 "Ramnath bets big on revival of domestic copper demand for survival of Indian smelters")
P Ramnath, Chief Executive Officer of Sterlite Copper (Copper Business Unit of Vedanta Ltd), however, bets big on the revival of domestic demand for survival of Indian smelters.
But, the government needs to remove bottlenecks and incentivise exports through inclusion of copper in MEIS in addition to sorting out inverted duty structure, says Ramnath in an interview with Dilip Kumar Jha. Edited excerpts:
What is Vedanta's survival strategy following sharp decline in copper prices?
Vedanta's copper business is a custom smelting operation and hence there will not be any major impact due to the fall in copper prices since the fall will correspondingly reduce our raw material prices.
We are focused on reducing our costs further to maintain our position in the first quartile of the global smelter cost league. The current downturn provides us with an opportunity to further streamline our supply chain and we are working with our vendors to get these efficiencies in our procurement spend.
On the positive side, a fall in copper prices will give a good cost support to the infrastructure and power project demand in the country and we expect a strong demand growth for copper in India.
Our business is aligned to lay more emphasis on the domestic market, hence we are counting on this strong domestic demand which is likely to be further helped by the new series of economic reforms recently announced by the government.
The renewal of treatment and refining charges (Tc/Rc), your major income, is due in January. What is your estimate for 2016 after 17% jump in 2015?
We are seeing lot of fresh concentrate production from new copper mines coming on stream this year and in 2016 and the market appears to be well supplied. Therefore, our estimate is that the Tc/Rc would be higher than 2015.
How would you strategise yourself for continuous concentrate supplies?
Most of our concentrate is purchased through multi - year long term contracts with world's largest copper miners and we do not see any problem in their operation even at these prices.
Are you looking for a copper mine in India?
India has historically not explored its geology much and hence as on date we do not have a large resource base of copper here. However, with the new MMDR act, the government has renewed focus on exploration and proposed to offer mining concession for exploration on transparent auction basis. We will evaluate all such opportunities once announced by the Government.
What is your current inventory level?
As copper custom smelting business involves high working capital, we have intense focus on reducing working capital involvement. We maintain around a month of raw material inventory and minimal finished goods inventory and this is at similar levels as compared to previous year.
What would be the impact of inverted duty structure and withdrawal of export incentives from copper smelters?
The copper industry in India is facing a huge challenge on front of imports of copper cathodes and rods from various countries. India's copper import is estimated to surpass 200,000 tonnes in 2015-16, over 100% increase in four years.
The substantial parts of these imports are through various Free Trade Agreements (FTAs) signed by India with Japan, Malaysia and other ASEAN countries during the last couple of years.
Also, the duty concession provided under the FTAs have resulted in an inverted duty structure i.e. the customs duty incidence on these imports is less than the 2.5% applicable to our raw material i.e. copper concentrate.
The industry has taken up this issue with the relevant industries for review and relief and for the correction in anomaly arising due to inverted duty structure. This inverted duty structure is not only against the government's policy but also the Prime Minister's vision "Make in India".
Apart from that, the copper industry has been completely ignored as the export incentive of 2% available hitherto under MLFPS scheme has been completely withdrawn under the new MEIS (Merchandise Exports from India Scheme) scheme. This has adversely affected the Indian copper industry.
Under the present MEIS both the copper cathodes and rods have been left out in spite of being covered in the policy criteria announced in the Foreign Trade Policy. The industry has been consistently exporting to the tune of approx Rs 11,000 crore per annum for the past three years largely to China.
The government should remove this anomaly which is facing a trade deficit of approx. $ 50bn with China, and reinstate the export incentive to boost exports.
