Copper holds attractive future demand prospects

Updated: October 05, 2021 8:37 AM

The owner of the benighted smelter Vedanta group so far had no success in restarting the smelter even while it had promised environment friendly operation.

sterlite copperThe Indian copper industry had to contend with low demand of 118,000 tonnes in the first quarter of 2021-22 compared with 161,000 tonnes in the final three months of last year.

By Kunal Bose 

It was a given that the closure of 400,000 tonne capacity smelter at coastal Thoothukudi by the Tamil Nadu government on grounds of violation of environmental norms in May 2018 would result in the country’s import requirements of refined copper and also scrap for secondary production of red metal soaring. The owner of the benighted smelter Vedanta group so far had no success in restarting the smelter even while it had promised environment friendly operation. So much being at stake, the aluminium to zinc to copper conglomerate continues to engage with the government and the court to be enabled to restart the plant.

The impact of Thoothukudi plant shutdown was rudely felt during 2019-20 when as much as 45% of 750,000 tonne domestic copper demand had to be met by imports of 335,000 tonnes. Major operational dislocation in Indian metals sector per se and copper was no exception happened in 2020-21 in the wake of the Covid-19 pandemic related lockdowns in the first two quarters in particular. Stalling of infrastructure projects, fall in production of automobiles and components thereof and setback in white goods output, all these combined to shrink copper demand by a whopping 24% to 566,000 tonnes in the ill-omened last year.

Copper being most sensitive to macroeconomic developments, the metal is still the best bellwether for the local as well as global economy. Last year, it once again faithfully reflected the pains the economy in general suffered. Incidentally, as local use of copper shrank by 184,000 tonnes to 566,000 tonnes on a year-on-year basis, imports totalling 178,000 tonnes met 31% total demand.

The Indian copper industry had to contend with low demand of 118,000 tonnes in the first quarter of 2021-22 compared with 161,000 tonnes in the final three months of last year. However, at a recent earnings call, Hindalco managing director Satish Pai said: “The demand is expected to improve steadily to a normalised level in the next few quarters due to declining Covid cases and the phased unlocking in the country.”

Beyond medium term by when the low base effect on current demand has worn thin, the use of copper in India is to see an annual growth rate of 8% or more enabled by rising demand from traditional sectors such electrical applications, building and construction and white goods such as air-conditioners, refrigerators and washing machines and also from growing official focus on decarbonising the economy. For example, as the country readies to progressively step up production of electrical vehicles (EVs), a major copper use area will open up. EVs will require five times more copper than vehicles made with internal combustion engine (ICE). A good amount of red metal will be used in making batteries for EVs, cables and charging stations.

Then as India pursues the target of achieving non-fossil fuel based energy resources constituting around 40% of cumulative electric power installed capacity, a major demand avenue for copper will open up. In the Indian basket of sustainable clean energy, solar power will have pride of place since this tropical country has the potential to draw a vast amount of electricity from the blazing sun. The National Institute of Solar Energy estimates India’s solar power potential at 748 gw. But the immediate target of prime minister’s solar mission is to achieve a solar capacity of 100 gigawatt. The country seen as the fourth most attractive renewable energy market in the world is placed fifth in global solar power pecking order. But what does solar energy hold for copper use? A lot since creation of 1 mw of solar cell capacity will need 6 tonnes of copper. Similarly, in renewable wind energy, considerable amount of copper is used in the generator, cabling and transformer of a turbine.

Thus in view of the attractive future demand prospects for copper, at least two major Indian groups have shown keen interest in building large coast based smelters. Smelters in India should ideally be located in coastal areas, for their operation will be entirely based on imported copper concentrate, the local availability of smelter feedstock being negligible. This cannot be otherwise since the country has only 0.31% of world copper ore reserves.

Naturally, it has a miniscule share of 0.2% of global ore production. Against all this, India even at a low per capita use of 0.5 kg against global average of 3.1 kg accounts for around 3% of global copper consumption. What, however, obtains here is nothing unique.

Take China, which last year dwarfed all other copper producing countries by making 10.021 million tonnes (MT) of refined metal out of a world total of 23.3 MT had to import 21.77 MT of concentrate, 1.03 MT of unrefined copper such as blister, anode and ingots and 940,000 tonnes of scrap to feed its smelters. Japan, which runs the world’s third largest copper smelting and refining industry with production of 1.6 MT in 2020 is entirely dependent on metal in concentrate imports.

When recently Vedanta sought expression of interest from state governments in hosting a 500,000 tonne smelter, the move was seen as a replacement for the shut smelter. Adani group, which has a rapidly expanding profile in solar and wind energy plans to build a much bigger smelter of 1 MT capacity at Mundra in Gujarat. While 90% of Adani smelter capacity will be used to process concentrate, scrap will be the feedstock for remaining capacity.

(A former FT correspondent, the author is now India correspondent for Euro Money publication Metal Market Magazine.)

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