China earthquake sends base metal stocks soaring

By Kanchi Gandhi, CNBC-TV18

The earthquake in China has sent base metal prices soaring, and stocks like Hindalco and Nalco have seen huge gains.

Metals have gained 3-5 % this week after the earthquake in China. Zinc has gained 7% and also seen support from African mine strike. Tin is trading at record highs above USD 25,000/tonne, as supplies have declined to three-year lows. Power shortages have supported aluminium prices.

China was rocked by one of the worst earthquakes in three decades. The quake hit China's South West Sichuan province. Sichuan is a source of 10% of China's lead, 5.5% of zinc and 4.1% of aluminium supply. The zinc output in Sichuan province is likely to take a hit as smelting units of 4-5 lakh tonne have been halted. Coal reserve levels are alarmingly low in Chinese power plants. There is a fear that lower supplies from major producers in China and Indonesia will lead to market tightness.

Hindustan Zinc Limited stock is up 18% in two days; zinc prices are up nearly 6.5%. It has has underperformed other base metals in recent past. Most analysts expect small surplus for zinc in CY08-10. They expect small surplus for lead in CY08. The triggers for this space are rupee depreciation and price surge.

Hindalco stock was also buzzing. Analysts expect aluminium market to be in deficit in 2008. They expect bigger deficits in 2009 and 2010. Aluminium prices are expected to average USD2/lb in 2009 and rise further in 2010. The major trigger in this space would be rupee depreciation and price surge.

Sterlite is up 7% in two days. Its aluminium business has contributed 17% of revenues in FY08. Its consolidated numbers includes zinc from HZL. A major trigger for the company would be the rupee depreciation and price surge.

Nalco’s aluminium business has seen 59% of revenues in FY08. The major triggers are rupee depreciation and price surge. Analysts have increased long-term price contract rate to 13.5%