Copper spot and future prices in the Indian market have been showing a slight upward trend in the last few weeks, based on a global firming up of demand. This is in line with earlier expectations that copper prices would start moving north in the second half of 2012.
Of course, the question now is: after a less-than-average show in the first half, will the recovery be good enough to end 2012 on the same growth average as past years?
Some are of the opinion that copper consumption may fall short of that annual growth rate. A recent report in India Infoline quoting a report by the multi-line development consulting agency, ICRA Management Consultancy Services (IMaCS), has said India’s consumption of this metal may see a dip in 2012 as compared to the previous years.
Of course, the reasons cited could also be applicable to some other metals, like steel. A general slowdown in global economy that has had a cascading effect on growth, fueling sectors like construction, power, industrial machinery and equipment, even in India, has been cited by the IMaCS report as a reason for the laggard behavior of copper.
Between 2002-11, India’s copper consumption had increased at an annualized 6.3 percent to 540,000 tons in 2011. This year may end way below that at 4 percent, the report predicted.
While India continues to be a major market for its own copper, it is nothing compared to China, an economy that has been propelling copper buying in a major way. So when that country’s growth slows down, copper is one of the metals that loses traction.
In support of this view, the report pointed out that although India’s annual per capita consumption of copper had increased from 0.23 kg in 2000 to 0.5 kg in 2011, it was nothing compared to China’s per capita consumption of 5.9 kg.
In fact, speaking at his company’s annual meeting recently, Hindalco Industries Chairman Kumar Mangalam Birla had also referred to the slowdown in China. He said that China continues to be a major demand driver for the company as well as copper consumption in Asia, except that China had slowed down recently.
Copper consumption in China, the world’s biggest user, is expected to expand this year at the slowest rate since 1997 as economic growth cools, according to Antaike.
The IMaCS report noted India’s primary copper production capacity had remained at around 950,000 tons per year over the last few years. But this was likely to increase to 1.45 million tons per year by 2014-15, with higher exports of refined copper and products to Europe and Africa.
While reflecting on the price trends of copper this year, the IMaCS report noted that during 2011, although world copper prices had increased 17.2 percent to US $8,828 a ton, they had experienced a sharp fall from August 2011. Domestic prices, too, had increased 16.6 percent, but had started slowing down at a lower rate from late 2011 because of the substantial rupee depreciation.
The agency felt that the downward trend would continue in 2012 and even in 2013, and pointed out that global copper prices were forecast to decline 10-11 percent to average around $7,900 a ton this year. Copper prices averaged $8,103 a ton during H1 2012, and prices were forecast to decline to around US $7,700 a ton for H2 2012.
In 2013, the report said, copper prices were forecast to decline 3-5 percent.
Sohrab Darabshaw contributes an Indian perspective to MetalMiner.