The shutting down of Sterlite’s copper plant, which is producing about 45 per cent of the country’s copper output, changes the demand-supply dynamics in the domestic copper market that could escalate the metal’s domestic prices.

It makes India a net importer of copper from being net exporter currently.

However, for Vedanta’s investors, there will only be a marginal impact as the copper segment of the company contributes only about 5 per cent to the group’s operating profit.

India self-sufficient so far

As per the annual report of the Ministry of Mines for FY 2017-18, the key copper players in the Indian market have an installed capacity of around 9.5 lakh tonnes (Hindalco – 5 lakh tonnes, Sterlite Copper – 4 lakh tonnes and Hindustan Copper – 0.9 tonnes).

During FY 2016-17, refined copper usage (including for cathode and wire rod) is around 6.65 lakh tonnes.

India has been self-sufficient in refined copper production and has emerged as a net exporter of refined copper so far.

But with the closure of Sterlite Copper – which has nearly 35 per cent market share in the country and caters significantly to customers in cable manufacturers, winding wire units and transformer manufacturers – India will become a net importer of refined copper from being a net exporter so far.

Commenting on this development, Jayantha Roy, Senior Vice-President, ICRA India, said: “The large deficit that will be created in the Indian market is permanent and will change the domestic demand-supply situation abruptly.”

With consuming industries growing continuously, the demand is expected to grow by 6-7 per cent annually. Jayanta added, “it is not possible for the other two existing players to increase their output in the short to medium term to bridge the anticipated shortage in the domestic market”.

Surge in domestic prices

The closure which will reduce India’s copper output by nearly 50 per cent and will have an adverse impact on the pricing as well.

The domestic prices, which move in tandem with the LME copper prices, will shoot up in the short-term, as the premium on the landed costs is expected to increase due to the supply deficit within the country.

Jayanta says, “Based on the current LME price, copper premium and exchange rate, the landed cost of refined copper cathode in India would stand at around ₹500/kg.

While domestic base metal prices including copper prices are determined on an import parity basis, the sudden change in the demand-supply equation can lead to an increase in the domestic spot prices.”

Limited impact on Vedanta

Sterlite Copper plant of Vedanta derives its revenue from selling of copper cathode, copper rod, anode slime, including from purchased concentrate, sulphuric acid and phosphoric acid. Though the closure creates a disruption in the copper market in the country, the impact on the parent company, Vedanta is expected to be marginal, as the copper segment accounts for only 4-5 per cent to the group’s operating profit.

However, the investment in expanding the installed capacity at Thoothukudi plant could go in vain.

The company waited for clearance from the government to increase its installed capacity to 8 lakh tonnes, for which it planned a capex of around $717 million. The company has already spent $189 million up to March 2018.

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