Metals and Mining Analyzed

Emkay Global Financial Services is predicting that non-ferrous metals – like aluminum, zinc, and silver – will perform better than traditional metals by 2027. They think companies like Vedanta and National Aluminium Company (Nalco) will see their profits grow. This is because the prices of these metals are currently higher than expected.

Key Points

• Non-ferrous metals predicted to boost profits by 2027.
• Vedanta and Nalco earnings could rise significantly.
• Higher metal prices drive potential earnings upgrades.
• Hindalco’s earnings less affected due to hedging.
• Ferrous metals face a potential earnings risk.
• Non-ferrous equities look more attractive relative valuations.

If the prices of aluminum, zinc, and silver stay high for a long time, companies like Vedanta and Nalco could see their profits increase. This would likely make their stocks more valuable. Emkay estimates these companies could see their profits rise by around 5.5% and 4.9% respectively, compared to what was previously expected.

However, Hindalco’s situation is different. The company uses a strategy to protect itself from rising prices, so its profits aren’t expected to increase as much if metal prices go up. This means the predicted profit increases for Vedanta and Nalco are more likely to happen.

The reason these companies might do well is because of the strong prices for industrial metals. If these metal prices remain high, the companies’ earnings will improve and stock prices will likely go up.

On the other hand, Emkay is being careful about the “ferrous” metals sector (like steel). They believe there’s a risk that steel companies could lose money if metal prices stay low for a long time. The market already seems to be aware of this risk.

The market is assuming that steel prices will eventually go up again, and that supply and demand will balance out. This would be a “soft patch” – a temporary dip in prices – and the market is already expecting this to happen. A key part of this recovery includes an extension of safeguard duties to protect domestic producers.

Currently, many steel companies are valued based on their expected profits in 2027. However, if metal prices stay low, those profits will fall, and these companies’ stock values could appear higher than they should be. Emkay thinks non-ferrous metals offer a better investment choice because of this risk.

At the moment, the market is assuming that metal prices are 7.5% lower than what’s expected for Hindalco, 5.2% lower for Vedanta, and 3% lower for Nalco. This means that if metal prices don’t change, these companies’ profits will be lower than anticipated.

“Non-ferrous equities appear better on a relative basis given the earnings risk and spot commodity prices.”