Copper to bloom in 2018 but FTAs can hurt

Copper has rallied more than 20 percent last year along with other industrial metals on prediction of tighter supplies and increasing global economic growth amid new sources of demand. Moreover, the growing number of electric vehicles hitting the roads is further set to fuel a nine-fold increase in copper demand over the coming decade. 

Electric or hybrid vehicles are expected to reach 27 million by 2027, up from 3 million this year. According to market experts, electric vehicles alone will boost global copper demand by 1.2 million tonne. In this context, Indian copper sector is also expected to benefit from the electric-vehicle push as Prime Minister Narendra Modi seeks to turn all passenger car sales electric by 2030. 

But even without the demand from electric vehicles, demand should rise to 1.8 million tonne to 2 million tonne in India especially on the back of improved economic activity in India. According to our estimation, 

the demand for copper is likely to grow at 6-7 per cent in the coming years. Such high demand is inevitable with the increasing pace of urbanisation, development of industrial corridors, smart city projects, housing for all by 2022, national highway development and rail projects. Moreover, the defence production policy to encourage indigenous manufacturing and ambitious green energy plans of the government are also seen to drive the copper demand.

However, with opportunities comes challenges and the foremost challenge is the free trade agreement that India have with other copper producing nations.  The Indian companies especially the finished copper producers are facing a tough competition from these countries. 

This could be elucidated from the consumption data of last year which was at about 6,50,000 metric tonne but the Indian producers were able to sell only about 4,30,000 metric tonne. The reason is FTA and its two-three fold challenges.  1st under FTA, the duty has become zero on copper imports. 2nd, smelting activity is a huge working capital intensive business and the cost of working capital in India is relatively higher compared to the developed or the ASEAN countries. 

Now, coming to the copper wire & tube segment, the FTAs have completely wiped out the Indian manufacturers of copper tubes. According to a recent industry estimates, around 80,000-90,000 tonne of copper tube have been imported into India in the last one year only and if such volume of import comes to India, then naturally the Indian copper tube manufacturers will not survive.  Especially, considering the fact that the finished copper products are coming with 0% import and the industry is buying raw materials by paying 5% import duty. This is really unjust for the domestic copper industry that is almost entirely dependent on imports for copper concentrate with an installed capacity of 10 lakh metric tonne.

Adding further to this discrimination is the highly subsidized and incentivizing support by the Asian counterparts to their copper producers. For instance, China and Japan have been incentivizing their copper industry by securing copper concentrates through government-backed finance linked investments cum strategic tie-ups in copper mines in Africa and Chile. Meanwhile, Indonesia, the only major supplier of copper concentrate in ASEAN region, has put massive export tax on exports and is mulling to put a total ban. In such a scenario, a level playing field has to be created by the government so that the domestic manufacturers can build new capacity as India’s per capita use of copper is forecast to grow to at least 1 kg by 2025 from the present 0.5 kg.