Indian Copper Investors Look to LME for Direction as Hindustan Copper Expands

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A few days ago, the chairman of India’s Hindustan Copper Ltd (HCL) Shakeel Ahmed had, in an interview, predicted that in the coming days, international copper prices would rise to US $8,000 a ton, an appreciation of about $60 from present levels.

Ahmed’s prediction mirrored similar forecasts made by JP Morgan and financial services firm Macquarie Bank, which had said copper would discover a price of US $8,400 in the final quarter of 2012.

From a record high last February of US $10,190 per ton on the LME, copper prices internationally have since fallen. In August, LME prices of the metal have remained range-bound between $7,200 and $7,700 a ton.

In the Indian market, Multi Commodity Exchange of India (MCX) copper prices, too, have been mirroring the LME trend. On the MCX, after falling to a low of $6 (Rs 332.40) in early October, copper recovered to about $8 (Rs 450) in May as the rupee provided much-needed support and the metal now trades roughly in the range of $7.47 (Rs 415) per kilogram. Copper for November delivery was slightly up at $7.60 (Rs 424) on the MCX, suggesting positive news in the coming days.

Indian copper refiners are also hoping that prices will recover in the last quarter of 2012.

HCL chairman’s prediction notwithstanding, some Indian analysts feel that purely based on today’s market conditions, global copper may not touch the $8,000 mark. They cite the contraction in top-copper-consumer China’s manufacturing sector as one of the main reasons.

Investors in India waiting on the sidelines, though, are hoping that LME copper prices “take the leap of faith” and go into the US $8,000 region, since any such movement would be duplicated at the MCX.

According to Kotak Commodity Services, though, MCX Copper may note some downside tracking the international market, but it would be capped by a weakening Indian rupee.

Investors have pinned their hopes on US Fed Chairman Ben Bernanke announcing a fresh round of quantitative easing in fiscal measures. Some other conditions, like the demand from China and overall global macroeconomic conditions, are bound to have an effect, one way or the other, on copper prices.

China may not really rise to the occasion. A report by Beijing’s Antaike Information Development Co. has said copper consumption in that country was likely to expand at the slowest rate in the last decade and a half, which is about 5 percent, to touch 7.7 million metric tons, this year.

HCL Plans Big Moves

HCL, though, does not seem perturbed by the current downtrend in copper prices. It recently announced its intentions of increasing its mining capacity four-fold. The copper major plans to develop an underground mine beneath the open-cast mine at Malanjkhand in the central state of India, Madhya Pradesh. This belt contains more than 70 percent of India’s known reserves.

Ore production will be the company’s new focus area, HCL Chairman Shakeel Ahmed told The Hindu.

The roughly US $333 million Malanjkhand underground project is a key component of this growth strategy. Post-expansion, the mine’s capacity would be 5.2 million tons against 2 million tons now.

HCL also has on hand eight other projects, including one for the re-opening of mines, some of which had to be shut down on grounds of viability. HCL is executing these projects at an investment of US $617 million to enhance its mining output to 12.4 million tons by 2016-17.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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