive for demand, at a time when markets such as the US and Europe have been largely weighed down by slowdown concerns for now.

"Most of us in the metals business are hoping that the Chinese economy picks up because half of any metal demand, including aluminium, comes from China. If it does, metal prices have an upside," Satish Pai, managing director, Hindalco, said.

On Tuesday, shares of metal companies such as Hindustan Zinc, Hindalco, National Aluminium Company (Nalco), Tata Steel and Steel Authority of India (SAIL) closed trade in the green on the BSE as sentiment remained positive in the sector. The BSE Metal Index, however, was marginally down 0.3 per cent versus the previous day’s close amid a broader weakness in the market ahead of the release of the minutes of the latest US Federal Reserve meeting on Wednesday.

While the prices of base metals such as zinc, lead, nickel, aluminium and copper were up 1.4-2.4 per cent on Fenruary 20 from previous day’s close on the London Metal Exchange (LME), commodities such as tin were down 1.6 per cent, data compiled by BS Research Bureau. Year-to-date, the price of zinc, aluminium, copper and zinc were up 3-7 per cent on the LME, while lead and nickel prices were down 10-14 per cent, data shows.

In a recent analysts’ call, Vedanta's CEO Sunil Duggal said he saw China's reopening providing a stimulus for growth in the metals sector. "The exit of the Chinese from their zero-Covid policy should help front load investment in infrastructure and construction which is a positive for global metals demand," he said.

Hindustan Zinc's CEO Arun Misra said he saw global consumption of zinc rise by 1.4 per cent year-on-year in CY2023 to nearly 14 million tonnes from 13.8 million tonnes reported the previous year.

"The rapid easing of Covid restrictions and a slowdown in US inflation have boosted the price of zinc. We hope this trend continues into the future," he said in a call with analysts. In a recent conversation with Business Standard, Misra said that India and China would be major consuming nations, thanks to an infrastructure push in these markets. “We expect a 3-4 per cent growth in demand here (India and China). Global demand, on the other hand, will be around 2.5 per cent this year,” he said.

In its outlook for calendar year 2023, global miner BHP said on Tuesday that it saw metal prices to be higher this year versus last year.

"2023 metal prices are expected to be higher than they were in the second half of calendar 2022, when pessimism on Chinese growth prospects was at its height, the US Fed was at its most hawkish and the energy price shock was at its peak. But at the same time, we gauge that the constellation of prices observed in late January over–states how tight physical commodity markets are likely to be over the full year," BHP said.

G Chokkalingam, founder and MD at Mumbai-based firm Equinomics Research said that he saw metal prices firming up in the second half of the current calendar year.

“While the scenario is certainly better for metals this year versus last year, the second half of 2023 should be even better for metal companies when the developed world is likely to get out of the slowdown challenges they are currently facing. This coupled with the re-opening of the Chinese economy could augur well for companies in the sector,” he said.