 "Copper producers face uneven playing field")
India’s two major producers of refined copper, Vedanta and Hindalco, must be drawing comfort from a Reuters report of an impromptu meeting of representatives of ten members of Chinese smelters purchase team (CSPT) in Shanghai earlier last month reaching the conclusion that the world would not encounter any shortage of copper concentrate in 2018. CSPT says that the supply of copper concentrate will be enough to meet the global requirements of smelters. In fact, there could be a “little surplus,” but any talk of a deficit is unfounded.
What prompted CSPT to undertake a separate comprehensive analysis of evolving demand and supply analysis of copper concentrate was the earlier uncomfortable forecast by miners when they met in London of shortages of the smelter input emerging next year. Unlike the India government owned Hindustan Copper Limited (HCL), which has an expanding mining profile, the shore based copper smelters of Vedanta and Grasim are run on imported concentrate.
The structure of the close to one million tonne (mt) capacity Indian copper industry could not be otherwise. The domestic supply of copper concentrate — from which the metal is smelted — meets just around 4 per cent of the industry’s requirement. As a result, the country was required to import 2.79 mt of copper concentrate containing in it about 824,000 tonnes of metal during 2016-17. In consideration that they would perennially depend on imports of copper concentrate and, therefore, they should ideally have their smelting operation close to the sea, Vedanta has its smelter at Tuticorin in Tamil Nadu and Hindalco its integrated copper complex at Dahej in Gujarat. Their location gives them logistical advantage in importing concentrate and exporting refined copper. India’s copper exports last year were around 350,000 tonnes.
Profitability of standalone smelters like that of Vedanta and Hindalco is at all times linked to treatment charge and refining charge (TC/RC) that they claim from miners while signing concentrate supply contracts. Shortages of concentrate favours miners — in the ensuing competition for getting supplies, the smelters are left with no option but to settle for less TC/RC. To give a recent example, mine disruptions during July-September 2016, leading to tightness in concentrate supply, saw a 5 per cent fall in 2017 annual benchmark settlements of TC/RC at $92.5 a tonne. In contrast, in a situation of global surplus of concentrate, smelters are able to wrest high TC/RC from miners that would lift smelting bottom line.
Thanks to the acquisition by HCL, the 50,000 tonne smelter at Bharuch in Gujarat, which was lying closed since September 2009, returned to production in October last year. HCL says the acquired Gujarat unit made copper cathode of 8,906 tonnes in 2016-17 following the first phase of its recommissioning. The project never worked well under the original Kolkata-based promoter SWIL despite its versatility to process a range of copper bearing materials, including e-scrap to produce LME-A grade copper. This plant, too, has the advantage of port proximity.
Like in ferrous and other base metals, China has a domineering presence in copper production, as is evidenced by imports of concentrate growing every year since 2011. According to that country’s General Administration of Customs (GAC), China imported 17.05 mt of concentrate in 2016, with Chile alone contributing 4.74 mt. Its import of concentrate in 2015 amounted to 13.29 mt. In the first 10 months of 2017, China, which accounts for half the world’s consumption of copper, imported 13.94 mt of concentrate. Trade officials say imports in the rest of the year will also be significant to meet restocking demand as annual TC/RC negotiations happen. Smooth production at the world’s major mines is aiding Chinese build up of concentrate inventory.
Experts see the rise in China’s mined concentrate imports as part of a longer running trend rooted in build-out of refining capacity. No wonder, then, in the 2016 world refined copper production rising by about 2.5 per cent to 23.40 mt, the main contributor was China with an extra 470,000 tonnes followed by the US and Japan. China’s copper cathode production between January and October this year at 6.5465 mt was up 1.84 per cent year-on-year. So big is the Chinese demand for copper that the domestic production needs to be supplemented by large imports of unwrought copper that includes anode, refined and semi-finished copper products. According to GAC, the country imported 3.76 mt of unwrought copper in the first ten months of 2017.
China is an important market for Indian copper. Even while India is a net exporter of copper, it remains a major importer of the reddish brown metal. P Ramnath, chief executive of Vedanta’s copper business, says, “Imports of roughly around 250,000 tonnes, equalling nearly one-third of the country’s consumption of refined copper, is of huge concern (for the domestic industry.” No doubt, the industry here, particularly the two private sector units could make better use of their capacity but for such high imports.
The villain is the free trade agreements with Asean and Japan, the sources of major imports enjoying duty concessions. For example, of imports of 89,000 tonnes of wires in 2016-17, as much as 98 per cent came under FTA from Asean member countries. It is in this context Hindalco copper business chief Jagdish Chandra Laddha wants New Delhi to provide safeguards against imports so that the domestic producers find a level-playing field. At the same time, the “local industry has got to be globally cost competitive.”
A level-playing field will create ideal condition for the industry here to build new capacity as India’s per capita use of copper is forecast to grow to at least 1 kg by 2025 from the present 0.5 kg. The global per capita consumption is 2.7 kg. Vedanta has sorted out a “few regulatory and legal” issues to be able to build a 400,000 tonne brownfield smelter at Tuticorin. As HCL plans to raise mining capacity to 12.4 mt by 2021-22 — from 3.4 mt now — work on a 100,000-tonne copper cathode plant is under way, according to chairman Santosh Sharma. In about four years on completion of the new copper project at an investment of Rs 3,025 crore, HCL will have a refined metal capacity of 164,000 tonnes. The “capex disciplined” Hindalco is building a 230,000 tonne third copper rod plant at Dahej.
