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Copper: Fortunes linked to Telecom - Views on News from Equitymaster
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  • Jan 26, 2002

    Copper: Fortunes linked to Telecom

    Having recently recovered from the South East Asian economic crisis, copper prices have been on a downward spiral in the last one-year. The reasons for the same are not far to fetch. Global economic slowdown, high inventory built up and increase in copper production capacity. The copper consumption estimates for 2001 indicates a slide of around 5%.

    Global copper consumption Trend
    Year 1998 1999 2000 2001 E
    Total World (in '000 tonnes) 13,477 14,120 15,075 14,321
    Growth (YoY) 2.50% 4.80% 6.80% -5.00%

    A synchronous downturn of US, Europe, and Asia has been a major factor undermining the demand in the sector. US and Europe account a lionís of global copper consumption. Though global copper demand is not likely to see any major upsurge, Asian economies are showing robust growth rates on the back of increased infrastructure investments, particularly in power and telecommunications.

    China remains a wild card in so many markets. Chinese imports continue to grow strongly driven by demand from infrastructure spending in the power sector, as the countryís economy continues to defy the world economic slowdown.

    India accounts for a miniscule share of the global copper demand. At present the copper consumption in India is just about 0.5 kgs, which is much less than the world average of 3 kgs. Till mid 1990ís, government controlled, Hindustan Copper was the sole producer of Copper and almost 55% of the copper requirement was imported. However, with the entry of two prominent private players viz, Sterlite Industries and Indo Gulf, the situation has changed dramatically. Imports have fallen sharply.

    The current domestic production is estimated to be in the range of 280,000 tonnes. The domestic demand on the other hand is expected to be in the range of 300,000 tonnes. Both Sterlite and Indo Gulf are expanding their smelter capacities. Post their expansion the production is likely to outrun demand by around 40,000 tonnes p.a. Sensing this both the players are aggressively eyeing export markets.

    Majority (approximately 70%) of copper consumption in India is for Jelly Filled Telecom cables and hence the demand in the domestic market is directly linked to the JFTC segment.

    JFTC till date has been the preferred type of cable for transmission of voice and data along a fixed line telephone network. A major threat however, for JFTC is increasing demand of Optic fiber cables (OFC), which is technologically advanced and superior in performance vis-ŗ-vis JFTC. Currently, OFC is preferred in trunk routes, which require higher bandwidth and better network reliability. Whereas, JFTC is used for non-metros and rural areas where the volume of traffic does not justify usage of optical fiber cables due to higher capital investment. JFTC are also preferred for inter-exchange and local network use in telecom.

    However, considering an exponential growth expected in telecom infrastructure in coming years, JFTC cables could be a quintessential feature. In the medium term, JFTC cables are expected to witness 10-12% growth over next few years, which will translate into demand for Copper. However, the concern for copper remains that JFTCís are increasingly being replaced by OFCís. Indian Copper industry is expected to grow at close to 7-8% p.a. in the next 3-4 years on the back of telecom infrastructure spending. Fast track power sector reforms could play the wild card.



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