In the five-year period to 2007, India’s copper consumption has grown at a CAGR of 13.7 per cent to 574,000 tonnes, including 490,000 tonnes of refined metal and 84,000 tonnes of recycled scrap. The growth in the use of copper was highly impressive, seen in the context of the global demand for the refined metal growing at 3.1 per cent since 1990.
The growth rate in copper use has started slowing down, albeit marginally, as the manufacturing sector has to now contend with falling demand. High prices of the metal, notwithstanding the recent correction, are not helping the cause of high demand growth.
Copper has a wide range of applications and therefore, the behaviour of the economy has an immediate bearing on its demand. It is assumed that in an emerging economy like ours, the elasticity of demand for copper vis-a-vis the industrial output is 1.6 compared with 0.7 for developed economies.
Based on this premise and considering the ease in prices and good demand from principal areas, ICRA says in a recent study the country’s copper consumption is likely to grow at about 10 per cent a year to around 660,000 tonnes by 2010.
However, it should be understood that the growth is happening on a small base. Our per capita consumption of the metal is about 400 gm as against China’s more than 3.6 kg. ICRA says as the share of industry in GDP is much lower in India compared with China, copper use here “though forecast to grow strongly over the medium-term, it is not expected to replicate the very strong growth evident in China.”
Between Hindalco, Sterlite and government-owned HCL, refined copper capacity in the country is 947,500 tonnes. Jhagadia’s 50,000-tonne smelter makes refined metal through the secondary route. We also have nearly 1,000 small units engaged in converting domestic and imported scrap.
But precious little has been done in exploring new copper deposits, improving productivity of mines in operation and creating condition for opening of new mines. Major capacity-building activity was seen once the industry was thrown open to the private sector in1992. But except for HCL, which draws about 60 per cent of raw material from its captive mines, the others are totally dependent on imported metal in concentrate (MIC).
It may not be true to argue that the entire MIC requirements of our smelters can be locally sourced, except if there is some large discovery of the mineral. At the same time, if HCL is importing concentrate instead of having surplus of it, it is because of the PSU’s mindless act of closing down and surrendering the leases of as many as five mines in the past.
The common knowledge is that once a mine is closed, it becomes an expensive proposition to recommission it besides the unconscionable time needed to get all the official sanctions for the venture. But we understand that HCL Chairman Satish Gupta has launched a programme which will see the company reviving ore extraction in the closed mines one by one.
In a trend-setting move for the country’s metal sector, HCL has roped in Monarch Gold Mining of Australia to revive and operate the Surda mine in Jharkhand. At the time of its decommissioning in 2003, the mine had reserves of 26 million tonnes with copper content of 1.2 per cent. Since it has returned to operation since December 2007, the mine, according to Gupta, will annually generate 9,000 tonnes of concentrate at peak production point.
Outsourcing as in the case of Surda is not the only model that HCL will use for revival of other closed mines and for opening new ones. While the task of ore extraction from the 25-million-tonne Banwas deposit in Rajasthan is to be outsourced to Byrnecut Mining of Australia on a risk-sharing model, HCL is to opt for a joint venture to recommission the Chapri Sideshwar mine in Jharkhand with 80-million-tonne resource.
“It will not be wise on our part to try to mine on the scale we are envisaging for HCL in-house. We should rope in foreign mining groups as partners so that the best technology and equipment are used here for optimal results,” says Gupta.
Having recognised that the sustainability of HCL in the long run, especially when copper prices get into a bear phase, will depend on the mining part of the business rather than smelting, HCL is rightly pursuing a strategy of first becoming self-reliant in concentrate and then a surplus producer of this intermediate material.
Being a PSU, HCL is not mulling the option to close down its two ageing high-cost smelters. The only option for HCL then is to improve smelter efficiency through modernisation. The smaller of the two HCL smelters has recently been upgraded and technical audit of Khetri smelter is being done before kicking off modernisation.
