Vedanta, NALCO, Hindustan Zinc shares fall up to 3% as silver, aluminium, other metal prices tumble. Here’s why

Shares of metal companies such as Vedanta, NALCO, Hindustan Zinc and others dropped up to 3% despite the overall uptrend in the market on Thursday, as metal prices tumbled due to a stronger dollar and rising expectations of the reopening of the Strait of Hormuz.

National Aluminium Company (NALCO), Vedanta and Hindustan Zinc shares fell nearly 3% each, while Hindustan Copper declined around 2%. Hindalco Industries and APL Apollo Tubes shares dropped over 1% each, while NMDC, Jindal Steel and Jindal Stainless Steel shares slipped around 1% each.

Silver prices plunged as much as 14% this week, extending losses for a third straight session on Thursday, a day after tumbling to a seven-month low. Silver is now trading at less than half of its all-time high of $121 an ounce touched in January. Aluminium prices also extended losses after falling to a three-month low on Wednesday, as a stronger US dollar and continued unwinding of the Middle East risk premium outweighed signs of disagreement between the US and Iran over key terms of a deal to end their war. Copper and zinc prices also dropped sharply to multi-month lows.

Also read: Why silver prices have crashed 14% this week to hit a 7-month low

The sharp drop in metal prices also comes amid increasing expectations of a hawkish Federal Reserve, prompting traders to raise bets on an interest rate hike later this year. The US Federal Reserve last week held interest rates unchanged, but a higher number of policymakers expected a rate hike in borrowing costs later this year amid concerns about inflation remaining above the US central bank’s 2% target. In what was the first Fed FOMC meeting under Chairman Kevin Warsh’s tenure, the central bank acknowledged that inflation was “elevated relative to the Committee’s 2% goal”, partly due to “supply shocks that have driven price increases in certain sectors, including energy.”

What lies ahead?

“Metal stocks had become technically stretched, so a short-term pullback was expected,” said Netra Deshpande, Research Analyst at Mirae Asset Sharekhan. Metal stocks saw sharp gains since the West Asia conflict broke out, as supply disruptions and resilient demand drove up prices on the London Metal Exchange (LME). The rally eased following peace talks between the US and Iran around mid-June.

“Easing geopolitical tensions and subsequent unwinding of risk premiums led to a fall in aluminium, steel, copper and zinc prices, which have weighed on sentiment,” said Anita Gandhi, Head of Institutional Broking at Arihant Capital. “A firm dollar index is likely to continue exerting downward pressure on metal prices, and its trajectory will be key to determining how metal stocks perform going forward,” she added.

Also read: Metal companies’ hot run comes to an end as West Asia cools off

(With inputs from agencies)

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