Lanka export ban hits copper smelters

The country's copper units in Sri Lanka are closing down their operations following the ban on exports of ferrous and non-ferrous scrap, billets and ingots from that country.

Sixteen of the 20 units have already shut down their secondary copper smelters and the remaining four are looking for strategic buyers after the Lankan Cabinet banned copper scrap exports.

The domestic secondary smelters had shifted their base to the neighbouring country after the Indo-Sri Lanka Free Trade Agreement to avail of duty-free imports of copper scrap and residues to India. Since the last December's Cabinet decision, there have been no exports of copper from Sri Lanka. The smelter owners have had to forgo their investments on plant, machinery and land and are returning home dejected.

"The Lankan government cannot be trusted any further and we face the prospect of losing out on our investments," said a smelter owner, who did not want to be identified.

The free trade agreement had made 35 per cent value addition in the neighbouring country mandatory for exports to India. But, some traders were diverting their shipments to India without any value addition, said an industry source.

The Sri Lankan government order apart, many other issues have proved to be unfavourable for the copper smelters. The Indian government has reduced the direct import duty from over 50 per cent in 2000 to 7.5 per cent now, which makes scrap imports from Sri Lanka even without value addition unviable.

Smelters are also facing heat from environmentalists and local industry groups in Sri Lanka. Indian smelters have been accused of degrading the environment by releasing harmful, obnoxious gases when manufacturing cathodes and bars using copper scrap and residues.

"Genuine processors from India started facing customs and excise raids for the fault of a few smelters. The years 2003 and 2004 were very tough for us in the wake of increased customs raids, both surprising and unnecessary. We also had to face threats from the LTTE," said Rohit Shah, president, Bombay Metal Exchange.

"We are distressed with the decisions of the Indian and the Lankan governments," added Shah, who had moved to Sri Lanka in 2001 attracted by the government's policy of duty-free imports.

All the companies operating in Lanka were now looking for strategic buyers for their units and were considering the option of coming back to the country, he added. The plants were running at a very low capacity between 300 and 400 tonne a month, he added.

Like Shah, many smelters had shifted their base to Sri Lanka in 2001 in a bid to avail of tax benefits under the Indo-Sri Lanka Free Trade Agreement signed in 2000. Copper scrap and residues exports from Sri Lanka had increased substantially since 2000 and stood at 1 million tonne in 2004-05.