Metal stocks fell on Tuesday after aluminum prices plunged after the US government on Monday gave customers of Russian company Rusal more time to end their business with the company and comply with the sanctions. The S&P BSE Metal index, a barometer for metal stocks, declined 1.82% to 14,333.37 even as benchmark Sensex rose by 0.48%. The share price of National Aluminium Company fell by 7.54%, Hindalco by 7.41%, Vedanta by 2.28% and Tata Steel by 1.23%. Tata Steel was third biggest loser amongst Sensex stocks.
On Monday US Treasury softened its position regarding Rusal. The Treasury Department said it was considering a request to lift the sanctions against the company if Oleg Deripaska cedes control of the company, it extended the period during which companies could keep trading with Rusal till October 23 against the earlier deadline of June 5 and clarified about dealings which were permissible during that time, reports indicated. Aluminum fell by 7.53% on the London Metal Exchange on Monday, its steepest single-day fall since January 2005.
The sanctions against Rusal, which were announced earlier this month had driven up the price of aluminium on fears of a global shortage. In a note, to investors, Kotak Institutional Equities said the events of the past two weeks, post US sanctions on Rusal, reflect the stretched aluminum markets outside China due to continued under-investment given the low returns on new projects.
“The world ex-China markets were in a deficit of 1.9 million tonne in 2017, and we expect this deficit to increase in 2018-2019. This has led to a large drawdown in reported or unreported stocks outside China. The world ex-China inventories have declined by close to 30% to 7.2 million tonne since January 2017—inventory days have fallen to 85 days from 113 days at the start of CY2017. Given the persistent deficit, inventory days outside China will decline to 70 days by the end of CY2018 and fall below 60 days in CY2019,” the note said.