Sesa Sterlite Banking On Indian Gov’t Help for New Copper Demand

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In the wake of the Indian government’s recent announcement that it would prop up the infrastructure and housing sectors, one of the three largest copper producers of India, Sesa Sterlite Ltd., recently announced plans to enhance output.

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As reported by MetalMiner, the two budgetary announcements by the government, analysts believe, will lead to a better outlook for domestic copper producers. One of them is the construction of five 4,000-megawatt “ultra mega” power projects. These projects are expected to boost output of copper wires, pots and refrigerators and, hopefully, demand for all three will follow.

Increased Production Precedes Demand

Sesa Sterlite said in statements that it would increase production at its Tuticorin factory in the Indian province of Tamil Nadu by 12% to 370,000 metric tons on April 1, 2015, making it one of the largest copper smelting plants in Asia. P. Ramnath, CEO of the copper business at Sesa Sterlite, told LiveMint that Prime Minister Narendra Modi’s program to turn India into a global manufacturing hub would require spending billions of dollars to add roads, ports and power projects. It’s hoped that the stimulus program will create copper demand for all of these projects. The Reserve Bank of India’s move to cut interest rates was also expected to stimulate the real-estate market.

Sesa Sterlite was in the news recently for its decision to cut its capital expenditure guidance for the next financial year in half due of weaker metal and crude oil prices. It primarily sells commodities such as crude oil, aluminum, copper and zinc, and has been hit by the global drop in commodity prices.

On the copper front, the company awaits the new demand, generally believing in the great Indian growth story the government is telling. The Indian government has promised to light up every single home in the nation of 1.25 billion people, and spend about $137 billion to upgrade the nation’s rail network over the next five years, all of which is music to the ears of companies such as Sesa Sterlite. The latter expects copper demand to go up to as much as 7% in the next fiscal year from about 4% this year.

The Great Indian Growth Story

Like Sesa, the International Copper Association India (ICA India), too, is pinning its hopes on a revival in copper demand. The Association recently said this was going to be a big driver for the electric transformer industry, too.

India is among the top 20 major producers of copper globally, but it relies heavily on imports because of its skewed mining policies, so the falling prices of copper in international markets affect copper buying at home. India’s per capita copper consumption continues to be as low as 0.4 kg as compared to about 10 kg of the United States, but that is expected to go up in the next fiscal year if all goes well with the power/rail expansion.

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