Rupee decline has taken away benefit of lower copper price: Deepak Chhabria

Interview with Executive chairman, Finolex Cables

Deepak Chhabria last weekend took over as the Executive Chairman of Finolex Cables, a flagship company of Finolex group. The company is among the top three consumers of copper in the country with 3,600 tons per month copper consumption. In an interview with Rajesh Bhayani, Chhabria says that while copper prices have fallen on LME the benifit was not seen in Indian markets because of rupee depreciation. Excerpts:

Copper prices are around three year low internationally. How is that helping companies like yours which is major copper consumer?
In cables roughly 50% cost is that of copper. Falling copper prices are beneficial for our wire prices as it is made of copper and PVC. This also creates more demand as it becomes affordable and people uses more copper wires than aluminium. But in the last couple of months, fall in value of rupee has taken away the benefit of lower copper.

In such an environment how do you source copper?

While most wire companies buy copper rods, we buy copper cathodes and cast that into rods and then make wires. This makes our product price effective. We buy from domestic companies like Sterlite Industries and Hindalco. We have an annual contract with them but prices are based on LME average prices every month.

How much of your copper requirement has been hedged?
We don't need to hedge our requirement on exchanges as our business model has in-built hedging mechanism. Our largest volume comes from distributors where prices are based on market list prices which we can change as and when required. We buy copper in the beginning of the month and pay for it in the end of the month as per monthly average while after processing that our products are sold during the month but pricing is done at the month end and hence normally we are in tune with  the market. To bigger customers we sell on contract bases but pricing is done as per monthly LME price average. so we are normally hedged for copper price.

So you have pricing power with you?
Our brand power and flexibility of adjusting market prices gives us some pricing power to take care of sharp swings in copper prices.

Was there any impact on business when a large copper plant was closed?
In fact due to closure of Sterlite copper plant in the past two months, there was shortage of copper as half the supply had vanished. In such a scene we along with others had to resort to import and we imported copper rods. That was temporary and now the plant has resumed operations.

What is your outlook for copper prices?

Our business model does not require us to take positions in copper and hence there is no need to predict prices. However, personally I believe that strengthening US dollar will keep copper prices weak.

How is the overall demand scene emerging?
Demand has been quite brisk. Market is already growing as housing sector is growing. However, with power generation now likely to pick up with government clearing fuel issues for power plants, demand for cables will obviously go up.

This should have positive impact for your business. What are your growth targets?
We are targeting 25% growth.