Cut In Lme Copper Tariff Likely To Dent Bottomline

The direct fallout of a sharp cut in peak tariff on copper, whose price has dived from $2,926 per tonne to $1,963 per tonne over the past few months on the London Metals Exchange (LME), is a series of domestic price cuts over five months.

Copper cathodes and bars were earlier subject to a 35 per cent import duty, while Wire rods attracted a duty of 40 per cent.

With the reduction of peak rate on non-ferrous metals revised downward to 32 per cent, the landed import cost of each of these copper products is lower than domestic price by Rs 6,000.

 

For its total sales of 50,000 tonnes, if Hindustan Copper reduces price by Rs 6,000 per tonne, the price realisation will be lower by roughly Rs 30 crore.

Hindustan Copper, a Rs 1,000-crore-plus public sector company, is the only Indian company with copper ore mining rights. It converts ore at high cost (costs are high due to the poor grade of the ore) to cathodes, which is further upgraded to bars and rods. It supplements the crucial intermediate cathode output with imports.

To supplement capacity at Taloja, Maharashtra, the company has floated a tender for the supply of copper cathodes. It will import 30,000 metric tonnes LME registered grade "A" copper cathodes.

Keeping in sync with a falling LME price line, the copper giant has been forced to slash prices every month. Prices of rods have been reduced from Rs 1.41 lakh a tonne in June to Rs 1.08 lakh in October. Wire bar prices have also been reduced from Rs 1.39 lakh a tonne to Rs 1.03 lakh during the same period. Margins for rods are better than that of the bars, in which the cost of production has been higher than the sale price since September.

Domestic prices depend largely on the spot prices in the international market and the fortunes of Indian producers are primarily determined by the LME prices.

The country's indigenous production of copper is about 50,000 tonnes per year, far in deficit of a gross demand of 250,000 tonnes. This gap is met through imports.

The company would break even only if the LME prices reach $ 2,250 a ton.

The only way out of this problem is to cut down on inventory holding by 5 per cent, cut down power consumption and increase the efficiency on recovery stoppage of overtime allowances.

Such a situation seems to be similar to conditions that prevailied during 1993-94.