Copper: Is the run over? - Views on News from Equitymaster

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Copper: Is the run over?

Nov 22, 2000

Both the copper majors Sterlite Industries Ltd. (SIL) and Indo Gulf Corporation Ltd. have reported strong growth in earnings. This is largely on the back of an increase in international copper prices. During the second quarter copper prices increased by $207 / metric tonne (MT) or 12%.

Sterlite reported a 68% growth in bottomline but this was also due to augmenting of its smelting capacity by 20,000 MT. Indo Gulf, meanwhile was able to report an increase in profits primarily due to the copper division. Copper now contributes almost 60% of Indo Gulf's turnover and 70% of its profits.

However, mid way into the next quarter, prices of the non-ferrous metal have begun to cool. Copper prices are down by $181 / MT or 9%, compared to the highs reached in September. Consequently, the coming quarter growth story for these respective companies may not be as sizzling.

Nevertheless, the industry continues to remain in a demand surplus position. The demand for copper in the current fiscal is expected to be 330,000 MT while the supply is expected to be 260,000 MT. This leaves a demand supply gap of 70,000 MT, which is met by imports. This gap is expected to increase in the coming years. Consequently, we may see either of the players augmenting capacity to benefit from increased volumes and prevent the entry of a new competitor.

Indo Gulf Corp. is trading at Rs 35.4 on a multiple of 3.4 on 2QFY01 annualised earnings. Whereas, Sterlite is quoted at Rs 151 and is trading on a multiple of 2.8 on 1QFY01 annualised earnings.

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