Vedanta, National Aluminium, Hindustan Zinc, others drag Nifty Metal down 3%; here’s why metal stocks are falling today

Metal stocks like Vedanta, National Aluminium, Hindustan Zinc, Hindustan Copper, Hindalco, among others, dragged the Nifty Metal index down more than 3% on Friday, September 11, as investors focused on the crude oil shock in the global market amid falling key metal prices like aluminium.

NSE data showed that the sectoral benchmark Nifty Metal index emerged as the biggest loser during the trading session on September 11, declining 3.1% to touch an intraday low of 12,886.10 points in comparison to 13,304.95 points at the previous equity market close.

As of the mid-day trades, the Nifty Metal was trading 2.2% lower at 13,007.20 points, with the index recovering some of its morning market losses. Stocks like National Aluminium, Hindustan Copper, Hindalco, and Hindustan Zinc were leading the laggards on Friday’s market.

Why are metal stocks falling today?

The sharp decline in metal stocks on Friday’s market was triggered by a massive sell-off sentiment among equity investors amid a broader weakness due to global crude oil prices rallying to hit a 17-week high of $110 per barrel (bbl) and declining commodity metal prices.

Investors also likely booked their profits for this week after the metal stocks largely outperformed the broader market prior to Friday’s decline.

The elevated crude oil prices in the market have a direct impact on metal and mining stocks, which use a significant amount of oil to run machines and heavy equipment, while also increasing their shipping and logistical costs during a particular period.

As the input cost of these companies rises due to higher oil rates, the impact of the same will shrink the company’s EBITDA margins, reducing the overall operating profit in the upcoming period.

The sentiment was further dented by the action in the commodity market over the last two days, with the recent decline in prices of key metals like Aluminium, Zinc, and Copper after a multi-month rally.

Metals stocks to watch today

US dollar impact

With the benchmark US dollar rate elevated in the market above 99, commodity market investors' demand was impacted, as traders will have to pay a higher rate for the same quantity of metals.

Commodity prices like those of precious metals or key minerals like Aluminium, Zinc, and Copper have somewhat of an inverse relationship with the benchmark US greenback currency in the market.

Investing.com data showed that the US dollar spot index surged 0.10% to touch an intraday high of 99.17 during the trading session on Friday, September 11, in comparison to 99.07 at the previous currency market close.

Commodity price impact

Although the prices of key earth minerals like Aluminium, Zinc, and Copper have risen due to the volatile demand and supply dynamics in the market amid the West Asia crisis, the companies enjoy margin benefits if the prices rise, and losses if the prices fall.

Metal and mining companies can sell their production at higher prices if the price of the commodity rises in the market, but the company loses out on the potential revenues if the price falls in the market.

Over the last two days, Aluminium prices have declined 2.5% in the global market, while Zinc futures have lost 5%, and Copper prices have dropped 4.6% due to the pullback triggered by risk sentiment in the market.

Investors fear that with the sustained high prices of crude oil in the market, surging US Treasury yields, and eroding corporate margins are likely to impact global demand.