Why metal stocks are under pressure on Tuesday?

Metal stocks have been under pressure in trade on Tuesday with the BSE Metal index declining as much as 184 points to hit an intraday low of 22,108. Metal shares are facing selling pressure owing to economic weakness in the world's biggest consumer of base metals - China.

The latest economic data from the world's second biggest economy shows that its manufacturing activity unexpectedly contracted in October posing a challenge to policymakers who are striving to reinvigorate economic growth amid various domestic and global hurdles as the year concludes.

In a surprising turn, the official purchasing managers' index (PMI) dropped to 49.5 in October from 50.2, dipping below the crucial 50-point level, indicating a shift from expansion to contraction. This decline was more substantial than forecasts, reflecting the ongoing struggles in the world's second-largest economy, despite recent indicators suggesting stabilisation, buoyed by policy support measures.

The non-manufacturing PMI also declined to 50.6 from 51.7 in September, indicating a slowdown in the service sector and construction activities.

Analysts attribute this weakness in the PMI data to decreased demand due to the housing market downturn and a slowdown in infrastructure spending. While there are glimpses of improvement in exports, a robust recovery in external demand remains uncertain, with both new export and import orders diminishing for an eighth consecutive month.

Although foreign buyers showed interest during the Canton Fair, Chinese sellers indicated low orders as the festive season approaches, with minimal expectations for a swift global demand recovery.

"The falling figure in October doesn't reflect much of a change in demand but an adjustment in supply," noted Dan Wang, chief economist at Hang Seng Bank China. He highlighted a month-on-month decline indicating more of a supply adjustment rather than a dramatic change in demand.

The pressure on business profits was evident, with factory gate prices witnessing a sharp contraction this month, as indicated in the PMI survey.

Following the PMI data release, prices of various nonferrous metals fell, given China's significant global consumption of these base metals used in manufacturing.

Indian metal producers count China as their major market and exports bulk of metals produced by them to China.

Shares of Tata Steel, Jindal Steel, APL Apollo, NMDC, Vedanta, JSW Steel and Hindalco were all trading lower and underperforming the Sensex.