Bears target metal stocks, cause heavy losses

Metal stocks were at the receiving end of Bears on Dalal Street on Thursday. With metal stocks losing heavily on Indian markets the Bombay Stock Exchange Metal Index lost a whopping 11.37 per cent.

Metal stocks were at the receiving end of Bears on Dalal Street on Thursday. With metal stocks losing heavily on Indian markets — after prices dipped on global markets over concerns related to overheated prices — the Bombay Stock Exchange Metal Index lost a whopping 11.37 per cent, or 1,180 points, to end the day at 9,199.51. This is the highest single-day fall that the metal index has ever witnessed.

The fall in the BSE metal stock index was faster than the 826-point Sensex crash on Thursday. Aluminium producer Hindalco shed 12 per cent to Rs 191.95 and Tata Steel slid 11 per cent to Rs 545.45, also tripped up by a lower-than-expected quarterly net profit. Others like Hindustan Zinc and Sterlite also declined heavily.

Metal stocks had fallen steeply on Monday also when global commodity prices took a heavy beating. ‘‘Metal stocks had gone through the roof recently. The recent rise happened without any correction,’’ said a Bombay Stock Exchange dealer.

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However, the metal meltdown failed to dilute domestic sentiment with local aluminium players hiking prices by Rs 10,000 — the single largest increase in recent times — for a tonne of aluminium ingot. The 7 per cent price rise in the domestic prices comes on the back of rising metal prices on the benchmark London Metal Exchange over the last fortnight.

Domestic metal prices are usually tied to the price movements of the benchmark prices of London Metal Exchange and are revised every fortnight based on the average prices on the London Metal Exchange.

Prices on the London Metal Exchange have been rising consistently in the last couple of weeks and reached record high levels last week.

Many of the metals were hovering near their historic peak for quite some time. ‘‘Hedge funds abroad were highly bullish on metals, pumping in over $80 billion between January and April in metals through exchange traded fund they were in an overbought position. It was but natural for them to book profit at these peak prices. Funds had invested about $80 billion during the last financial year (January-December),’’ says Sushil Sinha, regional head, Karvy Commodities.

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Commonwealth Securities commodities analyst David Thurtell said a strengthening dollar and lower oil prices had set back the mining sector.

‘‘I think it’s the start of what could be more significant corrections… but certainly some commodities remain very, very strong with further upside,’’ Thurtell said.

The prices of gold, zinc and aluminium would still be higher by the end of the year, although Thurtell was not so optimistic about the outlook for copper, nickel and oil.

‘‘I’d be concerned about buying copper producers at these sorts of prices, but for a diversified miner … I wouldn’t be too concerned at all,’’ he said.

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Hartleys resources analyst Andrew Rowell said despite the correction there was no need for investors to be alarmed.

(With agencies)