Copper rally hits scrap companies to electric gear manufacturers

The global rally in copper prices has made Indian companies across the copper-to-electrical end-use value chain incur losses even as they try to deal with the situation by holding inventory, hedging, and hiking prices.
 

Copper LME (London Metal Exchange) rallied to touch a two-year high of $11,000 per tonne in May and domestic prices have moved in tandem. Simultaneously, with India pushing for green energy and overall electrification, the demand for copper, which is a critical input for electrical products, is on the rise in the country.
 

Companies such as Kalpataru Projects International, which builds transmission lines, said that hedging has shielded them from the rise in copper prices. “We always hedge copper and zinc as soon as we receive a letter of award, so we remain unaffected,” said Director Amit Uplenchwar.  
 

Hedging is a risk management instrument that allows companies to shield itself from the impact of either a rise

or fall in prices of an asset or commodity.
 

TD power Systems, which manufactures generators and motors, has placed orders for copper delivery till December. The company has started discussions with customers for a price pass-through if prices continue to remain high, it told analysts in a call in May.
 

Companies at the consumer end, such as cable and electrical appliance makers, have abandoned the hedging strategy and have instead adopted a full price pass-through strategy. Executives at Finolex Cables in a recent call with investors said: “We are very clear that the cost of the metal is a pass-through.”  V-Guard said that the copper is going to raise the prices of fans and pumps to some extent. Others such as air-conditioning unit maker BlueStar, have already hiked prices by up to 3 per cent owing to rise in input costs, including copper.
 

Apart from hedging and price hikes, companies have also had to resort to stocking up on inventory. A copper industry executive revealed that whenever copper prices rally, scrap dealers tend to hold higher inventories in a bid for quick profits. India’s copper scrap prices are already up 6 per cent in the space of a month. (see box).
 

Executives at V-Guard also said that when copper prices go up, retailers, too, stock up wires.
 

Those producing copper are raking in the moolah. The earnings of Hindalco Industries’ copper-producing division were at a record high in the last quarter. However, the sourcing of copper concentrates (raw material) is still key for these producers. In a call with the media earlier in May, a top Hindalco executive said that more than 70 per cent of their concentrate supplies were secured under long-term contracts, with a price reset expected in November this year.
 

Meanwhile, according to industry observers, the micro, small and medium enterprises (MSME) sector has been the worst hit by the rise in copper prices. “SME manufacturers using copper as a key raw material are struggling with frequent price changes, making it difficult to match operating costs with buyer prices leading to losses,” said a spokesperson for a research company.

Pointers

-AC, cable, fan makers consider price pass-through

-Copper manufacturers, T&D players rely on hedging, long-term contracts.

-Copper scrap prices rise 6 per cent in a month.

-Retailers stocking up on copper wires.

-Large scrap-dependent manufacturers seek low-copper content alternatives.

India’s copper scrap prices up 6% MoM

The price of copper scrapped from electronic waste has risen about 6 per cent in the last one month.

Copper armature (scrap) prices are currently hovering around Rs 820 per kg in the North market, according to data from metal research firm BigMint. A similar trend was observed in imported copper scrap prices as well.

Executives at Hindalco Industries, a major producer of copper and aluminium in India, said that imports of scraps for metals such as aluminium saw a sharp decline due to supply constraints in the quarter ending March 2024. They said that the tight supply was related to tensions in the Red Sea area, as Europe is a major exporter of such scrap.

A spokesperson for BigMint said that small to medium-scale manufacturers have borne the brunt of the price volatility in copper scrap, while some large-scale man­u­facturers have sought alternatives for prod­u­c­tions.