India’s Hindalco Industries: Value-Add Products Key to Copper Success?

The world’s biggest aluminum rolling company, India-based Hindalco Industries, is now trying to replicate its aluminum business success with its copper endeavors. The company is planning to focus on selling copper as value-added products rather than in its pure form to eke out higher margins.

Already one of the biggest refined copper manufacturers, Hindalco increased the level of value-addition in copper from 54 percent last fiscal year to 60 percent in the first quarter of this year, thereby claiming higher margins on the products than those enjoyed on refined copper metal.

Hindalco operates custom smelting operations, so profits from this part of the business do not really depend on copper prices, but on variables such as treatment and refining charges earned, and realizations on the sale of by-products such as sulfuric acid, phosphoric acid, and di-ammonium phosphate.

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Aluminum contributes nearly 75 percent to Hindalco’s net profit and 35 percent to its net sales, whereas copper contributes 25 percent to profit and 65 percent to revenue.

India’s DNA newspaper quoted Debnarayan Bhattacharya, managing director of Hindalco, as saying the company planned to stick with its 60 percent level of value addition as it helped beat the pressure on margins during these times of price depression in the international market.

When one says ‘value-added products,’ it means copper wires, rods and other items used by electrical equipment manufacturers.

Hindalco Industries’ Annual Report Results

Hindalco’s way ahead in the copper business has been outlined in its annual report, released recently. It said in the near term, the pace of copper supply growth relative to demand was expected to keep the market in surplus till 2017. In 2013, the refined copper consumption growth is seen at 4.9 percent, driven largely by China and North America, it said.

Hindalco has installed capacity to produce 500,000 tons of copper per year.

Aditya Birla Honcho Raises Stake

Such has been the success story of Hindalco, that the chairman of the Aditya Birla Group, Kumar Mangalam Birla, has decided to raise his stake from 5 percent to 37 percent by converting preferential warrants issued to him some years ago into equity.

A report in the Economic Times said Birla has had for some time a “bullish” outlook on Hindalco, which is the metals flagship company of the Aditya Birla Group.

The total size of the copper industry in India is just 3 percent of the total world market. India’s biggest copper company is the government-owned Hindustan Copper, which produces copper ore that is later refined by companies such as Hindalco and Sterlite, thus claiming conversion margins, commonly called Tc/Rc (treatment charges and refining charges.) The latter are driven by international factors like the price of the commodity on the London Metal Exchange (LME).

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