Sterlite copper plant shutdown may push up prices

The company's scrip closed down 4.37% today from previous close

The recent order of the Tamil Nadu Pollution Control Board (TNPCB) asking Sterlite Industries to immediately shut down its copper smelter in Tuticorin may push copper prices higher in India in the short term.


Sterlite, part of London-listed Vedanta Resources Plc, is the second largest copper smelter in India and has a total copper production capacity of 4,05,000 tonne per annum. Out of which, over 3,00,000 tonne copper is produced from the Tuticorin facility in Tamil Nadu. The stock price of Sterlite Industries reacted sharply to the news and closed at Rs 89.70 per share on the Bombay Stock Exchange (BSE) on Monday, down by 4.37%.



An analyst who couldn’t be quoted because of his company’s policy, said, “Since this is an immediate closure, there may be some impact on the copper prices in India if the plant is not restarted soon enough.”



The Tuticorin plant of Sterlite is profitable and the company, during the third quarter results in January, said that it expects the copper treatment and refining charges to move up.


The copper demand in India is currently not very strong and companies do have inventory build ups, too, he said, adding, “If the shutdown is prolonged then we might see an upward move in copper prices.”



The company, in a statement, said, ”We will engage with TNPCB (Tamil Nadu Pollution Control Board) to explain the factual position and are committed to co-operate fully with the authorities in this regard, in order to be able to restart operations.”


The total copper demand in India is around 6,00,000 per year and Hindalco and Hindustan Copper are the other two major copper producers in India which meet this demand.


In the combined Sesa-Sterlite entity, the copper business accounts for 5 per cent of the pure profits and 13 per cent at profit after tax level. Therefore, if the shutdown is prolonged, then there will definitely be an adverse impact, another analyst said.



On March 23, the TNPCB conducted checks at the said plant after locals complained of a gas leak that caused mild suffocation, sore throat and eye irritation to several people in the plant’s vicinity.


Prasad Baji and Navin Sahadeo of Edelweiss, in a report dated January 29, said, “Copper segment EBITDA was 25 per cent below estimate due to lower acid realisations. Led by the EBITDA disappointment, adjusted PAT was 14 per cent below our estimate.”


On London Metal Exchange (LME), copper prices were at over $7,800 per tonne but are currently in the range of $7,550 per tonne.