copper sector report
TRANSCRIPT
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ANALYSIS OF
Submitted by
Deeshesh Chheda
(9869121416)
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INDEX
Sr No Topic Pg No
1 Overview 3
2 Global Scenario 43 Indian Scenario 5
4 Duties & Taxes 7
5 Pricing Trend In India 7
6 Demand & Supply Scenario 8
7 End User Industries 9
8 Players In India 10
9 Comparative Study 10
10 Sterlite Industries Ltd. Company Background
Plant and its Applications
Chairmans Speech
Trend In Capacity Generation
Trend In Capacity Utilization
Trend in Total Energy Consumption
Trend in Raw Material
Ratio Analysis
Future Plans
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10 Future Outlook of the Copper Industry 14
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OVERVIEW
While the metal sector covers a large domain consisting of a variety of metals, this report
focuses only on Copper.
The name copper is derived from the Greek word chalkos. It is also related to the Greekmythology as it is said that it was associated with the goddess Venus. Copper is anelement, reddish brown in color, having atomic number 29 and pertaining to the scientific
symbol Cu. Coming from the same family of silver and gold, this element sharesnumerous common characteristics with those precious metals. This element is a highly
ductile and malleable element and a very good conductor of electricity. It occurs in
various minerals on earth and it also forms the part of a lot of alloys. Copper also hascharacteristics that it is a creep and corrosion free metal and all of its so very useful
features make it an element on which the worlds economy directly depends.
Copper is a very important element and the oldest known commodity in the world that
directly affects the worlds economy. It stands at the third place in context of the worldconsumption after steel and aluminum. It is largely used in electrical appliances, as it is
the cheapest metal, which is a good conductor of electricity. It is also considered safe as araw material in wire making. Alloys of copper like bronze, brass, monel and speculum
metal are also very popular and are extensively used throughout the world. It is also
flexible, strong, durable and resistant to corrosion. As such it has been key to many ofman's technological advances, the two biggest being telegraphic communications and
electricity. But it is also widely used for heating, air conditioning, plumbing, roofing,
brass fittings and for so much of the electrical environment we now take for granted: TV,
radio, lighting, computers, mobile phones etc. all require copper wiring, electrical leads,adapters, transformers and motors. Various copper compounds and chemicals are also
used to protect plants and crops and to preserve wood.
Copper is believed to have been mined for over 5,000 years. It is the first mineral man
extracted from the earth to make utensils, weapons and tools and since the early days it
has become invaluable. It occasionally occurs natively, and is found in many mineralssuch as cuprite, malachite, azurite chalcopyrite, and bornite. Copper is amongst the
largest consumed metal in the world. Until the mid-50s copper consumption kept in pace
with the production. Since then, the global copper consumption has steadily outgrown the production and consumption patterns shifted towards the rapidly developing Asian
countries.
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GLOBAL SCENARIO
Global economy coming out of recession is seen lending impetus to metals demand
currently. While the US and the European economies are still reeling under pressure,Asian economy has been doing well. No doubting fact that US and European economies,
being industrial economies, are the largest copper consumer. However, the strengtheningof Asian economy led by China and other Asian countries, the region has emerged as
biggest consumer due to growing industrialization and population growth. Chinaseconomy has been growing at a phenomenal rate and the country is consuming
everything from scrap to concentrate to cathode to feed its rapidly building downstream
industry. China's copper industry continues to astonish, with consumption rising by 15%in 2004. It is expected to grow 10% per year for the rest of this decade. China now
accounts for 20% of world consumption of copper sheet and strip, and usage in
cable, wire, tube and pipe.
Copper is considered to be a native of America. Large copper ore deposits are found in
the US, Chile, Peru, and Canada apart from African countries such as Zambia, Zaire.Major copper producing countries are Chile (24% of the global mine production) and the
United States (19%).
The major copper exporting nations include Chile, Indonesia, Canada, Australia, etc.
Global Demand & Supply for Copper
(000 tons) 2000 2001 2002 2003 2004
Consumption 14979 14443 14981 15472 16478
(%) -3.6 3.7 3.3 6.5Production 14605 15435 15075 15102 15884
(%) 5.7 -2.3 0.2 5.2
Balance -374 992 94 -370 -594
Copper demand is closely linked to industrial growth in the economy. As we have
observed, faster industrialization in the early 20th century led to shift in usage of copper
from making cookware to utilizing for industrial purpose. Hence, the demand for copper
jumped substantially. It so happened that, at times, the demand for copper outstrippedsupply. In 2003 the world copper consumption grew 3.3% to 155 mn tons whereas the
supply was 151 mn tons. This created shortfall in copper of 3.7 mn tons. Hence, scrap
became an important source of copper. Of the world copper needs about 20% is metthrough secondary sources i.e. metals recovered from old used consumer products.
