With uncertainty looming large over the early reopening of Sterlite Copper's smelter plant at Tuticorin in Tamil Nadu, coupled with increasing demand for the commodity from various sectors, India will continue being a net importer of refined copper during current fiscal of FY20. The refined copper production for the current fiscal is expected to decline further by 1.5% from FY19 level, said Care Ratings in its research report on Friday.
Domestic production of refined copper had grown at a CAGR of 9.6% during financial years 2015 to 2018 from 762,000 tonne to 848,000 tonne. Due to closure of 400,000 tonne per annum Sterlite Copper smelter, the production fell by 46.1% during FY19 to 457,000 tonne. The Tuticorin smelter, which had to be closed due to environmental concerns and death of 13 people in May 2018, accounts for 40% of the country's copper smelting capacity.
Refined copper production had also fallen during FY19 as output from Hindustan Copper and Hindalco was also low due to planned shutdown of its smelters during the first half of the year, the ratings agency pointed out.
With the uncertainty surrounding Sterlite Copper's remission, it is believed that by the end of FY20, refined copper production will be around 450 KT, registering a 1.5% drop from its FY19 level of production. Production of copper for the April-July period is estimated to be around 167,000 tonne.
Demand for the domestic copper market is dependent largely on the electrical & telecommunications (56%), building & construction (8%), automobiles (11%) and the consumer durables segments (8%). We estimate domestic refined copper demand to increase by 7-8% (including consumption of scrap) by the end of FY20, the ratings agency further said.
The growing demand from the power sector, the government's thrust on renewable energy and increasing demand from households for consumer durables will add onto the demand for copper in India. Manufacturing of hybrid and electric cars will also augment the consumption of copper as EVs use 4 times more copper than traditional internal combustion engines. Due to the increase in demand, India will continue being a net importer of refined copper during FY20 as well, unless the Madurai court passes the judgement for the remission of the Tuticorin smelter, Care Ratings further said.
India has emerged as an importer of copper ore and concentrates and imports more than 90% of its concentrate requirements due to the lack of copper mines in the country. Imports of copper ore and concentrates fell by 44.6% during FY19 due to the lack of requirement from the Tuticorin smelter. India used to be a net exporter of copper cathodes till FY18. Now, with the closure of the Tuticorin smelter, the drop in domestic production has led to the domino effect of increasing the country's imports and decreasing its exports. India has become a net importer of refined copper after 18 years.
According to Care Ratings, during FY19, exports had fallen by 87.4%, (against an increase of 12.3% in FY18), whereas imports increased by 131.2% (against increase of 35.6% in FY18 ). India imported refined copper from Japan (71%), Congo (6%), Singapore (5%), Chile (4%), Tanzania (4%), UAE (4%) and South Africa (3%) and exported refined copper to China (75%), Taiwan (13%), Malaysia (5%), South Korea (5%) and Bangladesh (2%) during FY19.
Share of exports towards China has increased, from 63% during FY18 to 75% during FY19 and share of imports from Japan has increased from 68% during FY18 to 71% during FY19.
We see the demand for copper in the electrical segment to grow via infrastructure sector. The PMAY scheme will be the driver of consumption for copper in the building and construction sector. The PMAY-G scheme aims to provide 1.95 crore houses till FY22 whereas PMAY-Urban aims to provide over 81 lakh houses (with a sanctioned investment amount of around `4.83 lakh crore).
The government has announced a series of support measures and incentives, as a result of which electric vehicles will see a steady growth in the coming years across the country. Manufacturing of EVs uses 3 times the copper than normal automobiles. Similarly, the country has set an ambitious target of installing 175 GW of renewable energy capacity by 2022 which could augment the use of copper for wiring applications.
Demand for consumer durables like refrigerators and other consumer electronic goods are likely to witness growing demand in the coming years in the rural markets with the government being very proactive in investing significantly towards rural electrification.
The increasing penetration of mobile phones in urban and rural areas will further result in more demand for telecom towers in rural areas.
The ratings agency further said that in the current financial year, there has been a marginal recovery in terms of production of refined copper but nevertheless the domestic copper production continues to remain stressed as the Tuticorin smelter is still non-operational. As a result, imports of copper cathodes have increased by 82.6% and exports have fallen by 72.7%. India has imported 86% of its copper cathodes requirements from Japan and exported 83% to China.