(AF) Impacts from the Evergrande debt crisis hit the Indian stock market on Monday, with steel stocks falling up to 9.6% at the close of trading on fears that the brewing Chinese financial drama will cause commodity prices – notably iron ore – to plunge around the world.
The global sell-off in equities that pulled down the Sensex, India’s benchmark equity index, sharply by 524 points (0.89%), hit steel stocks Tata Steel and JSW Steel hardest. Analysts said this was partly driven by the crumbling property giant Evergrande.
Shares of Tata Steel dropped about 10% to close at 1,253 rupees each, a fall to over 15% in the last four days, while JSW Steel lost 7.2% to close at Rs 633.
“Iron ore prices, which have tanked 22% over the previous week, have been softening for about a month owing to a consumption slowdown in China. And that was already impacting not just the Indian steel, but also the commodity sector as a whole,” Jyoti Roy, an equity strategist at Angel Broking, said.
“But the Evergrande crisis, I think, has dealt a big blow to these two steel stocks because these are India’s most traded steel stocks on bourses.”
Chinese real estate giant Evergrande is expected to default on a $83.5 million interest payment this week, because of the property sector slowdown, which has heightened its liquidity crisis. The massive scale of its debts – said to exceed $300 billion – and the drop in home sales right across the sector led to fears that of a slump in demand for commodities such as iron ore. China has for the past year or more been the world’s largest consumer of metals.
But the Evergrande crisis appears to have hit metal prices, with the price of iron ore dropping about 20% last week to below $100 a tonne.
Beijing has been anxious to cool metal prices in recent months after iron ore, copper and other metals surged to near-record levels earlier in the year. This led to the government releasing stocks from its national reserves, which has been a factor also contributing to the sharp falls in metal prices recently.
There is also nervousness in global markets as the US Federal Reserve is likely to provide further guidance about tapering its massive stimulus in a meeting this week. That has boosted the greenback and helped to drag down metal prices.
China Rebound Over
“However, palpable indications that the post-pandemic economic rebound in China is likely to peak out, is also leading to softening of commodity prices in India,” Sugandha Sachdeva, Vice President of Commodity and Currency Research at Religare Broking, said.
She said that while the Evergrande crisis may not hit India directly, it could certainly cause a major crisis in the property market in China, and that metal prices in India would be affected by those impacts.
“With China being the largest consumer of metals, any slowdown in the real-estate sector in China, which contributes a major share in China’s GDP is likely to be a major headwind for base metals demand going forward,” Sachdeva said.
However, analysts also expect that China may try to soothe the market nerves by injecting further liquidity in the system.
“Hence, while we would not attribute the recent corrections in metal prices directly to the Evergrande crises, [but] it is rattling the markets nevertheless,” she said.
• By Indrajit Basu