Indian Copper Industry: Poised For Escalating Growth

- Metalworld Research Team he copper industry is highly dependent on the performance of and demand for products like power and telecommunication cables, transformers, generators, radiators and other ancillary components. Hence, its growth is closely linked to the country's economic and industrial growth. Although, the industry is capital and power intensive, entry barriers are moderate. These basically relate to economies of scale, access to ore supplies and environmental issues. In India, copper reserves are mainly concentrated in Bihar, Rajasthan and Madhya Pradesh and only public sector Hindustan Copper Ltd (HCL) has been allocated all these mines having a copper content of just 1.2 1.3 percent against the world average of 2 3 percent. Private copper producers including Hindalco Industries (Hindalco) and Sterlite Industries (SIL), however, import concentrate and then, produce refined metal.

into ingots. The Indian copper industry was opened for private sector investment in 1992. Prior to 1992, the industry was dominated by HCL, a public sector undertaking (PSU) owned by the government. HCL was incorporated in November 1967 with the objectives, inter alia, to carry out mining operations and produce copper and related products. HCL subsequently took over the copper ore mines from National Mineral Development Corporation Ltd. (NMDC). These mines are located at Khetri and Kolihan in Rajasthan, and Rakha Copper Complex in Jharkhand. Till 1997, the only producer of primary refined copper was HCL. The installed capacity for refined copper production at its two integrated copper plants was (and is) around 47.5 ktpa, which used to meet approximately 25-30 percent of India's requirement for refined copper. The balance demand was met through imports. The other two producers of copper in India now are Hindalco and SIL. Their present

The Indian industry can be classified into two broad categoriesmanufactu rers of refined copper (copper cathodes) and manufacturers of copper products

Major producers
The Indian industry can be classified i n t o t w o b r o a d categoriesmanufacturers of refined copper (copper cathodes) and manufacturers of copper products. Of the three manufacturers of refined copper, HCL is the only primary producer, which mines and refines copper; Hindalco and SIL process primarily imported copper concentrate to produce end products like copper bars, rods and wires. Other players include around 1,000 units in the small-scale sector, which are primarily involved in converting scrap

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consumption. Because of the rapid expansion of the Indian telecom network during the late-1990s, copper usage in the telecom sector increased from around 20 ktpa in the early-1990s to around 105-110 ktpa in the late-1990s. However, since then demand has declined to around 65 ktpa at present. With the increasing shift from fixed line to wireless mode of communication, there is a threat for demand growth for copper from this segment. Also, in the fixed line communication, optic fibre cables (OFC) offer strong competition to copper. Accordingly, the market for
Installed capacity for copper cathodes ('000 tonnes) FY Hindalco Sterlite HCL Total 2002 150.0 165.0 47.5 362.5 2003 150.0 165.0 47.5 362.5 2004 250.0 165.0 47.5 462.5 2005 250.0 165.0 47.5 462.5 2006 500.0 300.0 47.5 847.5 2007 500.0 400.0 47.5 947.5 2008 500.0 405.0 47.5 952.5 2009 500.0 405.0 47.5 952.5

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With the increasing shift from fixed line to wireless mode of communication, there is a threat for demand growth for copper from this segment

annual capacities are 500 ktpa and 405 ktpa respectively. Their plants are based on imported copper concentrate. Thus, the total installed capacities for copper in India are presently around 947.5 ktpa. In addition, SWIL Ltd. is operating a 50 ktpa plant based on secondary route. SIL is the largest producer of copper in India, with an estimated production of 313 kt during FY2009. As there are only three major players in the domestic market, they offer limited competition among themselves. Apart from new production, scrap copper supply in India is estimated at around 100-115 ktpa. These include cartridge brass disposed by defence (17 percent); forgings, fabrication, redrawing and machining (31 percent); old winding wire scrap (13 percent); copper cable scrap disposed by users in electricity and telephone (12 percent); and wire and cable units (9 percent). Distribution of copper usage in India Till the late 1990s, the telecom sector was the major customer segment (accounting for 30-35 percent of demand) for India's copper

copper usage in telecom sector has declined during the last several years. Over the past few decades, aluminium has been the most important substitute for copper, taking over substantial market segments, on account of its conductivity of electricity and heat, its low weight, corrosion characteristics, and lower prices relative to copper. Aluminium weighs about one-third as much as steel or copper. It is malleable, ductile, and easily machined and cast; and has excellent corrosion resistance and durability. However, in some applications, despite being cheaper, aluminium substitution has been restrained. For example, in car radiators, although copper is more expensive, it has superior corrosion and heat conductivity characteristics. Hence, a copper radiator is expected to last
Distribution of Indian copper industry (%) Electrical 36 Telecom 20 Engineering 9 Building and construction 9 Consumers durables 6 Transports 8 Others 12

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longer, and less metal is required for a given cooling performance. Copper is also easy to work with, simplifying and cheapening the manufacturing process, especially where soldering and brazing are involved. Even after 40 years of competition, copper is maintaining a 40 percent share of the car radiator market. Aluminium has been taking over copper's traditional markets in important electrical applications. One such market is for overhead conductors and underground cables for carrying electricity. Though aluminium is not as good an electrical conductor measured per unit of weight, its lightness and tensile strength makes aluminium cables of a given carrying capacity both lighter and stronger and far cheaper than cables made of copper. For these reasons, aluminium has come to dominate long distance electricity transmission in recent decades. On the other hand, where space, cross section, ease of jointing and ability to stand high temperatures are of concern, e.g. in bus bars, switchgear, transformers and electrical generators, copper has been able to maintain its competitiveness. Threat from substitutes Thus, substitution is prompted by many characteristics apart from price. Nevertheless, sometimes price overwhelms other considerations, as the usage of silver demonstrates. Silver is superior to copper in terms of malleability, anti-corrosion, and as electric conductor. However, on account of its high price, the ability of silver to penetrate copper's electric markets has been limited to minuscule segments where these characteristics are particularly important. Over the past half century, copper has also faced challenges from plastics and optic fibres in some market segments. Thus plastics have partly replaced copper in piping fresh water into and waste water out of buildings. Plastics have been tailor-made for

