Reduction in import duty of copper and copper based products to 25% from 35%. The import duty on copper concentrate has remained untouched.
Budget Impact
The downstream copper based industry was lobbying for lower import duty on refined copper. Like in aluminium, the downstream businesses seem to have influenced the Finance Minister. The key consuming industries are telecom & power cables and housing. With focus on development, growth in these industries is considered imperative. This could have been a reason for the Government to lower input costs for these industries. With reduction in import duty, the net tariff protection has reduced from 30% to 20% earlier.
Similar to aluminium, the lower duty on copper and copper products will put pressure on domestic realizations of copper producers, namely, Sterlite Industries (India) Ltd. and Indo Gulf Corporation Ltd. The reduced net tariff protection is likely to result in greater linkage to international prices. Consequently, volatility could manifest on realizations. While Indo Gulf's exports were negligible in FY01, in the current fiscal, copper exports have jumped dramatically. Sterlite, which registered exports of 9% in FY01, has also increased export sales in the current fiscal.
Industry wish list
Rationalise import duties on copper and copper based downstream products. Currently, import duties on fabricated products are the same as copper. Consequently, downstream players are at a disadvantage in competing with imports.
Reduce import duty on copper concentrate to 0%. Consequently, import duty on copper and copper based products can be reduced.
Key Positives
After the lows, post September 11, copper prices on the LME have registered a smart rally. This seems to indicate resurgence in global demand for copper led by demand from China.
Global demand for copper is likely to grow by 3.5% over the next three years, increasing the critical demand supply gap. This could keep copper prices firm in the international markets.
The JFTC market largely drives domestic demand. Industry believes that demand is likely to register robust growth with the Government targeting telephone density of 15% by 2010. The demand is likely to come from rural areas.
Key Negatives
There are fears that demand for JFTC could decline over the next few years, as optic fibre (OF) becomes the cable of choice. Precipitating the trend is the large global OF capacity, which has led to a sharp fall in prices.
With newer networking technologies spring up rapidly, prices of better technology cables is dropping, which could lead to replacement of JFTC.
Net tariff protection for copper producers is significantly high. The Finance Minister has indicated intentions of reducing average import rates to Asean levels. Also, downstream industries are lobbying for lower duty on refined copper.
