With just weeks to go for Budget 2020-21, Indian copper producers have demanded waiver of 2.5 per cent duty on imports of concentrates.
The duty exemption is expected to come to the rescue of the besieged copper manufacturers who find it hard to compete with finished products imports. These products are usually sourced from nations that enjoy Free Trade Agreements (FTAs) with the Government of India.
“Indian copper smelters are 'Custom Smelters' and depend on imported copper concentrates for about 95 per cent of their requirement. Given the conversion business model of domestic smelters, they are at a disadvantageous position as compared to the 'integrated nature' of smelters from countries having advantage of their own mines. The situation gets aggravated due to inverted duty structure prevailing, whereby domestic smelters incur customs duty of 2.5 per cent on their raw material copper concentrates (no choice but to import), while finished goods are imported at zero duty (ASEAN-FTA) into the country”, said an industry source.
Imports of copper concentrates by domestic manufacturers is inevitable due to lack of ample and quality deposits within the country. Major copper producing countries like China, Japan, Korea, European Union (EU) are already importing copper concentrate at zero duty. This has affected level playing field for Indian smelters as the cost structure of smelters in those countries are lower on account of zero import duty on copper concentrate.
Countries like China and Japan have been securing copper concentrates through government-backed finance-linked investments-cum-strategic tie-ups in copper mines in Africa and Chile respectively, which is threatening availability of good quality raw material for Indian smelters.
“Import duty of 2.5 per cent is a large amount for a high value product like copper and the domestic industry already operating in low margins against the backdrop of ever-increasing imports and reducing domestic share. This inverted duty structure, coupled with impact of FTAs are making the domestic copper smelters uncompetitive which have resulted in huge trade deficit in copper of $4.3 billion in FY19 which was in trade surplus of $1.2 billion in FY11”, the source added.
The progressive decline in concentrate production as a percentage of smelter capacity from 83.2 per cent in 2016 to 78.4 per cent in 2019 and the continuous decline of treatment charges (TC) & refining charges (RC) during the corresponding period in the Asian (term contract market) have increasingly turned the market bearish for custom smelters resulting into squeezing of smelter margins.
Copper producers feel that abolition of duty on concentrates imports and reversing the inverted duty structure is critical to the survival of the industry. Besides, the duty waiver is expected to benefit over 1000 SMEs (small & medium enterprises) that are served by the primary copper producers and sustain employment for one lakh people directly besides providing indirect employment to 4 lakh others.