The Hindu Business Line : Non-ferrous metals: Sheen to continue

IT MAY appear prima facie that the reduction in import tariffs from 50.8 per cent to 39.2 per cent (after considering peak duty reduction and abolition of special additional duty) is expected to affect the pricing power and operational profile of key copper manufacturers — Hindalco and Sterlite Industries. However, since the international copper prices are ruling at a seven-year high of nearly $2,400 per tonne (compared to an average of $1,560 last year), the differential between landed costs and domestic price differential continues to be fairly comfortable.

This cushion is expected to help the domestic copper manufacturers peg domestic prices at the current levels.

Second, with the domestic economy gathering momentum, the demand from end-user industries is expected to look up.

Finally, the comfortable demand-supply gap of over 7 per cent expected in the Asian markets in 2003 will also augur well for Sterlite and Hindalco.

The ongoing expansion in capacities by both Sterlite and Hindalco is aimed at capitalising on opportunities in both domestic markets. The biggest beneficiary of the reduction in import tariffs on project imports from 25 per cent to 10 per cent is expected to be Sterlite Industries, which plans to expand its production capacities across aluminium (by Bharat Aluminium), copper and zinc (Hindustan Zinc) in the coming years. This may also revive the Greenfield expansion plans of Hindalco.

Since the peak import tariffs on aluminium (the other key non-ferrous metal) is already at 15 per cent, below the peak rate of 20 per cent, the impact on this metal will be limited to the extent of abolition of the special additional duty.

However, the firm international prices at around $1,600 will ensure that the pricing power of the aluminium manufacturers — Hindalco and Sterlite Industries — is not mitigated.