The Sensex crashed 663 points to 26777 and the Nifty fell 211 points to 8114 at around 12:30 hrs Wednesday. Can it be used as a buying opportunity for metal space? In an interview to CNBC-TV18, Chintan Mehta, Metal Analyst, Sunidhi Securities shares his views on metals and his preferred stocks going ahead.
Below is verbatim transcript of the interview: Q: Yesterday, we saw quite a strong recovery or strong gains in the metal counters. What led to that and what might be your top pick at this point?
A: There are two things. We need to understand what is going on in ferrous and non-ferrous space. If we go for ferrous space the way iron ore has behaved in the last two months, the low was USD 50 and now yesterday again it gained 4 percent to close around USD 59-60. It is a 20 percent hike in iron ore prices globally, due to many commentary from Vale and Rio where Vale said they will be cutting out production by about 30 million tonnes and Rio saying that they won’t be going out with their capacity addition aggressively.
Coupled with that, Chinese ore inventories have fallen by three or four million tonnes week-on-week basis. So that gave a bit of spurt in iron ore and we expect that to continue for a while and that has actually given a comfort that still prices are somewhere near bottom now and when you couple that with Tata Steel or JSW Steel particularly Tata Steel has altogether different reasons what we are facing at this point of time.
The euro dollar index has actually moved up from 1.1 to 1.13 and that kind of dollar index is giving strength to the domestic prices when northern Europe is concerned. So the street is getting more excited about better numbers in terms of Europe operations.
We affirm that view and are bullish on Tata Steel and we are recommending our clients to buy even at those levels, but in a month or so we need to see how steel prices behave further. Till then we are still bullish on Tata Steel and JSW Steel.
Q: What about SAIL and Jindal Steel, I believe you have a sell there?
A: SAIL is not a better converter of raw material compared to JSW Steel. In a situation where iron ore prices are increasing, SAIL has its own iron ore so they are not able to get a delta of their prices. When compared to JSW Steel they are better converter so the operating leverages get increased for JSW Steel which gets iron ore from outside sources.
Domestically, we are seeing some weakening in steel prices but the volumes are good. Some traders say that volume is not at all a problem for the steel companies, the problem is of price.
The cheap imports from Chinese are actually keeping a price checked in domestic levels and when compared to SAIL given its efficiency, the only delta we understand is from steel prices.
At this point of time steel prices are somewhere not in a position to give any kind of benefit to SAIL.
As far as JSPL is concerned, the company has its own domestic problems, their company has lost all its mines now and the cases are with the courts now.
Rather than anything else, we are trying to avoid that stock at this point of time for these reasons. Vedanta is a conglomerate which consists of oil as well after acquiring Cairn so much of the earnings have now come from oil and gas as well and the second is Hindustan Zinc so we are quite bullish on Hindustan Zinc as well.
If you just pull out the chances for LME of Hindustan Zinc, in March it was USD 2,000 odd, now it has moved to USD 2,300 so it is a clear delta which is being seen in Hindustan Zinc and that is why we are recommending our clients to buy Hindustan Zinc rather than Vedanta at this point in time.
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