Copper refiners see higher revenue ahead

Treatment and refining charges rise despite a downward trend in copper prices companies like Sterlite Copper to benefit

Despite a downward trend in world copper prices, the rates for refining of the metal have begun rising, cheery news for the prospects of majors in this segment.

For instance, Sterlite Copper, a unit of Sterlite Industries and part of the London-based Vedanta group, is India’s largest refiner of the red metal (48 per cent of the market). It has negotiated for treatment and refining charges (known as Tc/Rc) of 16.33 cents/lb for the July-September quarter, up from 12.5 c/lb in the June quarter.

Copper prices are 15 per cent lower than at this time last year. Usually, when copper prices fall, so do Tc/Rc rates. However, with demand for finished copper falling, several smelters abroad had cut capacities in recent months. On the other side, mining companies had been focusing on more of concentrate, to generate cash. As a result, raw copper supply is slated to rise and refining charges have started moving up. In India, no smelters have cut capacities and Sterlite stands to gain the most.

“We’re ramping up production volumes of refined copper to beat the general slowdown. In the light of this and the rupee depreciation, Sterlite Copper expects much better results,” said P Ramnath, chief executive officer.

Major mining companies such as Codelco, Escondida and Esperenza have been increasing their capacities over the past couple of years and new mines are expected to be commissioned soon, taking supply concerns lower, the ‘Third Quarter Metals Review’ report from Naxitis Global Asset Management noted. At the same time, smelters were cutting production on the back on falling profitability, it said.

A rise in demand from China is also likely to push Tc/Rc charges higher in the next year.

Indian companies, as mentioned, have retained their volumes. In fact, Sterlite’s copper cathode volumes increased by 88,000 tonnes in the first quarter of this year, up 19 per cent from 74,000 tonnes in the same quarter of 2011.

“The company is in a good position to benefit from rising Tc/Rc charges if their volumes continue to grow and there is no major shock from the global market,” said Kamlesh Kotak, head, equity research, Asian Markets Securities. “Their margins in the previous quarter were better than market expectations.”

The Indian government has allotted $1 trillion for power and infrastructure spending in the 2012-17 Plan. This is likely to see double-digit growth in domestic copper demand, experts say, pushing Tc/Rc charges higher by 20-25 per cent.