Opportune time for India to race to the top

In the wake of China-led slowdown hurting the markets around the world which has led to calls in India for taking this crisis situation as an opportunity for the global economy may need an alternative growth engine. It is now the ideal time for the country to emerge as the factory of the world and renew confidence among potential investors that it is indeed a viable investment destination.

To sustain this optimism, industrial and economic progress has to be maintained and sustained.  The consumption pattern of the industrial metals including copper, is the yardstick to gauge this growth phase. As India marches ahead, the copper industry will continue to make headway with increased usages. The government goal to provide  power to all by 2019 and housing by 2022, modernization of the railways, the incentives and encouragement accorded to the building & construction sector, the proposed 100 smart cities and the industrial freight corridors will lend a tremendous boost to the copper industry.

However, the sector is saddled with many challenges. Among the biggest challenges faced by domestic suppliers includes the Trade Agreements / FTAs,  which are allowing cheaper imports into the country and have  been detrimental to the domestic industry  as  a result of which we have seen rising imports as well as falling realisations. Secondary industry segments like tube manufacturers have been closing their manufacturing facilities as they become unviable vis -a -vis imports and in turn reducing the domestic manufacturing output. 

Statutory laws and regulations have not been industry friendly which lead to high spending on logistics  as well as making imports attractive. Export incentives have been withdrawn from 1st April 2015, which has also been a setback in pursuing exports. Falling exports are  increasing the trade gap with China. 

We expect this situation to be corrected in the near future as globally the investment in  new copper mine development has been significantly reduced to match the slowdown in demand. This will result in lower production growth during coming years which will re-balance the supply-demand situation. Due to weak prices for around two years now, the investment in new mining projects have waned considerably. This is expected to push the copper market back to deficit over the next 2-3 years thereby boosting  prices.  

To mitigate the woes of the industry, the stakeholders must work with government agencies to have a level playing field, revisit all the FTAs on an urgent basis which has not been supportive to the domestic copper industry, build new capability within the country  and improve the quality of products. These forward looking measures will help in curbing imports into the domestic market. Besides, the government must  clamp down on cheap and inferior quality products and impose  safeguard duty as low producing countries  like China, Japan and South Korea have an edge over Indian copper producers.

In keeping with the expectations, the government is showing a sense of purpose in understanding  the issues and challenges. It has drawn a road map with a sharp focus on infrastructure and manufacturing. With foreign investors’ bullishness on the economy and confidence level rising, it’s an opportune time for India to grab the opportunity to race to the top. 

- Dr. Hanish Kumar Sinha, Head – Research & Development, National Bulk Handling Corporation Private Limited

MCX price trends

Month low – Early in the month

MCX Copper futures started the month of September on a steady note at Rs. 312.1 per kg, down by just 0.24 per cent over the previous month’s close. The sustained rise in LME copper inventory levels stretching to about 10 consecutive days kept copper prices on downtrend. Later a strike at Codelco’s Salvador mine in Chile suspending operations denied a big fall in copper prices. Nevertheless, with copper prices then moving up almost through the month, MCX copper futures registered its month low of Rs. 309.5 on September 5. 


Mine strike pushes copper prices up

Copper prices found support on continuing mine strike in Chile, the largest producer that helped ease concerns over global copper supply glut. Further, data release showing mortgage applications in U.S. rising for a second straight week, added to signs of housing-market strength and thus boosted demand prospects for the red metal used in pipes and wiring.

Amidst rising LME copper inventory levels, copper prices managed to move up steadily helped by reports of a fall in Chile’s copper output by 5.18% year-on-year during January-July, mainly due to lower ore grade. Additionally, update from the International Copper Study Group (ICSG) that the global world refined copper market was in an 83,000-tonne deficit in June, compared with a 69,000-tonne deficit in May – aided the rise in copper prices.

Barring a few sessions, copper prices continued to move helped by U.S. Fed decision to keep interest rates unchanged and improving sentiments over Chinese economy with releases of some upbeat economic indicator. At fag-end of the month, industrial metals were also supported by a rally in oil prices as OPEC agreed to its first production cut since 2008. Eventually, MCX copper futures registered its month high of Rs. 329.3 on last trading session of the month, before closing at Rs. 328.55, up by 5.02 per cent on a monthly basis.

- Niteen M Jain & Nazir Ahmed Moulvi, Managers, Multi Commodity Exchange of India Limited, Mumbai and Views expressed here are personal.