Coper Industry Overview

8/6/2019 Coper Industry Overview

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May 2010

T

Major producers

into ingots. The Indian copper industryhe copper industry is highlywas opened for private sectordependent on the performanceinvestment in 1992. Prior to 1992, theof and demand for productsindustry was dominated by HCL, alike power and telecommunicationpublic sector undertaking (PSU)cables, transformers, generators,owned by the government. HCL wasradiators and other ancillaryincorporated in November 1967 withcomponents. Hence, its growth isthe objectives, inter alia, to carry outclosely linked to the country'smining operations and produce coppereconomic and industrial growth.

a n d r e l a t e d p roduc t s . HCLAlthough, the industry is capital andsubsequently took over the copper orepower intensive, entry barriers aremines from National Mineralmoderate. These basically relate toDevelopment Corporation Ltd.economies of scale, access to ore(NMDC). These mines are located atsupplies and environmental issues. InKhetri and Kolihan in Rajasthan, andIndia, copper reserves are mainlyRakha Copper Complex in Jharkhand.concentrated in Bihar, Rajasthan and

Till 1997, the only producer of primaryMadhya Pradesh and only public

refined copper was HCL. The installedsector Hindustan Copper Ltd (HCL)

capacity for refined copper productionhas been allocated all these mines

at its two integrated copper plants washaving a copper content of just 1.2 -

(and is) around 47.5 ktpa, which used1.3 percent against the world average

to meet approximately 25-30 percentof 2 3 percent. Private copper

of India's requirement for refinedproducers including Hindalco

copper. The balance demand was metIndustries (Hindalco) and Sterlite

through imports. The other twoIndustries (SIL), however, import

producers of copper in India now areconcentrate and then, produce refined

Hindalco and SIL. Their presentmetal.

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 processp r i m a r i l y i m p o r t e d c o p p e r

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

- Metalworld Research Team

Indian Copper Industry:

Poised For Escalating Growth

The Indian industry canbe classified into two

broad

categoriesmanufactu

rers of refined copper

(copper cathodes) and

manufacturers of

copper products


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May 201020

Fo

cus

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 ktpain 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

annual capacities are 500 ktpa and 405 copper usage in telecom sector has

ktpa respectively. Their plants are declined during the last several years.b a sed on impo r t ed c oppe r Over the past few decades, aluminiumconcentrate. Thus, the total installed has been the most important substitutecapacities for copper in India are for copper, taking over substantialpresently around 947.5 ktpa. In market segments, on account of itsaddition, SWIL Ltd. is operating a 50 conductivity of electricity and heat, itsktpa plant based on secondary route. low weight, corrosion characteristics,SIL is the largest producer of copper in and lower prices relative to copper.India, with an estimated production of Aluminium weighs about one-third as

313 kt during FY2009. As there are much as steel or copper. It isonly three major players in the malleable, ductile, and easilydomestic market, they offer limited machined and cast; and has excellentcompetition among themselves. corrosion resistance and durability.Apart from new production, scrap However, in some applications,copper supply in India is estimated at despite being cheaper, aluminiumaround 100-115 ktpa. These include substitution has been restrained. Forcartridge brass disposed by defence example, in car radiators, although(17 percent); forgings, fabrication, copper is more expensive, it hasredrawing and machining (31 superior corrosion and heatpercent); old winding wire scrap (13 conductivity characteristics. Hence, apercent); copper cable scrap disposed copper radiator is expected to lastby 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 Ind ia ' s copper

Installed capacity for copper cathodes ('000 tonnes)

FY 2002 2003 2004 2005 2006 2007 2008 2009

Hindalco 150.0 150.0 250.0 250.0 500.0 500.0 500.0 500.0Sterlite 165.0 165.0 165.0 165.0 300.0 400.0 405.0 405.0

HCL 47.5 47.5 47.5 47.5 47.5 47.5 47.5 47.5

Total 362.5 362.5 462.5 462.5 847.5 947.5 952.5 952.5

Distribution of Indian copper industry (%)

