Smelters' margins tumble

Domestic non-ferrous players like Hindalco and Sterlite Industries are grappling with sluggish spot treatment and refining charges (TC/RC) in their copper divisions, largely due to the surging global deficit in supplies of copper concentrate, the key input.

The global shortage of copper concentrate is estimated at 400,000 tonnes in calendar year 2008 (CY08) so far as compared with a deficit of 200,000 tonnes in CY07, according to analysts.

As a result, spot TC/RC charges for non-ferrous players are currently estimated at 11-12 cents per pound as against 20-22 cents per pound in the March 2007 quarter.

For the domestic players, spot TC/RC typically account for 20-25 per cent of their copper division's earnings. The TC/RC is the rate that miners pay smelters for refining copper concentrate.

Domestic players import copper concentrate from overseas mines and their smelters produce finished products such as copper cathodes. The TC/RC represents the profit margins for these smelters. Senior officials at Hindalco were unavailable for comment.

Meanwhile, officials at Sterlite Industries pointed out that they have long-term contracts in place from their suppliers of copper concentrate and, given strong demand conditions, they expect to minimise the impact of the growing copper concentrate deficit.