India to face copper supply shock with Sterlite shutdown
The order to shut the Sterlite smelter will cut India’s production by about half, spurring imports as industrialisation and increased consumption of cars and appliances fan demand.Updated: May 29, 2018 12:00 IST
India faces a copper supply shock after the Tamil Nadu government ordered billionaire Anil Agarwal’s Vedanta Ltd. to shut down a plant permanently, following deadly protests in a move that will slash nationwide output and stoke demand for imports.
The company’s shares tumbled.
The Tamil Nadu government directed the southern state’s pollution control board to seal the 400,000 metric-ton-per-year smelter in Tuticorin in the interests of the people, it said on Monday. About 13 people died at the site last week after police opened fire as locals protested against alleged pollution.
The order to shut the smelter will cut India’s production by about half, spurring imports as industrialisation and increased consumption of cars and appliances fan demand. Vedanta had suspended output from the plant in March for maintenance, and the closure was extended as the protests mounted. The shutdown is an “unfortunate development,” and Vedanta will study the order before deciding on a course of action, the company said.
“If the closure is permanent, then what we expected to happen two years down the line will happen with immediate effect,” said Jayanta Roy, senior vice president at ICRA Ltd. In April, the local arm of Moody’s Investors Service had pegged India to flip to becoming a net importer by the next fiscal year.
Vedanta shares lost as much as 6.2% to Rs 237.90 in Mumbai, the lowest since June. The stock has collapsed 25% this year, making it the worst performer among the top 10 metal companies in India. A closure of the plant would shave about $200 million to $250 million from Vedanta’s annual pre-tax earnings, according to an estimate from S&P Global Ratings.
Copper is used to make pipes and wires, and the Australian government forecast last year that India would require vastly more of the metal to feed its economy by 2035. Prices on the London Metal Exchange have rallied 22% over the past year, and were last at $6,875.50 a ton.
India’s annual copper consumption is expected to almost triple to 2 million tons in the next decade, according to a projection from Hindalco Industries Ltd. Vedanta produced about 48% of the country’s total copper output of 842,961 tons in 2017-18, according to government data.
“So far our capacities were large enough for our total requirement, so we were a net exporter,” said Roy at ICRA Ltd. “Now, with no new capacities coming in and if almost 40% goes out on top of that, we will be in a deficit.”