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INDIAN SCENARIO
PORTERS MODEL
India does not provide a big market for copper. Due to shortage of copper mines and a
low percentage of productivity of copper in the mines, India suffers a loss in the level of
production and it has to completely depend on the copper ore imports. Also, not manycompanies are indulged in the refining and extraction of copper from its alloys and ores.
India produces copper from the imported copper ore that accounts to around 6 lakh tons
of production. This production level contributes to a mere 4% share in the total copper production in the world. Indian market is divided into two parts i.e. primary and
secondary. Primary segment comprises of the producers that convert copper ore into
refined copper. Three companies namely Hindustan Copper Ltd, Hindalco and Sterlite
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Threat of Substitutes: Medium to High
Copper faces competition from other metalslike Aluminium and also experiences shifts inmarket preferences due to drastic changes in
technology (e.g. Fixed line to wireless).
Bargaining Power of Supplier
High with respect to Secondaryproducers who do not havecaptive mines.Low with respect to Primaryproducers who have captivemines.
Bargaining Power of BuyerLow: Medium
Fragmented nature of thebuyer industry results in limitedbargaining power of buyer.However, drastic technologicalchanges is affecting behaviorof key buyer i.e. Telecomsegment.
Inter Firm Rivalry Low: Medium
Existence of just 3 major playerslimits market competition.However, declining domesticmarket enhances competitionlevel.
Barriers to Entry: High
Capital cost and ownership of coppermines are key entry barriers.
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Industries constitute this primary segment. Secondary segment comprises the producers
that manufacture value added products made from copper like wires, foil etc.
Governments increasing thrust on infrastructure development, which includesdevelopment of power sector, and pick up in industrial activity is likely to help generate
demand for copper lately. In fact, the domestic mineral production recorded a 3.3%growth in June 2004 as compared to that of the corresponding month of previous year.
Indias industrial activity continues to report stronger growth during the last fourquarters. As a result, leading copper manufacturers such as Hindustan Copper, Hindalco,
Sterlite Industries have witnessed increase in production. Hindalco and Sterlite Industries
have evinced interest in overseas acquisition in order to meet growing demand. TheMajor producers account for a share of approximately 80% of the total copper
consumption in the country. The balance is on account of imports and sales of smaller
producers.
India's copper ore reserves are estimated at 1690 million tones containing about 15
million tones of copper metal averaging less than 1% copper. On the other hand, theworld average is 1.5%. Most of Indias copper ore reserves (distributed over 35 deposits)
are mainly in states of Bihar (1.38% Cu) and Madhya Pradesh (1.42% Cu).
Due to the rise in the production of the three major players in the Indian market, the
country is now emerging as a net exporter. The production of copper has significantlyduring the last few years have enabled India not only to satisfy its own domestic demand
but also export refined copper in small quantities.
Trends in Market Shares of Copper & Copper Products (in %)
Company 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Sterlite
Industries24.77 24.04 37.68 29.77 28.67 28.71
Others 75.23 75.96 62.32 70.23 71.33 71.29
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DUTIES & LEVIES ON COPPER
Budget 2006-07
The customs duty on copper has been reduced to 7.5% from 10% while a 4% special
countervailing (CV) duty has been imposed.
The impact on margins of the CV duty stands neutralized as credit for the duty can be
taken against the payment of excise duties. The net impact of reduction in basic customsduty will thus prevail on the products import parity pries.
The impact of the customs duty cut on the copper margins has largely been neutralizeddue to the reduction in customs duty on copper concentrates.
PRICING TRENDS IN INDIA
Year Cop.wire rod (Rs/ton) % yoy
2000 - 01 137,987 -
2001 - 02 133,098 (3.5)
2002 - 03 130,454 (2.0)
2003 - 04 130,000 0
2004 - 05 177,929 36.9
2005 - 06 207,982 16.9
PRISING TREND - COPPER
0
50,000
100,000
150,000
200,000
250,000
2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06
YEAR
(Rs/ton)
Cop.wire rod (Rs/ton)
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DEMAND SUPPLY SCENARIO
Global
Economic, technological and societal factors influence the supply and demand of copper.
As society's need for copper increases, new mines and plants are introduced and existingones expanded. The global production of refined copper is around 15 million tons (2004).
