Given the sharp rise in prices due to supply-side constraints, analysts expect a correction in the near term.
Copper prices have surged 10 per cent in the last one month and touched a high of $9,327 a tonne on Tuesday due to supply concerns. Chile’s Collahausi mine, which has the world’s third-largest copper deposits, shut its main port after a recent accident; supplies will take some time to resume.
The spurt in prices has been partly fuelled by the recent London Metal Exchange (LME) data that show a dip in inventories to 362,725 tonnes, as compared to 555,075 in mid-February. This has added to concerns, with the demand-supply situation anticipated to remain tight in 2011.
Atul Shah, head of commodities at Emkay Commotrade, says these prices are not sustainable and a three-four per cent correction is possible in the near term. On the positive side, the 26 per cent rise in prices since January augurs well for the realisations of Indian manufacturers. Also, with China witnessing a 37 per cent sequential rise in refined copper imports in November, the demand is likely to remain buoyant.
Rising copper prices are expected to benefit Hindustan Copper the most, reckon analysts. The company reported a 35.88 per cent year-on-year rise in revenues during the September quarter at Rs 325.95 crore, while operating margins rose to 27.17 per cent from 11.2 per cent a year ago. As a result, net profit surged three-fold to Rs 56.21 crore on a year-on-year basis. However, the stock price has remained subdued, as a follow-on offer is likely in January and the markets expect the offer price to be at a substantial discount.
Other players in the copper segment like Sterlite Industries are also likely to benefit, though marginally, say analysts. They expect the Vedanta group company’s copper TC/RC (treatment and refining charges) margins to improve only in 2011-12, with zinc-lead and energy segments likely to drive revenues.
