Hind Copper Needs A Helping Hand For Some Years
The fluctuations in world prices were engineered by speculators particularly from Japan. Many producers have suffered. Hindustan Copper is one of them and needs a helping hand during the next few years until it completes the expansion of its Khetri smelter from 30,000 to 100,000 tpy and closes its some of the uneconomic mines. Otherwise a PSU in vital sector of the economy will suffer for no fault of its own and the country may become more dependent on imports of copper. The slump in copper prices during 1996 and a year previous to that was by 30 per cent. The average price of copper at the LME in 1996 was $2257 per tonne as against $2844 per tonne in the previous year.
Countries like Poland and Zambia are selling off their copper producing plants to raise money for expansion and consolidation. The Polish producer saw its operating profit dip to $124 million in 1996. It produced around 425,000 tonnes of electrolytic copper, 126,000 tonnes of lead, 933 tonnes of silver and 530 kg of gold. Its cost of production of copper is said to be ranging between $1500 and 2000 per tonne.
The other large producer in the world, Codelco, saw a fall of $128 million in profits in 1996. Rio Tinto saw a fall of $300 million in 1996. Assarco saw profits fall from $425 million in 1995 to $196 million in 1996. According to a study there is a lot of uncertainty about the new projects in the pipeline. No doubt there are 20 of them, but only five may be profit makers according to some analysts.
There is no unanimity even on short term market prospects for copper. Forecasts show a rapid increase in demand for copper in the west. But the biggest factor in copper demand would be China which will influence market prices substantially.
Chinese demand for copper is estimated at 1.4 million tonnes in 1996 which may reach 2.25 million tonnes by 2000 on increase of nearly 840,000 tonnes in about five years. In line with the world conditions amongst copper producers Hindustan Copper, the public sector unit, also suffered a heavy loss of Rs 129.58 crore in 1996-97 against a net profit of Rs 93.74 crore in 1995-96. This was because of the steep fall in world copper prices as also the stoppage of the smelter and refinery at Khatri over 70 days for overhaul. Some of the mines were also closed due to SC order on mining.
Hindustan Copper is one of the PSUs now singled out for disinvestment. But with the present depressed market conditions and prospective losses there is hardly any possibility of selling the shares at a premium.
According to reports, Crisil which has studied the disinvestment of Hindustan Copper shares wants the same to be deferred for three years. This is because HCL's present prospects are poor but its plan to expand the Khatri smelter at a cost of Rs 528 crore would give it an additional profit of Rs 183 crore irrespective of fluctuations in the international market. Khatri can add 70,000 tonnes of additional capacity at a very competitive cost against a greenfield new smelter which will cost not less than Rs 1000 crore.
HCL's disadvantage also is the poor quality of copper bearing ore which have a copper content of one per cent against 2.5 per cent in other mining projects in the world. Hindustan Copper was started at a time when self reliance was the motive in the public sector philosophy and the projects were designed with that objective.
To bring back HCL into profit it would be necessary to expand the smelter and make it suitable for using imported concentrates. It will also be necessary to close some of the uneconomic mines and the government will have to assist in compensating the workers who will have to be laid off. All this would take three to five years by which time Hindustan Copper should be in a position to withstand international competition. Three new smelters are now commissioned or close to commissioning. Sterlite Smelter of 70,000 tonnes per annum at Tuticorin had experienced some problems but should be able to overcome these in course of time. Indo Gulf 100,000 smelter is likely to be commissioned by end of 1997, while SWIl will also commission its 50,000 tonnes smelter.
Market conditions are therefore likely to be quite competitive.
According to analysts the next 3 to 4 years are likely to be very profitable for Balco, the PSU aluminium producer, and this period could be utilised by it to overcome some of the problems which it is facing at present.
Though it has a 270 mw power plant it is not able to meet fully its demand and wants to set up a further capacity of 67 mw. It also has to reduce its power consumption from around 17,500 units per tonne for 14,000 units per tonne.
The disinvestment commission has recommended that 40 per cent of Balco equity be sold off preferably to a single partner who has the technology and ability to invest in modernisation and expansion programme. This could be a way for some private sector unit to take over a potentially large profit maker as a smelter with 100,000 capacity will not cost less than Rs 1000 crore.
With the aluminium prices likely to go up it would be in the interest of Balco to postpone the disinvestment for some years. It has already appointed BSI Caps for a capital restructure programme and it is hoped that some solution would be found which would be in the larger interest of the company.