Electrical 36

Telecom 20

Engineering 9

Building and construction 9

Consumers durables 6

Transports 8

Others 12

With the increasing shift

from fixed line to wireless

mode of

communication, there is

a threat for demand

growth for copper from

this segment


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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 after40 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

o v e r h e a d c o n d u c t o r s a n d

underground cables for carrying

electricity. Though aluminium is not as

good an electrical conductor

measured per unit of weight, its piping uses, improving suchlightness and tensile strength makes characteristics as durability or abilityaluminium cables of a given carrying

to withstand chemicals and heat,capacity both lighter and stronger and thereby strengthen ing the i rfar cheaper than cables made of competitive position versus copper.copper. For these reasons, aluminium There are even reports abouthas come to dominate long distance aluminiumplastic composite waterelectricity transmission in recent piping. Such pipes, made of aluminiumdecades. On the other hand, where tube that is laminated with interior andspace, cross section, ease of jointing exterior layers of plastic, are said toand ability to stand high temperatures be lightweight, flexible, strong andare of concern, e.g. in bus bars, corrosion resistant, and particularlyswitchgear, transformers and well suited for hot and cold waterelectrical generators, copper has been distribution indoors and outdoors.able to maintain its competitiveness.

The replacement of copper by opticThreat from substitutes fibre for message transmissions in

Thus, substitution is prompted by telecommunication has proceeded atmany characteristics apart from price. fast rates ever since their commercial

Nevertheless, sometimes price introduction in such uses by the late

overwhelms other considerations, as 1970s. The substitution process was

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

May 2010

Even after 40 years of

competition, copper is

maintaining a 40 percent

share of the car radiator

market


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May 2010

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 theprimary 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.initiated by telephone companies,Copper ore and concentrate islater joined by cable televisionprimarily imported from three

systems and local area networks. So countriesChile, Australia, andfar, it has mainly involved longIndonesia.distance trunk lines, while the ultimate

SIL's consumption of copperlocal connection has till recently,

concentrates was 1,094 kt in FY2008.remained the preserve of copper.

In order to obtain a source for some ofSubstitution was prompted by the

its copper and copper concentratemuch higher productivity and

requirements, SIL acquired CMT insubstantially lower overall cost of

2000, which owns the Mt. Lyell copperoptic fibre. Copper's losses in these

mine in Australia, and Thalangamarket segments are deemed to be

Copper Mines Pty Ltd., or TCM indefinitive and irreversible. Like in the

2000, which owns 70 percent of thecase of plastics, the fast product

Highway Reward copper mine indevelopment of optic fibre is likely to

Australia. This mine has since closedstrengthen its competitive strength

in July 2005. CMT and TCM had beenand result in further incursions intoacquired by Monte Cello BV, or Montecopper's markets in the telecom

Cello, in 1999, and SIL acquired themsector.

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 98.76kt 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

Limited domestic availability

22

Fo

cus

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


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May 2010

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 copper. India accounts for less than 5

of 2.2 percent which contained proven percent of the global capacity for

reserves of 23.7 mt at an averagecopper, and thus has limited influencecopper grade of 2.4 percent and on copper prices on the LME.

probable reserves of 8.5 mt at an However, prices on the LME do have

average copper grade of 1.6 percent in an effect on domestic prices, since

possible reserves. During FY2008, they determine the TcRc charges, and

approximately 26 percent of influence the landed price of imported

Hindalco's copper concentrate metal.

consumption of 1,150 kt came from

these two Australian mines. TheThe per capita consumption of copperbalance was through long-termin 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

suppliers (58 percent), and spot industry in GDP. By comparison,

markets (17 percent). India's industrial sector has a much

lower share in GDP. As such, whileAs Indian smelters rely on overseascopper consumption in India ismarkets for almost their entireforecast to grow strongly over therequirement of copper concentrates,medium-term, it is not expected totheir profitability is stronglyreplicate the very strong growth trenddependent on the internationalevident in China. Copper's futurevariation in Treatment Charges and

trend will be decided on upcomingRefining Charges (or TcRc) which isdemand from housing and electricaldefined as the difference between thesectors that are expected to see acathode prices and the concentrateboom in future.prices. The buyers of copper

concentrates from mining companies

are the smelters and refiners of

Low per capita consumption

India copper balance sheet ('000 tonnes)

Production Consumption

2001 325 293

2002 374 301

2003 391 3072004 419 335

2005 518 397

2006 627 407

2007 719 475

2008 669 500

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

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Coper Industry Overview