how the steel and metals industry is affected by crude oil prices according to analyst

  • Shares of metallurgical companies rallied up to 5% today on higher commodity prices after crude oil prices hit a two-month high.
  • Analysts say the increase in input costs due to high crude oil prices and low production capacity at sites has increased metal prices, which is good for the company.
  • Nifty Metal is the best winner among sector indices with gains of 2.6%.

While the outlook for steelmakers remains murky, the weaker dollar is supporting commodity prices, including metals as well as crude oil.

When the dollar weakens, the same amount of any commodity costs more in dollar terms. Therefore, the prices go up. And the stocks of metallurgical companies reflect this optimism.

Nifty Metal is the best winner among sector indices with gains of 2.6%. Metal prices would rise due to high crude oil prices and lower production by companies, pushing prices higher.

Metallurgical companies January 13 change
Jindal Steel and Power 5%
Steel tata 4.6%
JSW steel 3.5%
Coal India 3.2%
NMDC 2.4%
Hindustan copper 2.3%
NAVIGATE 2%
Vedanta 1.7%
APL Apollo Tubes 1.37%
Adani Companies 1%

(Price at 1 p.m.)

Relationship between metal prices and crude oil prices
“There are reasons for the increase. The first is that metal inventories are still tied to crude oil prices and right now they have jumped $ 84 a barrel which is likely a recent high. Usually, when crude prices rise, so do basic commodity prices, which is a good thing for metal companies, ”Deven R Choksey, managing director of KR Choksey Investment Managers, told Business Insider.

Currently, crude oil prices are at $ 85 a barrel, trading at a two-month high after U.S. oil inventories fell for the seventh consecutive week to levels last seen in 2018.

Note that crude oil is a basic input in the production process and is used to power cars and planes for transportation and generate electricity for use in the production of goods and services. Thus, any variation in the price of oil will impact the costs for the company and therefore increase the price of the product.

Another reason for the rise in metal prices is that companies have cut back on production in recent weeks because they believed demand was not strong enough. “All over the world, especially in Europe, production capacities are being reduced, they (companies) are not increasing production, either because of environmental issues or COVID restrictions. Many companies have kept their production capacity at a lower level, resulting in higher product prices due to a shortage of supply, ”added Choksey.

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Felix J. Dixon