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Non-ferrous: Betting on '02 recovery - Views on News from Equitymaster
 
 
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  • Dec 12, 2001

    Non-ferrous: Betting on '02 recovery

    Since the lows in November '01, copper prices on the London Metal Exchange (LME) are trading higher by 10.9%. Prices had rocketed to $1,540 / tonne but have seen a correction to 1,463 / tonne. Reflecting a similar mood are base metal stocks, Sterlite Industries Ltd. (SIL) and Indo-Gulf Fertilisers, which have gained 47.2% and 39% respectively from their September '01 lows.

    As per reports, domestic demand for the base metal is expected to grow between 8%-10%, which has been the historical growth rate. Copper consumption in FY01 was estimated to be 300,000 tonnes. This is expected to rise to 325,000 tonnes in the current year. Among the key consuming industries are jelly filled telecom cables (JFTC) & cable wires, which account for 55% of total consumption. The shift towards optical cables could undermine the demand for JFTC in the future. The largest buyers of JFTC in the country are Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL). Both are moving towards upgrading their networks to optic fibre. However, the JFTC industry argues that the last mile is likely to remain linked by copper cables. Considering telephony penetration in India, the industry opines that, there is no significant threat to demand from the telecom industry.

    Domestic supply of the base metal has been on the rise over the past few years with two smelters coming onstream, Sterlite Industries and Indo Gulf Corporation. Both these companies had targeted augmenting capacity from 100,000 tonnes per annum (TPA) to 150,000 TPA in the current fiscal. The increase in domestic production has steadily eaten into imports, which are expected to further reduce in the current fiscal.

    Although markets are expecting a turnaround in the global economy much of the run in copper prices seems to have built in the improved business sentiment. The downside risk is likely to have increased as any delay in recovery could impact commodity prices. That said, markets opine, 2003 is likely to be the year for sustained recovery in business.

     

     

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