NMDC Stock Jumps To The Highest Since January Amid Supply Concerns In China

Shares of NMDC Ltd. jumped to their highest since January as investors weighed an opportunity amid supply concerns in China after its leading mills’ group pushed authorities to investigate a surge in iron ore prices in the nation.

Iron ore futures on China’s Dalian Commodity Exchange had surged nearly 10% on Friday to an all-time high, crossing the 1,000-Yuan-per-tonne mark for the first time ever.

That prompted the China Iron & Steel Association has called on the state administration of Market Regulation and the China Securities Regulatory Commission to crack down on potential illegal activities, Bloomberg reported citing a Dec. 11 statement.

Iron ore futures, however, are declining in Monday’s session. Prices of the key steel-making raw material have surged in the final quarter of the year as robust demand from mills coincided with supply difficulties in Brazil and bad weather in Australia.

“A recent reduction in overall iron ore exports comes at a time where ex-China demand is still recovering,” Shi Fent of Everbright futures said in a note, cautioning that it may not be advisable to keep chasing new highs as there is now a rising risk of policy intervention.

Besides, the resolution of the Donimalai mine issue after a two-year impasse continued to fuel the rally in NMDC stock. The central government had reached an agreement with Karnataka and the Ministry of Steel earlier this month to extend the lease for the mine.

“The decision has not only paved the way for operationalisation of the mine but also a timely decision taken in a situation when the steel companies are facing a shortage of supply of iron ore,” the company had said in an emailed statement.

According to Kamlesh Bagmar of Prabhudas Liladher, severe shortage in the domestic market, strong profitability of steel products and a firm outlook on global prices shall help NMDC mitigate higher costs with stronger product prices. The brokerage upgraded the NMDC stock to ‘buy’ from ‘accumulate’.

Shares of NMDC gained as much as 6.2% to Rs 117.75 apiece. The stock is up for the third straight day, and has gained in 10 of the last 12 trading sessions. The scrip is trading with volumes that are five times its 20-day average in Monday’s trading session

Of the 22 analysts tracking NMDC, 14 have a ‘buy’ rating, six suggest a ‘hold’ and two recommend a ‘sell’. The stock has crossed its 12-month Bloomberg consensus price target of Rs 114.3 apiece in Monday’s trade.