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Copper: Poised for growth

Dec 16, 2000

Copper prices, which slumped to US$ 1,350 / metric tonne (MT) in March '99, have run up significantly over the past 18 months. In September '00 copper prices touched a high of US$ 2,000 / MT. The non-ferrous metal prices are expected to remain buoyant as global demand outpaces supply. The two main players in the domestic market are Sterlite Industries Ltd. (SIL) and Indo Gulf Industries (IGI). The third player, Hindustan Copper - the state run entity - is expected to be put on the disinvestment block. In fact, the international copper giant Phelps Dodge and global metals trading major Metdist have put in a joint expression of interest for acquiring 51 percent stake in the company.

Prior to fiscal year '00, India was importing a significant share of its copper requirement with new smelter capacity coming on stream only in the last two years. With the new smelter capacities set up by Sterlite and Indo Gulf Industries commencing their first full year of production only in fiscal '00 India produced only 35,800 MT of copper in fiscal '99. These companies now plan to augment their capacities to 150,000 MT. Sterlite has already increased its capacity to 120,000 MT through Phase - I of de-bottlenecking. On completion of Phase - II the capacity will be increased to 150,000 MT.

The copper consumption in India for fiscal '00 was estimated to be at 290,000 MT. Domestic production met approximately 76 percent of the country's requirement while the balance was met through imports. In the current fiscal the imports are anticipated to further decline with these companies augmenting capacities and deriving gains of process efficiencies.

Global demand / supply scenario
('000 tonnes) Production Consumption Gap
FY00 14,343 14,267 76
FY01 14,712 14,782 (70)
FY02 15,163 15,339 (176)
FY03 15,622 15,903 (281)
FY04 15,938 16,429 (491)

Demand for copper is expected to clock 330,000 MT in the current year. With the dominant players expanding capacities and reckoned to be operating at above 100 percent utilization, the imports are estimated to drop by half to 30,000 MT. Consequently, the domestic producers are anticipated to register a robust growth rate this fiscal. With the demand supply gap in domestic markets expected to touch 110,000 MT by fiscal year '04 and the global scenario to develop into a supply deficit the copper prices could remain buoyant in the coming years.

Telecom, housing and auto constitute the key consumption industries for copper. Strong growth in these industries will facilitate buoyant copper demand, which is expected to grow at a compounded rate of 11 percent over the next four years. The consumption industries are anticipated to register healthy growth rates as per capita consumption in these sectors is abysmally low.

To kick-start the telecom sector the Government promulgated the new telecom policy (NTP '99), which aims to increase the tele-density in the country to 15 percent by fiscal 2010 from the current levels of 2.7 percent. This is anticipated to increase the number of telephone lines to 150 million. Consequently, the scorching growth could be the impetus for future demand growth in the copper industry. Further, as demand for properties rises the housing sector is expected to boom and is anticipated to clock double-digit growth rates. This will add to the demand of copper required for electrical wiring of the premises. However, the only black sheep is the auto sector, which is facing a slow down in the current fiscal. This may fetter the copper industry growth rates.

Resultant to the high growth in demand and firm copper prices, the treatment charges and refining charges (TC/RC) may continue to remain favourable, which is crucial to the refiners' fortunes. These charges rose by 20 percent in fiscal '00, which boosted the refiners' bottomlines. The likely robust growth in copper demand and firmness in prices could result in this industry witnessing a prolonged period of high growth.

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