Sustenance in Treatment and Refining Charges Help Metal Makers to Stay in a Comfort Zone

Though London Metal Exchange prices for copper have been on a downward spiral, the sustenance in treatment and refining charges are helping metal makers to stay in a comfort zone.

Hindalco Industries, for instance, reported a 29 per cent drop in net profit for the Q2 but its earnings before interest and tax for the copper business shot up 175%. In the quarter ended September 30, Ebit from the copper business for Hindalco was INR 209 crore, against INR 76 crore in the Q1.

Mr Praveen Maheshwari CFO of Hindalcosaid that the Tc and Rc rates for copper refining are expected to be firm in the near future as well. He did not quantify the expectation for these rates however.

LME COPPERLME rates for copper have been falling and, at USD 7,692 per tonne are at their lowest in close to two months. Prices fell 8.21% from that peak of USD 8,380 on September 14 on hopes from QE3 being announced.

An analyst tracking the metal said that prices are better now when compared to last year or even the Q1. That’s why on a sequential basis companies are making more money on copper refining and treatment.

For Sterlite Industries which makes copper apart from other metals like aluminium, zinc and lead, the brown metal’s profit after tax jumped 62% in the Q2 on a YoY basis. In the Q1 of the financial year, its PAT was INR 96 crore against INR 475 crore in the Q2. However, a forex gain of INR 161 crore is also a prime driver for this profit.

The Tc and Rc rates for Sterlite in the second quarter actually fell 13% YoY. Sequentially, going according to the trend the Tc and Rc rates for Sterlite were up by 12.4%.

Companies are hoping the Tc and Rc charges for the next year will be fixed at least at USD 70 per tonne against USD 60 per tonne to USD 63 per tonne in the current year. This could mean higher charges for companies like Hindalco which refine and treat copper and better profitability against the subdued aluminium business.

However, if indications for the next year are anything to go by, the picture doesn’t look as appealing. Media reports suggest BHP Billiton has offered USD 60 per tonne to the copper refiners for the next financial year. What turn the negotiations take will have to be watched close.