Sterlite plant closure to cost India $3 billion annually; copper price to rise

While the copper smelter plant of Sterlite in Tuticorin has been shut for want of a consent to operate from the Tamil Nadu Pollution Control Board, the announcement by the state Chief Minister E Palaniswamy that the plant would be shut is likely to impact domestic supplies and create a temporary spurt in domestic prices in the physical market, say analysts. This could impact downstream manufacturers also. Order signed by MD Nasimmuddin, Principal Secretary to state govt, said: "...the government endorse the closure direction of the Tamil Nadu Pollution Control Board and also direct it to seal the unit and close the plant permanently."

"The closure of Sterlite Copper plant is an unfortunate development, especially since we have operated the plant for over 22 years in most transparent and sustainable way, contributing to Tuticorin and the state's socio-economic development. We will study the order and decide on the future course of action," Vedanta, in a statement, said.

Ankit Narshana, Commodity Analyst at Edelweiss, said: "Temporarily, the shortage of copper can expect a temporary spurt in prices (up to about 2 per cent) from the current level of around Rs 455 per kg in the physical market." He, however, said India produces less than 10 per cent of the total copper production in the world, and there may be more copper imports to stem the price rise.

According to an estimate, imports would make up for shortage but would cost India around $3 billion in Forex annually.

Soon after the protests turned violent in Tuticorin, Sterlite Copper CEO P Ramnath had told Business Today that the unit was the seventh largest smelter in the world with an installed capacity of 400,000 tonnes per annum of copper and, when operational, it used to meet 36 per cent of the total domestic copper market demand in the country with the balance getting exported. Incidentally, he also said that apart from copper, the unit, which employed 3,500 people directly and over 30,000 people indirectly, was also producing sulphuric acid and phosphoric acid for fertilizer plants.

"The domestic production is going to be impacted because it is one of the topmost producers of copper. Also, it could have an impact on downstream manufacturers. However, it may not have a huge impact on pricing as that is impacted to a large extent by global developments," says Kaynat Chainwala, research analyst at Angel Broking. She says, copper prices are currently depressed as compared to the previous year and this is largely on account of global factors.

The decline in global prices has been more than that in the domestic market due to the rupee depreciation. The months of June and July are generally a low seasonal demand period for copper. China dominates the base metals landscape, Chainwala points out, adding that on the London Metal Exchange copper prices are around $6900 per tonne.

Also read: Tamil Nadu orders permanent shut down of Sterlite factory