Global manufacturing activity has shown signs of recovery in recent months, raising hopes for metal companies worldwide. In China and the US, factory activity expanded after contracting for multiple quarters, indicating stabilisation of economic conditions. This resurgence in manufacturing has caught the eye of analysts tracking the metal space.
The best investment bank on the global level is Jefferies who has increased the target prices of the level top Indian metal producing companies JSW Steel, Tata Steel, and Hindalco due to a rising metal demand. In fact, the US and China, being among the biggest users and importers of iron as well as other metals, signify something that would benefit these companies in the event of their revival. For Jefferies, that is a good news. The increased demand of the metal, especially the bearish one, means there is a high possibility that the metal prices will continue going up.
In this note, Jefferies focused on figures that indicate a realignment in its frame of mind. The US ISM Manufacturing PMI reached it highest level since September 2022 in March suggesting a contraction of 18 months that was come to a close and the economy entered an expansionary phase. At the same time, China declared the PMI to be in strengthening state after the five consecutive declines and the signal has been discarding the fears surrounding the economy. Given these Gauges of factory activity, we can understand how the demand for metals from these two powerhouses may grow up.
Encouraged by the macro signs, Jefferies raised its target price for Tata Steel by a sizable 20% to Rs 200 per share. The target for Hindalco was also raised 20% to Rs 700. Though a “Hold” rating was retained on JSW Steel, its target got a modest 3% boost to Rs 900. According to the brokerage, current valuations of Indian metal majors do not fully reflect the positive demand scenario.
On the domestic front, India’s own manufacturing rebound has been underway for some time. The S&P Global India Manufacturing PMI has stayed well above 50 since December 2021, pointing to continued expansion of factory activity. As industrial production picks up pace, metal consumption within the country is increasing. With global headwinds receding of late, external demand is set to supplement growing local offtake for Tata Steel, JSW Steel, Hindalco and their peers.
While risks stemming from inflation, high interest rates and geopolitical tensions cannot be ignored, the overall outlook for metals appears relatively sanguine. As long as manufacturing momentum holds up in key markets, Indian producers are poised to benefit from firming price trends. The revision in targets by Jefferies underscores renewed optimism over prospects for the sector. Investors may want to keep a close eye on how global factory gauges track going forward for cues on the metals rally. A sustained, broad-based recovery could supercharge returns for these stocks in the foreseeable future.
