Amidst Cotton Export Ban, Commodity Volatility Hits Indian Metal Stocks

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At a time when iron ore and copper prices are already trading in a volatile fashion — in line with volatile global commodity market — a decision by the Indian government to ban cotton exports has created controversy among traders, Business Line reported.

Earlier this week, the Indian Commerce Ministry announced an immediate ban on exports of cotton, saying there could be a shortfall in the domestic market as exports had exceeded the target of 8.4 million bales by 100,000 units. The ministry even banned exports against registration certificates already issued.

The news spread a worried message among traders, and Gujarat and Maharashtra states urged the federal government to remove the cotton export ban immediately.

Realizing the need for action, Indian Prime Minister Manmohan Singh directed that a Group of Ministers should urgently review the move to ban cotton exports today, March 9. Finance Minister Pranab Mukherjee, Agriculture Minister Sharad Pawar, and Commerce Minister Anand Sharma, among others, are scheduled to take part in the review.

Reports suggest that metal stocks have come under pressure on concerns that slowing global growth may reduce demand for industrial metals. Index figures show that at a time when benchmark indices have lost a little less than three percent this week, metal counters have lost between 8-12 percent.

Growth of the world economy depends heavily on metals and minerals. Earlier this week, China scaled down its GDP growth target for 2012 to 7.5 percent, compared to 8 percent last year. Reports suggest that Europe’s GDP declined 0.3 percent in the last quarter of 2011.

India’s GDP growth is expected to be lower than 7 percent at 6.9 percent, according to advance estimates for the year ending March 2012. This is the slowest growth after 2008-09, when India registered a growth rate of 6.7 percent.

Copper and iron ore are already a matter of concern for Indian companies. Shares of JSW Steel and Hindalco are the worst hit, having lost 11 percent in the last three trading sessions. Shares of SAIL, Hindustan Zinc, Sesa Goa and Tata Steel have taken a hit of 8-11 percent during the same period. Experts feel the worst is not yet over for metal stocks and see a further downside.

Meanwhile, Business Standard reported that copper prices rose for the first time in four days on March 7. Citing a Reuters report, BS noted LME 3-month copper rose $5.50 to close at $8,295 per metric ton. In New York, the key May COMEX contract settled up 2.95 cents at $3.7670 per pound, after trading between $3.7140 and $3.7860, according to Reuters.

Meanwhile, Indian steel companies such as SAIL, JSW Steel and Tata Steel are facing difficulties due to shortages of iron ore in the southern Indian state of Karnataka. The iron ore shortage is likely to worsen in Karnataka in the next one to two months, as the ore sold through electronic auctions (e-auctions) is depleting fast.

Steel mills, sponge iron and pig iron units in Karnataka require about 3 million tons per month for full production.

TC Malhotra contributes to MetalMiner from New Delhi.

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