The Vedanta group’s copper smelter—a factory where the metal is extracted by subjecting the ore to high temperature—began operations at Thoothukudi in southern Tamil Nadu in 1996. It was first shut down in 2010 by the Madras High Court for flouting pollution norms. But it got a stay from the Supreme Court and continued operations.
In 2013, the Tamil Nadu government closed the plant again following a gas leak. The Supreme Court fined the company ₹100 crore for not adhering to pollution norms but allowed the plant to operate upon fulfilling various conditions.
Again, in May 2018, the plant was permanently shut by the Tamil Nadu government for repeatedly violating pollution norms. The Madras High Court upheld the state government’s order in August 2020. The beleaguered copper smelter almost got another lease of life when the first bench of the Supreme Court, under chief justice D.Y. Chandrachud, on 14 February this year, suggested the setting up of a bipartisan committee to look at ways to restart the plant. It was hearing a special leave petition filed by Vedanta Ltd against the closure. “Health of the people has to be protected but at the same time, the facility should not be lost either. India should not lose an asset,” chief justice Chandrachud had observed.
View Full Image
It appeared as though the Sterlite smelter would once again rise from the ashes. Its position as an asset of national significance—contributing to 36% of India’s refined copper production (400,000 tonnes) had saved it more than once before. An encore appeared likely.
Consider this: In 2017-18, when the Sterlite plant was functioning, India exported 250,000 tonnes of refined copper. After the closure, India became a net importer. In 2022-23, it imported about 262,000 tonnes of refined copper. This is set to increase significantly in 2023-24. In the first nine months, imports had already crossed 300,000 tonnes.
In this context, closing Sterlite Copper would not be a wise move.
However, on 29 February, the Supreme Court pronounced its verdict. The apex court ignored its own suggestion of setting up a committee and upheld the Madras High Court order shutting down Sterlite’s copper smelter at Thoothukudi permanently.
In 2017-18, when the Sterlite plant was functioning, India exported 250,000 tonnes of refined copper. After the closure, India became a net importer.
The repeated nature and severity of the breaches of the pollution norms by the company superseded the apex court’s thoughts on national priorities. And with that, India’s efforts to attain self-sufficiency in refined copper production just got harder.
The situation today
Copper is a critical metal, and its consumption is closely associated with economic growth. Its importance has risen in recent years with the focus shifting to renewable energy, electric vehicles (EVs)—electric cars use four times more copper than those powered by petrol or diesel—and related infrastructure development. According to Government of India data, the country’s per capita copper consumption, at 0.6kg, pales in comparison with the world average of 3.2kg. If India has to become a developed nation by 2047, it needs to secure its copper supply.
View Full Image
India’s copper consumption has been rising sharply. In 2022-23, it stood at 986,000 tonnes, growing 23% over the previous year. In the first nine months of this year, demand has already touched 852,000 tonnes. “This demand is primarily driven by the government’s infrastructure spending,” said Priyush Ruparelia, vice-president and co-group head—corporate ratings, at Icra, a rating agency. The central government’s capex, which was just ₹4.12 trillion in 2020-21, amounting to 2.1% of GDP, has risen to ₹10 trillion in 2023-24 (3.4% of GDP).
The government has also been pushing affordable housing through programmes such as the Pradhan Mantri Awas Yojana (PMAY). Buildings and construction account for 22% of copper demand. Added to this is demand from the consumer durables and automotive sector. Icra expects consumption in 2023-24 and 2024-25 to grow by 11%.
“The copper business is enjoying some very good demand. The electrification sector is quite strong. Copper is going to be good going forward,” said Satish Pai, managing director of Hindalco Industries Ltd, during the company’s earnings call in February.
Hindalco is one of India’s biggest metals manufacturing company and its copper division, Birla Copper, operates one of the largest single-location copper smelters in the world. With the closure of Sterlite Copper, Hindalco is the only major refined copper producer in the country today, with a capacity of about 500,000 tonnes.
The public sector Hindustan Copper produces another 60,000 tonnes. The rest of the demand is met through imports of refined copper, copper scrap and value-added products.
The copper ore is converted into a copper concentrate which is then smelted into refined copper. The refined copper can then be used to make value-added products such as copper rods and wires.
As per government data, in 2022-23, copper imports rose by about 20% in value terms to ₹27,131 crore from ₹21,985 crore the year before. This will change soon.
Adani smelter
Domestic supply of refined copper is set to rise as the Adani group’s 500,000-tonne copper smelter at Mundra in Gujarat is set to begin operations soon. “This plant will go a long way in reducing import of refined copper,” said Ruparelia. How quickly that will happen would depend a lot on stabilization of production. It could take up to a year to reach full capacity, he added.
When copper from the new facility starts flowing, domestic copper prices may ease a bit. “I do expect competition when other people come in. We may see some pressure on copper prices,” Hindalco’s Pai said in the earnings call.
The Adani group did not respond to Mint’s queries on the project.
Lessons from China
According to the International Copper Study Group, global copper consumption rose by 5% to 27.1 million tonnes (mt) in 2023, against production of 27mt. China accounted for 68% of the world’s copper consumption in 2023, at 18.5mt, registering a 9% increase over the previous year. Its own production of refined copper stood at 13mt, while imports accounted for the rest.
