Customs duty cut has copper firms hot under the collar

Copper companies are up in arms against the finance minister P Chidambaram's Budget proposal to reduce customs duty to 15 per cent. The move is expected to result in a loss of around Rs 200 crore annually for the producers.

The industry has approached the government seeking a review of the proposal. Officials in the coal and mines ministry, however, said they have approached the finance ministry but the chances of a rollback appeared remote.

The reduction in the customs duty could affect the turnaround of companies such as Hindustan Copper Ltd, which is expected take an annual hit of Rs 57 crore over 15 months. "Never before have duties been cut twice in a year. We have to rework our entire strategy now," said Rana Som, chairman and managing director, Hindustan Copper.

The government had on January 8 reduced the customs duty from 25 per cent to 20 per cent, and had also abolished the 4 per cent special additional duty (SAD). Since the SAD is applicable to both the basic price and the customs duty, the effective tariff translated to 30 per cent. Chidambaram has proposed to reduce the duty further to 15 per cent.

The move has resulted in a reduction of copper prices by Rs 18,500 a tonne and the primary manufacturers in the sector are now finding it tough to compete with importers, a senior executive with a private sector company said.

Industry sources, however, added that the high copper prices on the London Metals Exchange (LME) was partially protecting them from immediate losses.

"As long as the copper prices remain high globally, the realisation from our mining would remain high and cushion out losses to some extent," Som said.

Som said his company had posted a loss of Rs 60 crore during the last financial year but had turned the corner with Rs 11 crore in profit in the last quarter. The firm is estimating a profit of Rs 7.5 crore during the April-June quarter. "If the anomaly is not corrected we may well be back in the red," Som said.