piping uses, improving such characteristics as durability or ability to withstand chemicals and heat, thereby strengthening their competitive position versus copper. There are even reports about aluminiumplastic composite water piping. Such pipes, made of aluminium tube that is laminated with interior and exterior layers of plastic, are said to be lightweight, flexible, strong and corrosion resistant, and particularly well suited for hot and cold water distribution indoors and outdoors. The replacement of copper by optic fibre for message transmissions in telecommunication has proceeded at fast rates ever since their commercial introduction in such uses by the late 1970s. The substitution process was

Even after 40 years of competition, copper is maintaining a 40 percent share of the car radiator market

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At present, the demand for copper for primary copper production is met through two sources i.e. copper ore mined from indigenous mines and imported copper concentrates

initiated by telephone companies, later joined by cable television systems and local area networks. So far, it has mainly involved long distance trunk lines, while the ultimate local connection has till recently, remained the preserve of copper. Substitution was prompted by the much higher productivity and substantially lower overall cost of optic fibre. Copper's losses in these market segments are deemed to be definitive and irreversible. Like in the case of plastics, the fast product development of optic fibre is likely to strengthen its competitive strength and result in further incursions into copper's markets in the telecom sector.

At present, the demand for copper for primary copper production is met through two sources i.e. copper ore mined from indigenous mines and imported copper concentrates. The indigenous mining activity among the primary copper producers is limited to only HCL. Production of copper metal in concentrate from mines has stagnated at around 30 ktpa over the last five years. Presently, HCL imports around 40 percent of its copper concentrates requirements to supplement the shortages in indigenous production. Hindalco and SIL also import their requirements in the form of copper concentrates. Copper ore and concentrate is primarily imported from three countriesChile, Australia, and Indonesia. SIL's consumption of copper concentrates was 1,094 kt in FY2008. In order to obtain a source for some of its copper and copper concentrate requirements, SIL acquired CMT in 2000, which owns the Mt. Lyell copper mine in Australia, and Thalanga Copper Mines Pty Ltd., or TCM in 2000, which owns 70 percent of the Highway Reward copper mine in Australia. This mine has since closed in July 2005. CMT and TCM had been acquired by Monte Cello BV, or Monte Cello, in 1999, and SIL acquired them through its acquisition of Monte Cello in 2000. Although these mines supplied around 10 percent of SIL's copper concentrate requirements in FY2007, the percentage has declined to 8 percent in FY2008 and FY2009, and is expected to decline as the estimated mine life at Mt. Lyell is approximately four years from April 1, 2009. In FY 2009, Mt. Lyell mined and processed 2.4 mt of ore at a grade of 1.3 percent copper to produce 98.76 kt of copper concentrate, which also contained 15,675 ounces of gold and 135,953 ounces of silver. Although the grade of copper at Mt. Lyell is low, it produces a clean concentrate that is

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Limited domestic availability

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valuable in the smelting process. In 2003, Hindalco also acquired two captive copper mines in Mt. Gordon in Queensland, Australia and Nifty in Western Australia in 2003 through its 51 percent owned subsidiary Aditya Birla Minerals Ltd (ABML). ABML holds the mining and prospecting licence area for these two copper mines in Australia through its wholly owned subsidiaries, Birla Nifty Pty Limited and Birla Mount Gordon Pty Limited. Total copper (cathode and concentrates) production of ABML was 82.4 kt in FY2008. As of March 31, 2008, the two mines had 32.2 mt of reserves at an average copper grade of 2.2 percent which contained proven reserves of 23.7 mt at an average copper grade of 2.4 percent and probable reserves of 8.5 mt at an average copper grade of 1.6 percent in possible reserves. During FY2008, approximately 26 percent of Hindalco's copper concentrate consumption of 1,150 kt came from these two Australian mines. The balance was through long-term
India copper balance sheet ('000 tonnes) 2001 2002 2003 2004 2005 2006 2007 2008 Production 325 374 391 419 518 627 719 669 Consumption 293 301 307 335 397 407 475 500

copper. India accounts for less than 5 percent of the global capacity for copper, and thus has limited influence on copper prices on the LME. However, prices on the LME do have an effect on domestic prices, since they determine the TcRc charges, and influence the landed price of imported metal.

Low per capita consumption

The per capita consumption of copper in India is currently at 0.4 kg per annum, which compares poorly with China's per capita consumption of 3 kg per annum. However, India's per capita consumption is unlikely to increase at the same rate as China. China's per capita consumption at a given income level is higher than in the other emerging markets, mainly because it has a higher share of industry in GDP. By comparison, India's industrial sector has a much lower share in GDP. As such, while copper consumption in India is forecast to grow strongly over the medium-term, it is not expected to replicate the very strong growth trend evident in China. Copper's future trend will be decided on upcoming demand from housing and electrical sectors that are expected to see a boom in future.

The per capita consumption of copper in India is currently at 0.4 kg per annum, which compares poorly with China's per capita consumption of 3 kg per annum

suppliers (58 percent), markets (17 percent).

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As Indian smelters rely on overseas markets for almost their entire requirement of copper concentrates, their profitability is strongly dependent on the international variation in Treatment Charges and Refining Charges (or TcRc) which is defined as the difference between the cathode prices and the concentrate prices. The buyers of copper concentrates from mining companies are the smelters and refiners of

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