Secondary copper producers turn to domestic smelters for raw material

India's import of copper scrap is said to have declined 25-30 per cent in the past three months

As the gap between prices of primary copper and scrap narrows, secondary producers are increasingly turning to the primary metal for their raw material needs.

This month, prices have declined 11 per cent to a five and a half year low, following ‘index re-balancing’, through which global hedge funds pull out from asset classes with prospects of weak returns and invest elsewhere. Currently, copper is being traded at $5,596/tonne, a level not seen since June 2009. Aluminium, nickel and zinc prices have declined four to seven per cent in two weeks.

Typically, secondary copper manufacturers blend 30-40 per cent scrap with primary products such as cathode, depending upon customers’ specifications of the end-product.

“In a falling market, prices of both primary and secondary metals decline, resulting in lower supply from foreign scrap exporters, based largely in Singapore, Dubai, Hong Kong and the US. Since they hold on to the scrap inventory, Indian secondary copper smelters do not have an option but to seek additional quantities of primary copper from Indian smelters such as Hindalco and Sterlite,” said D K Jain, president of the Indian Non-ferrous Metals Manufacturers Association and managing director of Haryana-based Agrawal Metal Works, a copper flat rolled-products manufacturer.

Sources say India’s import of copper scrap has declined 25-30 per cent in three months.

According to the mines ministry, both Hindalco and Sterlite ramped up copper cathode production, despite a weak price sentiment. Hindalco reported total copper production of 257,261 tonnes between April and November last year (against 203,259 tonnes in the corresponding period of 2013), Sterlite Industries recorded 230,548 tonnes during the same period (compared with 162,321 tonnes in the year-ago period).

Though experts say a large quantity has remained unsold this year due to weak demand, P Ramnath, chief executive of Sterlite Industries (India), denies this. “We sell whatever we produce, leaving no inventory. But the fall in copper prices will raise domestic demand,” he says.

Secondary producers have been reeling, at least for the past three years, owing to an inverted duty structure, with five per cent import duty on scrap and none on finished products from countries with which India has free trade agreements. For these companies, the fall in prices is another worry, as the cost of raw materials would continue to remain high due to a lag effect on scrap prices, said Rohit Shah, managing director of Perfect Valves.

B K Binani, managing director of Rashtriya Metal Industries and ex-president of the Indian Non-ferrous Metals Manufacturers Association, said, “In case of a price rise, the difference between virgin metal and scrap widens and vice versa. So, for raw material, it is a natural shift from imported scrap to the primary metal procured from domestic smelters such as Hindalco and Sterlite.”