Copper in India to lose sheen due to demand-supply mismatch: CARE

A demand-supply mismatch in domestic copper market will make India a net importer of refined copper in 2019-20 (FY20), CARE Ratings said on Friday.

With the permanent closure of Tuticorin smelter and the uncertainty surrounding with its remission, CARE expects that by the end of FY20, refined copper production will be around 450,000 tonnes, down 1.5 per cent from FY19 numbers.

Production of copper during April-July period stands at 167,000 tonnes. India has emerged as an importer of copper ore and concentrates and imports more than 90 per cent of its concentrate requirements due to lack of copper mines in the country. 

However, imports of copper ore and concentrates fell by 44.6 per cent during FY19 due to a lack of requirement from the Tuticorin smelter.

Demand for the domestic copper market is dependent largely on the electrical and telecommunications (56 per cent), building and construction (8 per cent), automobiles (11 per cent), and the consumer durables segments (8 per cent).

“We estimate domestic refined copper demand to increase by 7-8 per cent (including consumption of scrap) by the end of FY20,” said the report.

The growing demand from the power sector amid government laying thrust on renewable energy and increasing demand from the households for consumer durables will add onto the demand for copper in India. Manufacturers of hybrid and electric cars will also augment the consumption of copper as electric vehicles use four times more copper than traditional internal combustion engines.

Due to an increase in demand, India will continue being a net importer of refined copper during FY20, unless the Madurai court passes the judgment for the remission of the Tuticorin smelter.

Compared with the global markets, India has limited copper ore reserves that constitute around 2 per cent of the world copper reserves. The ore production is also just about 0.2 per cent of the world’s production.

There are three major players who dominate the primary copper industry in India -- state-owned Hindustan Copper, Hindalco, and Vedanta Industries.

Meanwhile, global copper prices are seen suppressed and could range between $5,500-$5,900 per tonne until there is a constructive trade deal between the US and China.

Currently, copper prices on LME are at $5,755 a tonne. "We also expect TC/RC margins to remain under pressure owing to the supply side disruptions from the major mining areas (Chile mining strike)," said the CARE report.

This could act as a double whammy for copper manufacturers given global copper prices are already low and low TC/RC margins will affect smelters earning capacity potentially affecting the overall financials of the copper industry.

In China, the world's largest consumer and producer of all base metals, copper production growth will lag compared to previous years over the forecast period to 2028, as low copper ore grades render a number of mines unprofitable and smelters turn to ore imports, said Fitch Solutions Macro Research.

“We forecast China's copper production to increase to 1.93 million tonne in 2028 from 1.64 million by 2019 registering an average annual growth rate of 1.9 per cent," said Fitch Solutions Macro Research. This represents a significant slowdown from the average growth rate of 7.3 per cent over the previous 10 -year period. This slowdown in production growth will be driven by closures of low-grade copper mines in China and delayed planned capacity expansions, it said.