Home / Market / Mark-to-market /  Hindustan Copper to bear brunt of falling copper prices

The sustained fall in copper prices on the London Metal Exchange (LME) is depressing news for government-owned Hindustan Copper Ltd, an integrated copper mining company. Copper prices have already declined by 2.4% so far this month over the closing rate of 2014. Prices during the December quarter had declined on an average by 5.2% over the preceding quarter, and by 7.4% over the year ago period.

Falling prices directly affect Hindustan Copper, unlike other copper producers such as Hindalco Industries Ltd and Sesa Sterlite Ltd. These companies buy copper concentrate from miners and then process it into copper cathodes. Their earnings depend on fees paid by mining companies to process the copper. Hindustan Copper produces copper from its own mines, and also gets a small portion processed externally. Its profits, therefore, depend to a large extent on copper prices.

Besides, the company’s mining output has been affected in the December quarter due to the temporary closure of its mine in Jharkhand. Government data on mining shows that Hindustan Copper’s total output of copper cathodes in the months of October and November has declined by 45% over the year ago period. Add to that the decline in prices and one can expect these events to affect both sales growth and profitability in the near term.

Its September quarter results too had seen sales decline by 34% over the year ago period and its net profit declined to 17.2 crore from 62 crore. Its share has understandably declined by 13% since its results were announced. Copper prices are expected to remain under pressure in 2015 due to an increase in supply and uncertainty over recovery in demand.

But China holds the trump card and any action by its government to stimulate growth could change the near term outlook for copper.

The Narendra Modi government’s decision to auction mining rights for minerals other than coal could also have implications for Hindustan Copper. The implications will become clear as more clarity emerges on how the government intends to make these changes to allocation of mining rights, and how it will affect, if at all, the renewal of mining leases.

The writer doesn’t own shares in the above-mentioned companies.

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