The Hindu : Chinese demand pushes up copper prices

Online edition of India's National Newspaper
Thursday, Feb 12, 2004

Business

Business

Chinese demand pushes up copper prices

By Our Staff Correspondent

MUMBAI, FEB. 11. In line with other metals, ferrous and non-ferrous, copper too has seen buoyant prices thanks largely to constrained supplies and the insatiable Chinese demand.

The red metal prices scaled an eight-year high on Monday last at $2,610 a tonne and have reacted to around $2,585 levels now; which in itself is a six-year high. Chinese imports of copper cathodes have gone up 77 per cent in December 2003 to 141,107 tonnes taking total imports in 2003 to 1.33 million tonnes, up 15 per cent from 2002.

In the domestic industry, the profitability for the players is likely to decline with declining customs duty differential and increasing exports.

However, according to Mukesh Agarwal, Head Corporate Ratings, Crisil Ratings, these would be marginally offset by increasing efficiencies and a positive outlook on the TC/RC margins. TC/RC are treating and refining charges and represent the difference between concentrate and copper prices. These are crucial for the profitability of custom smelters.

The customs duty on copper was reduced from 25 to 20 per cent and the 4 per cent Special Additional Duty (SAD) was also abolished; taking the total reduction to 11.5 per cent.

Already prices in the domestic market have gone up from last week's Rs. 153 a kg to Rs. 165 a kg.

There is expected to be only a marginal domestic demand growth in the medium term as Jelly Filled Telecom Cables (JFTC) demand is unlikely to be restored to past levels although investments in electrical generation will drive demand.

The JFTC segment is the largest copper consumer in India and accounted for 30 per cent of consumption in 2001-02.

Going forward, the domestic copper producers would export a significant proportion of their output given the large overcapacity in the domestic market. Post Sterlite's expansion of three lakh tonnes per annum by end of FY 2004, the total copper production would touch six lakh tpa against demand of less than three lakh tpa. Crisil estimates that from 2004-05 onwards, about 65 per cent of Sterlite and Hindalco's copper production would be exported against 45 per cent in 2002-03. Exports have lower margins and their increasing share in the sales mix would adversely impact the two companies' profitability by about one per cent.

Crisil has estimated that copper prices would remain firm at over $2,000 per tonne over the next year on the back of significant growth in western world consumption and higher demand from China.

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