Metal stocks see little potential for rebound

In 2013, markets on the whole have not been on fire, but a noticeable laggard has been the metal stocks. Among other things, they have been hit by the pronounced slowdown in manufacturing and the dwindling business confidence.

Manufacturing growth, already, is on a downward swirl. Aluminium, for instance, was trading at $2,000 per tonne on the London Metal Exchange last year. It has been stagnating at that level for almost two years now. India's leading aluminum manufacturer, Hindalco, reported a 4 per cent drop in net profit in the third quarter of 2012-13. Hindalco's shares are trading at below INR 90 per share. It hit a one-year low of INR 86.90 on March 26 from a high of INR 137 in January, dropping 34 per cent drop in three months.

At the current demand situation, nearly 25 per cent of the aluminium companies globally are making losses, Debu Bhattacharya, managing director, Hindalco Industries, had said after the announcement of the result. He said never before had the industry made losses for such a lengthy period (1-1.5 years) consistently.

Hindalco has been struggling for sometime now. The company bought the world's leading producer of rolled aluminium, Novelis Inc, for $6 billion in 2007. To facilitate further expansion, it came up with a rights issue of $1 billion in 2008, but investors were not enthused. The group's chairman, Kumar Mangalam Birla, had to hard sell the issue at the annual general meeting as investors remained concerned about the company's prospects. He urged investors to buy into the rights issue at an "attractive price" of INR 96 apiece as it could be their only chance to buy the company's shares at such a throwaway price.