Copper consumption in the US was flat while it contracted in Europe. Global demand grew marginally, thanks to strong consumption in China. That came as a surprise as the Chinese economy as a whole is facing massive headwinds. Industrial output is down as both domestic and export demand have fallen. The country’s property sector is in the doldrums. Demand for copper came primarily from EV and renewable energy.
View Full Image
“Of the 13.5 million electric cars sold globally in 2023, 9.5 million were in China. EVs account for 40% of all car sales there,” Sundeep Daga, founder & chief executive officer (CEO), Regsus Consulting, a metal price risk management advisory firm, said.
The EV sector alone consumed in excess of a million tonnes of copper in the last year.
The other big source of demand was the renewables sector. Realizing that a sharp increase in the sale of EVs will call for enhanced electricity demand, China has been ramping up its renewable energy capacity. In 2023 alone, it added renewable capacity of 160 giga watts (GW), mostly in western China, where land was available and cheap. Long transmission lines were laid to evacuate the electricity generated to meet the demand on the east coast.
China’s smelting capacity will increase by 25% in 2024 and 15% in 2025.
—Sundeep Daga
“There is a lesson for us to learn from China,” said Daga. Anticipating demand for copper from its EV and renewable energy drive, policymakers there ensured creation of smelting capacity. In 2023, the country added 2mt—four times India’s capacity—in just one year.
That’s not all. “China’s smelting capacity will increase by 25% in 2024 and 15% in 2025, if one looks at the pipeline of smelting projects,” he said. They are well prepared, and it is high time India starts planning similarly, he added.
The way forward
India has ambitious growth plans. The country wants to lift its economy from the current level of $3.6 trillion to $30 trillion by 2047. That would require economic growth of 8% per annum or more every year. To meet the demands that emanate from such growth, it needs to invest heavily in building infrastructure. Industries will have to expand to meet increased consumption. As the per capita income of Indians grows, so will demand for housing, consumer durables and so on.
View Full Image
The government has set an aspirational target of having 500GW of renewable energy capacity by 2032. To evacuate this power, a lot of substations have to be set up and transmission lines laid. That apart, India has big plans for EVs. It wants EVs to account for a large part of automobile sales—be it two-wheelers, three wheelers, cars or buses. All these will lead to demand for copper rising exponentially in India. But experts worry that India is not prepared for this situation.
Vedanta’s decision and timing to set up a smelter facility in India was perfect. But pretty much nothing went right after that. “If Sterlite Copper had operated properly and doubled its capacity as planned to 800,000 tonnes, India would be in a very comfortable position today,” said an industry official, who did not wish to be identified.
India remains a net importer of refined copper and could remain so even after the Adani capacity comes on stream. Apart from phase-2 of Adani’s copper plan, which will take output to 1mt (no timeline has been set for this project), no other projects are in the pipeline. “An action plan is urgently needed for India to become self-sufficient in copper,” said Regsus’ Daga.
A bigger problem
The self-sufficiency, he clarified, should not just be in refined copper. India’s bigger problem is copper ore. According to the ministry of mines, government of India, copper ore production in the country is estimated at 4mt, which is equivalent to just 4% of the country’s refined copper consumption. State-owned Hindustan Copper is the only producer of copper ore in the country. Hindalco imports copper concentrate and converts it into refined copper.
Chile and Peru account for 40% of global copper ore output. China has a 9% share followed by the US (7%). India’s established copper ore reserves are low.
“It is high time India invests in prospecting for copper ore,” said Daga. Without access to ore, there is no self-sufficiency or control over prices.
His words are already ringing true. In the last fortnight, international copper prices have shot up from around $8,300 per tonne to $9,066 before dropping to $8,900 levels due to the acute shortage of ore after the closure of a mine in Panama.
“This has reduced capacity utilization at the smelters. Competition for the ore has reduced the smelting margins from $90 per tonne levels to $10,” said Icra’s Ruparelia. Many smelters across the world are shutting down operations as the process of smelting is unviable at the moment.
The government of India has taken the first step to find more reserves. The Mines and Minerals (Development and Regulation) Act, 2023, has introduced an exploration license that encourages private sector participation in prospecting for 30 critical minerals, including copper ore. This move is expected to bring in advanced technology, expertise and capital to prospect for copper ore. The ministry of mines expects availability of ore to increase from 4mt to 12.2mt by 2028-29.
Experts also said that the government and the private sector must work together to strike strategic supply deals with countries that have large ore deposits. They point out that China has already signed deals in Africa. Many of these countries have also woken up to the benefit their economy gets by adding value to the ore locally rather than just exporting it. This calls for a different approach. India Inc. should look at investing in ore processing facilities in these nations and shipping the concentrate to feed smelters in India, said experts.
The writing on the wall is clear. If India wants to expand its economy rapidly, it needs to move quickly to fix its copper supply. History is replete with such examples: Europe in the 1700s, the US in the 1900s, Japan in the 1960s and China in the 2000s ensured self-sufficiency in copper as their economies grew at a rapid pace. India cannot become a developed nation any other way.