Land-based resources are estimated at 1.6 billion tons of copper, and resources in deep-sea nodules are estimated at 0.7 billion tons.
The major copper-consuming nations are Western Europe (28.5%) & the United States
(19.1%). Copper and copper alloy scrap composes a significant share of the world's
supply.
The largest international sources for scrap are the United States and Europe. Chile,
Indonesia, Canada and Australia are the major exporters and Japan, Spain, China,Germany and Philippines are the major importers.
Domestic
The domestic market is in a Surplus position. As against a capacity of 4,77,500 tonnes,
the domestic market size is just around 2,90,000 tonnes.
The demand supply balance is expected to deteriorate further, as with the current
expansion projects, the installed capacity for copper cathodes is expected to increase to
8,47,500 tonnes. However, the surplus position in the domestic market is not major
concern for the Indian players because the Asian region has a deficit of around 2.6 mn.tonnes.
India is emerging as net exporter of copper from the status of net importer on account of
rise in production by three companies.
Statistics of Copper & Copper Products
Units 2000-01 2001-02 2002-03 2003-04 2004-05
Export
Quantity
000
tonnes62.8 92.9 449.7 241.3 284.9
ExportValue
Rs. Crore 749.2 995.5 1884.9 2624.2 4167.2
Import
Quantity
000
tonnes133.2 170.7 140.9 179.8 201.1
Import
ValueRs. Crore 1057.6 1235.9 1043.1 1514 2309.8
(Source: CIME)
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END USER INDUSTRY
Copper is a special metal for industrial applications owing to its properties such aselectrical conductivity, corrosion resistance, ductility, malleability and rigidity. Specific
applications of copper include power cables and wires, jelly filled cables, building wires,
air conditioning and refrigeration tubings also in telecom, power, construction,transportation, handicrafts, engineering, consumer durable, defence. The break down of
copper by use is as follows;
Copper Consumption Pattern in India
Sector Applications % share
ElectricalMotors, Pumps, Generators, Transformers,
Switchgears, power and control cables30
Electronics &Telecom
Telecom, Cables, Telephone wires, Electronics 22
Transport Auto-electrical, Railway, Electrification, ElectricLocomotives, etc
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Consumer
DurablesFans, washing machine, batteries, bulbs, wiring, etc 6
Building &
ConstructionHousing Wiring, pipes, etc 9
OthersGeneral Engineering., Process Industries Defense,
Mints, handicrafts25
PLAYERS IN INDIA
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Hindustan Copper Ltd.
Sterlite
Hindalco
Among these three companies, Hindustan Copper ltd forms part of the Indian public
sector, while the other two belongs to the private sector.
COMPARATIVE STUDY
1) Capacity Generation Production and Utilization (2004-2005)
STERLITE INDUSRIES LTD.
Item Units Installed Production Utilization %Copper
cathodesTHTPA 165.0 178.7 108.3
Cast copper
rodsTHTPA 196.0 122.7 62.6
2) Employee(As on 31-3-2005)
CompanyEmployees
(Nos.)
Employee Cost
(Rs.crore)
Avg. Wages/
Employee (Rs.)
Sterlite IndustriesLtd.
1672 44.30 264952
COMPANY PROFILE
STERLITE INDUSTRIES (INDIA) LTD.
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Company Background:
Sterlite Industries (India) Ltd (SIIL) is a leading producer of copper in India. (SIIL) is the
principal subsidiary of the Vedanta Resources Group. SIIL pioneered the manufacturingof Continuous Cast Copper Rods in India and established India's largest Copper Smelting
and Refining Plant for production of world class refined copper. SIILs main products,
Copper Cathodes and Copper Rods meet global quality benchmarks.
Products & Its Applications:
A] Copper Cathodes
Applications
Continuous Cast Copper Rods
Copper Wire Bars, Bus bars, Billets, Ingots, Moulds and Other semis
Copper based alloys and downstream products
Copper tubes, strips and foils
B] Continuous Cast Copper Rods
Applications
Jelly Filled Telephone Cables
Magnetic wires & Winding wires
Power Cables
Automobile Wire Harness
Communication Cables
House wiring
Conductors (Rounds and Flats)
Transformer
Chairmans Statement
The year 2004-05 witnessed an exceptional period for the metal pricing driven by
the strong demand from China. India too has been moving up in the global scene.India has been ranked as the 10th largest economy and growing at over 6 %
annually with a strong macro economic outlook, positive investment climate,
continual investment support by foreign investors, the growth momentum is
expected to be maintained.
