What have room air-conditioners (ACs) got to do with commodities? Must be a lot. Otherwise, why should a former head of BHP Billiton say during one of his China visits that while driving through Beijing or Shanghai roads he would look out from his car to see the density of ACs in high-rise residential buildings? Facts first. In a top of the range AC with '5-star' mark and weighing around 60 kg, copper used is 24 kg and aluminium 4.7 kg, says Blue Star president B Thiagarajan. Beyond air-conditioning, copper is widely used wherever transmission of electricity, gases and heat at high pressure is involved. From ACs to industrial plants where copper and aluminium find large application, their sales growth is linked to performance of a country's economy. No wonder that no sooner did the green offshoots of economic recovery become visible in the US in particular, than Rio Tinto and BHP started giving a major push to amassing copper holdings. Their objective was to capture a more significant share of the $140-billion global market of the red metal. The three-month copper price of around $5,600 a tonne and the oversupply scene, caused in no small measure by China's decision to grow at a more moderate rate than in the past and virtual stagnation in the European Union are, however, no deterrent for industry leaders such as Codelco, Freeport-McMoRan and BHP from acquiring new deposits or mines in operation.
Let's consider their logic. The expected annual global copper demand growth of three to four per cent over the next five years will translate into new supply requirement of four to five million tonnes (mt), which is equivalent to opening and running to capacity of 10-12 big mines. "But where are those mines? I don't see any of those... So, I'm extremely optimistic as for where the market will be," says a Freeport spokesperson. Confirmation of this price optimism is found in Codelco Chief Executive Officer Nelson Pizzaro's forecast that copper has the potential to climb to a record $11,000 a tonne over the next four to five years, both on deposits scarcity and cost of treating rising impurities in copper ore such as arsenic. Conversely, the world is awash with bauxite deposits and aluminium smelting capacity. The aluminium industry globally will need to speed up shedding of uneconomic smelters, particularly in China for achieving demand and supply balance and remunerative prices.
"The better the performance of the economy over a good period of time, greater will be the demand for all metals from user industries from automobile to construction to consumer durables," says National Aluminium Company chairman Ansuman Das. In spite of the summer being long and cruel in India, the penetration of room ACs is only three per cent against 25 per cent in China and 30 per cent globally, thanks to comprehensive coverage in the US and some other economies. Going by market share, China accounts for half the annual global sale of 100 million room ACs. In comparison, units sold in India are around 3.75 million. "Low penetration in India offers an enormous growth opportunity for air-conditioning industry. But the industry will be able to seize the opportunity provided the government tweak duties to improve affordability of ACs," says Thiagarajan. Withdrawal of excise duty concession since January and dollar value appreciation notwithstanding, the industry is to record "growth of 10 per cent in volume and 20 per cent in revenue during 2014-15."
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Let's consider their logic. The expected annual global copper demand growth of three to four per cent over the next five years will translate into new supply requirement of four to five million tonnes (mt), which is equivalent to opening and running to capacity of 10-12 big mines. "But where are those mines? I don't see any of those... So, I'm extremely optimistic as for where the market will be," says a Freeport spokesperson. Confirmation of this price optimism is found in Codelco Chief Executive Officer Nelson Pizzaro's forecast that copper has the potential to climb to a record $11,000 a tonne over the next four to five years, both on deposits scarcity and cost of treating rising impurities in copper ore such as arsenic. Conversely, the world is awash with bauxite deposits and aluminium smelting capacity. The aluminium industry globally will need to speed up shedding of uneconomic smelters, particularly in China for achieving demand and supply balance and remunerative prices.
"The better the performance of the economy over a good period of time, greater will be the demand for all metals from user industries from automobile to construction to consumer durables," says National Aluminium Company chairman Ansuman Das. In spite of the summer being long and cruel in India, the penetration of room ACs is only three per cent against 25 per cent in China and 30 per cent globally, thanks to comprehensive coverage in the US and some other economies. Going by market share, China accounts for half the annual global sale of 100 million room ACs. In comparison, units sold in India are around 3.75 million. "Low penetration in India offers an enormous growth opportunity for air-conditioning industry. But the industry will be able to seize the opportunity provided the government tweak duties to improve affordability of ACs," says Thiagarajan. Withdrawal of excise duty concession since January and dollar value appreciation notwithstanding, the industry is to record "growth of 10 per cent in volume and 20 per cent in revenue during 2014-15."
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All local metal producers hurting under poor or no demand growth for two years in a row are drawing some inspiration from positive growth forecasts for the Indian economy during 2015-16 by the World Bank and the International Monetary Fund. Thiagarajan, too, believes the improving economic outlook and growing aspirational level of people in tier-III to -V cities could raise AC sales by 15-20 per cent in 2015-16. Power shortages in no small measure caused by coal supply problems, however, remain an AC demand deterrent. Use of ACs with inverter compressors results in power saving of up to 30 per cent. Therefore, in a power-deficit country like India, people should be encouraged to buy 'inverter ACs', which alone uses environment-friendly refrigerant R4 10A. Hindrance to migration remains in the form of 20 per cent price premium that 'inverter ACs' command. This needs correction, for India should be seen in the forefront of Montreal Protocol-based campaign for protection of ozone layer by gradually phasing out ozone-depleting substances, including refrigerants.
UNLIKELY CONNECTIONS
- In a top of the range AC with '5-star' mark and weighing around 60 kg, copper used is 24 kg and aluminium 4.7 kg
- Beyond air-conditioning, copper is widely used wherever transmission of electricity, gases and heat at high pressure is involved
- From ACs to industrial plants where copper and aluminium find large application, sales growth is linked to performance of a country's economy
- The expected annual global copper demand growth of three to four per cent over the next five years will translate into new supply requirement of four to five million tonnes, equivalent to opening and running 10-12 big mines