Sterlite declares force majeure at Tuticorin copper plant

By Anupama Chandrasekaran

TUTICORIN, India (Reuters) - Sterlite Industries Ltd has halted deliveries of copper from India's largest smelter after it shut down last week due to complaints over emissions, a move that could tighten local supplies and force imports.

The company also exercised force majeure on purchases of copper concentrates, the base material used by the plant, general manager of projects D. Dhanavel told Reuters.

Force majeure is a contract clause that allows a company to miss shipments due to circumstances beyond its control.

The smelter, which produces more than 300,000 tonnes per year - over half of India's copper output - was halted last week by local authorities at least until a hearing on April 9 into the complaints.

The shutdown could tighten supplies in the region and lift premiums if Indian consumers have to fill their needs from international markets, traders said.

"It will have an impact on the need for India to import copper, I would expect. It's a 400,000 tonne smelter. They had plans to expand it, but I don't think that is going to go ahead," said London-based Macquarie analyst Ryan Belshaw.

Metals traders said the shutdown could inflate copper premiums -- the price paid above the London Metal Exchange (LME) cash price to cover delivery costs, including transport and insurance.

A Singapore-based trader said enquiries from Indian consumers had increased, including from one customer who had booked 125 tonnes with Sterlite about two weeks ago.

"He was told... he won't be able to get delivery in April," the trader said.

PROTESTERS

The smelter, located in the coastal town of Tuticorin near the southern tip of India, has long been the focus of protesters and local politicians who say it is a risk to fishing.

Tamil Nadu state pollution control board had detected higher than normal levels of sulphur dioxide in the area. Sterlite has said that all emissions were within stipulated limits.

"Post the closure of the plant, Sterlite Copper exercised the force majeure clause in both purchases of copper concentrate and deliveries of different forms of copper," Dhanavel said.

The Supreme Court fined Sterlite, a unit of London-listed conglomerate Vedanta Resources PLC , 1 billion rupees on Tuesday in a separate case for breaking environmental laws at the same copper smelter.

The Supreme Court said in that ruling that levels of chromium, copper and lead were higher than stipulated in some of the groundwater samples collected from the area where the smelter is based.

Late last week, copper premiums in Singapore fell to around $30 to $40 from $55 to $60 earlier in March, after a rise last month in copper stockpiles in LME warehouses in Asia, traders said.

India consumes around 600,000 tonnes of copper annually - about 3 percent of the world's total, far behind China, which took around 9 million tonnes last year.

While regional stockpiles have ballooned since December as the global copper market swings into surplus after years of deficit, stocks are not easily available due to warehouse bottlenecks in Malaysia's port of Johor and elsewhere.

Shipments have also been affected by a port strike in Chile, while output at top producer Codelco was hit by a separate miners' strike this week, suggesting a near-term shortfall in supply, traders said.

Shares of Sterlite closed down 2.7 percent on Wednesday. The company's announcement came after the close.

(Additional reporting by Melanie Burton in Singapore and Susan Thomas in London)