The companys turnover registered a healthy growth of 30%, while the gross
profit remained stabled in spite of the shortfall in production due to planned plantshutdown, after a campaign period of 24 months and successive reduction in tariff
structure.
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The success in all areas of our strategy over the past year has been encouraging
and in the next twelve months we will see progressive benefit from the recentlycommissioned facilities at Chanderiya and Tuticorin.
Trend in Capacity Generation(in tonnes)
Product/s manufactured/traded 2003 2004 2005
Aac/Acsr Conductors 33000 59580 73000
Aluminium Cold Rolled Products 20000 20000 20000
Continuous Cast Copper Rods 196000 196000 196000
Copper Cathodes 165000 165000 165000
Jelly Filled Telephone Cables (lakh mtrs) 70000 70000
Optical Fibre (metres) 1000000 1000000
Optical Fibre Cables (fibre kms) 420000 420000
Phosphoric Acid 125000 125000 180000Sulphuric Acid 435000 435000 1050000
Trend in Capacity Utilization (in %)
Product/s manufactured/traded 2003 2004 2005
Aac/Acsr Conductors 71.85 68.33 68.53
Continuous Cast Copper Rods 48.54 62.61 63.98
Copper Cathodes 94.36 108.27 104.24
Phosphoric Acid 87.5 94.09 58.28
Sulphuric Acid 110.83 124.53 52.06
Trend of Total Energy Consumption in Value (in Rs. Crore)
Energy Type 2003 2004 2005
Diesel 0.71 1.28 1.59
Electricity (Purchased) 27.8 33.23 30.2
Furnace Oil 18.22 22.54 18.99
Liquefied Petroleum Gas 13.91 41.59 20.38
Trend in Raw Material Qty & Rate(Quantity in tonnes & value in Rs. Crore)
Product/s 2003 2004 2005
Qty Amt Qty Amt Qty Amt
Aluminium 14894 117.55 31465 245.94 38752 350.34
Copper Cathodes
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Copper Concentrate 524917 1226.49 599792 1897.88 597927 2690.91
Rock Phosphate 360853 93.94 386785 139.73 347602 105.53
Key Ratios
2004 2005
PER SHARE RATIOS
EPS (Rs.) 14.84 10.16
Dividend Per Share 3.00 3.00
PROFITABILITY RATIOS
Gross Profit Margin (%) 6.87 2.94
Net Profit Margin (%) 6.38 2.61
LEVERAGE RATIOSTotal Debt/Equity 1.72 0.69
Owners fund as % of total Source 36.81 59.10
Fixed Assets Turnover Ratio 1.44 1.74
LIQUIDITY RATIOS
Current Ratio 1.36 2.37
Quick Ratio 0.99 1.72
Inventory Turnover Ratio 9.36 7.77
PAYOUT RATIOS
Dividend payout Ratio (Net Profit) 12.32 35.38
TURNOVER RATIO
Return on Capital Employed (%)
Analysis:
The EPS (Earning per share) decreased considerably due to decline in gross profit, which
is the result of declining sales, and increase in import cost. This has also affected the net
profit margin. The gross profit margin in almost same whereas the net profit margin hasbeen increased. The companys dividend per share has also shown on the rise. The
current and quick ratios have increased considerably by about 100% and are in favorable
condition.
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Future Plans
The Company has commissioned the expanded capacity made to the Companys
Tuticorin plant in the State of Tamil Nadu and additional smelting line has increasedcapacity of copper cathodes to 3,00,000 tpa. An increase of existing infrastructure also
accompanied the increased smelter capacity. A new 22.5 MW power plant is built to
provide power for the new smelter along with a 10 MW plant generating power fromwaste heat capture. In addition a new phosphoric acid plant and refinery is also
constructed. The new refinery is built along the same lines as the Silvassa operation and
will accommodate in excess of 1,25,000 tpa of anode. The inclusion of a refinery at theTuticorin site is a beneficial step in the integration of the copper operation as it will
greatly reduce the freight cost and increase returns from the new project.
Future Outlook of the Copper Industry
Copper is a key sector impacting the Indian economy. Copper has a number of
applications across several sectors such as telecom, power, construction, transportation,handicrafts, engineering, and consumer durables.
The performance of the copper industry is highly dependent on the performance of anddemand for products like power and telecommunication cables, transformers, generators,
radiators and other ancillary components. Hence, its growth is closely linked to the
countrys economic and industrial growth. India has been growing at a steady andsustained compounded average growth rate of 5.6 per cent for the past 20 years. This is
expected to improve further to a level of around 8 per cent in the future. The outlook for
the copper industry in India is therefore positive.
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