What exactly is cooking in copper stocks in India?

India accounts for less than 3.5% of world copper consumption and has a per-capita copper consumption of just 0.50 KG. This per capita copper consumption is expected to grow to 1 KG by 2025. However, global copper prices have been on a roll and that has had its rub-off effect on Indian copper stocks too.

May 11, 2021 08:05 IST India Infoline News Service

India has had a disproportionately small share of global copper consumption and production. India accounts for less than 3.5% of world copper consumption and  has a per-capita copper consumption of just 0.50 KG. This per capita copper consumption is expected to grow to 1 KG by 2025. However, global copper prices have been on a roll and that has had its rub-off effect on Indian copper stocks too. We will come back to that later, but first a look at the fall in India’s copper output.

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.

Indian Copper
Output during
Production
(in 000' tonnes)
Exports
 (in 000' tonnes)
Imports
(in 000' tonnes)
Net Export /
(Import)
Apr-Oct (2015-16) 458.7 193.3 22.3 171.0
Apr-Oct (2016-17) 432.7 156.4 26.9 129.5
Apr-Oct (2017-18) 486.7 221.7 25.4 196.3
Apr-Oct (2018-19) 244.9 18.4 56.0 -37.6
Apr-Oct (2019-20) 229.1 17.1 95.4 -78.3
Data Source: CMIE

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 (%)
Hindalco Ltd Rs414.50 72.31% 262.64%
Vedanta Ltd Rs291.40 80.55% 273.59%
Hindustan Copper Rs189.10 209.24% 706.39%
Data Source: NSE

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.

Data Source: London Metals Exchange (LME)


With LME copper prices crossing $10,300/tonne, Bank of America is pegging copper prices at $13,000/tonne by next year. BOFA and Trafigura do not rule out even $20,000/tonne by 2025. Copper inventories are down to just 3-weeks demand; levels last seen in 2005.

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.

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