Copper continues to shine for non-ferrous companies

Though London Metal Exchange (LME) prices for copper have been on a downward spiral, the sustenance in treatment and refining (Tc/Rc) charges are helping metal makers to stay in a comfort zone.

Hindalco Industries, for instance, reported a 29 per cent drop in net profit for the second quarter but its earnings before interest and tax (Ebit) for the copper business shot up 175 per cent. In the quarter ended September 30, Ebit from the copper business for Hindalco was Rs 209 crore, against Rs 76 crore in the first quarter.

Praveen Maheshwari, chief financial officer, Hindalco, on the sidelines of a meeting, told Business Standard the Tc/Rc rates for copper refining are expected to be firm in the near future as well. He did not quantify the expectation for these rates, however.

LME rates for copper have been falling and, at $7,692 per tonne, are at their lowest in close to two months. Prices fell 8.21 per cent from that peak of $8,380 on September 14 on hopes from QE3 (quantitative easing) being announced.

An analyst tracking the metal said: “Prices are better now when compared to last year or even the first quarter. That’s why on a sequential basis companies are making more money on copper refining and treatment.”

For Sterlite Industries, which makes copper apart from other metals like aluminium, zinc and lead, the brown metal’s profit after tax (PAT) jumped 62 per cent in the second quarter on a year-on-year (y-o-y) basis. In the first quarter of the financial year, its PAT was Rs 96 crore against Rs 475 crore in the second quarter. However, a forex gain of Rs 161 crore is also a prime driver for this profit.

The Tc/Rc rates for Sterlite in the second quarter actually fell 13 per cent y-o-y. Sequentially, going according to the trend, the Tc/Rc rates for Sterlite were up by 12.4 per cent.

Companies are hoping the Tc/Rc charges for the next year will be fixed at least at $70 a tonne against $60-63 a tonne in the current year. This could mean higher charges for companies like Hindalco which refine and treat copper, and better profitability against the subdued aluminium business.

However, if indications for the next year are anything to go by, the picture doesn’t look as appealing. Media reports suggest BHP Billiton has offered $60 a tonne to the copper refiners for the next financial year. What turn the negotiations take will have to be watched closely.