Tuticorin shutdown makes India a net copper importer
If you look at the table below, India has shifted from being a net exporter of copper to a net importer of copper.
(in 000' tonnes)
(in 000' tonnes)
(in 000' tonnes)
Net Export /
In 2018, the government of Tamil Nadu ordered the shutdown of the Sterlite Copper, Tuticorin plant. The Tuticorin plant accounted for 40% of copper production in India. The plant was shut down after an outbreak of violence at the plant led to deaths in police firing. Residents of the area were unhappy due to the effluents from Sterlite Copper poisoning the fields and water bodies in the vicinity. The plant remains shut till date. This sharp fall in production made India a net importer of copper.
Why have copper company stocks done so well in 2021?
Here is a quick look at 3 major listed copper stocks in India.
|Company Name||CMP (07-May-21)||YTD Returns (%)||From 52-week Low (%)|
Among the above, Hindustan Copper is the only integrated copper player while Hindalco and Vedanta have a strong copper franchise. All copper stocks have done well even on a YTD basis but the pick of the lot is Hindustan Copper. The stock gained 209% since the start of 2021 and a whopping 706% from its 52-week low.
This kind of rally, especially in a commodity stock like copper, is rare unless we are seeing the beginning of a super-cycle in copper. The last super-cycle in copper ended in 2011 and the price of copper on the LME has already crossed that level. But, there is a structural demand story too getting built in copper and that is actually driving up copper stocks.
Demand story in copper looks to be structural
One way to justify the copper rally is that all commodities including aluminium, lead and iron ore are rallying in sync with the global economic recovery. Economic re-building surely needs a lot of copper (70% copper demand still comes from electrical equipment and infrastructure). But, there is a bigger structural shift happening in copper. This time around, copper demand is not just coming from China but also from the US, EU and Japan. Countries other than China will contribute a bigger chunk of incremental demand.
The $2.3 trillion stimulus announced by Joe Biden is an example. Copper is gaining as the world’s largest economies announce stimulus and climate pledges. Why do climate pledges matter to copper demand? It means more focus on renewable energy and green-fuel cars. A typical electrical vehicle uses 4X copper as a regular automobile. Renewable energy plants and infrastructure also need more copper for power efficiency.
Above all, products and processes are increasingly becoming chip-driven and that is driving demand for copper. The world’s largest copper trader, Trafigura of Singapore with annual turnover of $147 billion, estimates that demand could grow exponentially over the next 10 years. The real bullish outlook for copper is being led by de-carbonization.
Supply constraints will actually drive prices higher
Even as Chile, Peru and China dominate the global copper output, what matters is that copper capacities are expensive to create. Supply cannot come at short notice and at this point of time, there are no indications of major copper capacity coming up. In addition, supply constraints will also arise as Chile and Peru are struggling to ship copper to the world due to supply bottlenecks created by the pandemic.
At the risk of sounding cliched; will copper be the next oil? One thing is certain that copper will see a major upward shift in demand from sectors like electric vehicles, batteries, data centres, telecom towers and semiconductor wiring. However, mining experts caution that supplies will increase sharply if copper crosses $12,000/tonne. But for now, it looks like a field day for copper and Indian copper stocks are making the best of it.