It is a bet on management's ability to handle a large copus and how do they execute. On paper, a dye company should have no visible moats running a copper plant.
However, risk-reward can be extremely favourable (at a negative enterprise value) if they execute it.
It's a very interesting situation, especially in india where there are not a lot of companies in India which are deep value.
This is a very interesting situation and will be a good case study in the next year or two.
This is a sharp contrast to domestic copper companies such as Hind Copper, who anticipate no softness in prices, but their forecast for demand supply will be based on the geographies they serve.
Having said that, Q2 is major maintenance season for smelters, which can ease supply and result in some rebound.
There could be a good case of persist weakness in copper prices for the next couple of years, which would put a lot of questions on unit economics and returns of greenfield capex in India.
Yes, the situation is interesting. Although I am not so hopeful about HINDCOPPER. They ore quality ain't that great compared to concentrates that are received from SA, Chile and Peru. There was a CAG report last year that was quite detailed in outlining how Hindustan Copper hasn't spent any meaningful capex on exploration despite having sole right to distribute/auction mining leases. I think they did some only last year after copper was raised a a critical mineral in the context of the PMO discussing it with international stakeholders.
Copper prices over the next 2-3 years are going to rise. There has been sustained global deficit due to ongoing political/technical disruptions in mine supply from Chile and SA. There are severe electricity issues in SA since 2022 that affect production. Most importantly exploration and mine development over the last 8-10 years has not grown to match demand. The only reason Cu is around 4.8-4.9$ today is because China is in a slow down. Under their normal growth trajectory (till about 2022 Q1, before their property prices tanked), today Cu would have been around 6-7$.
India's Cu supply isn't that large to match demand. Look at the amount of finished Cu (anodes and cathodes) imports from 2022-2024. It has skyrocketed. Given that inflation is at almost a 10Y low, I suspect costs to importers will rise, thus eating margins of downstream players like consumer durable companies. I don't see how smelters are going to make any decent margins from finished Cu sales if they have to pay more for imported concentrates. Sulphuric acid and spent copper ore might fetch them normal margins but beyond that I am concerned about the entire mid-stream copper value chain.
Perhaps the only bright spot would be copper recycler. I have hears news of new units being commissioned as copper scrap availability eases internationally and the news is from Gujarat. Not sure if Kiri sees that opportunity but the relative value of copper scrap sales to smelters keeps getting more attractive as global smelting capacity rises in its oversupply.
I wish Hindustan Copper would have developed more mined prior to 2020. India could have reaped benefits of that right now.
Thanks for the interesting read. What are your thoughts on the fact that there is an oversupply of smelting capacity of copper globally and domestically ( with Kutch Copper's first unit having already come online and to be ramped up to more than the current entire capacity India has including the shutdown Sterlite unit) resulting in global TC/RCs dropped significantly(currently negative) by last month ? I wonder what this means for the return on that capital planned.
Lot of smelters have actually closed down in international market which is visible in copper prices rising and also from the fact that sulphuric acid prices have sky rocketed.
Going ahead its highly unlikely India's demand would be satisfied by 2035 or so from domestic capacities.
Reasonable ROCE’s can be achieved at current copper prices, on paper it doesn’t seem like a poor investment. However, running a copper mine is materially different than running a dye company
The last point sure is a risk. But to your point about smelters closing isn't entirely true. They are finding it hard to stay alive yet 4 of China's bigger smelters have not shut down, instead chosen to close the smelters for maintenance in March, which in normal year is not only peak demand month but also an active trading month on COMEX (pointing to the combined effects of fabrication and investment demand). China's massive demand for copper (under normal circumstances) is yet to pick up and likely will only see in the last quarter of this year picking up. It might take 2 financial years for baseline demand to reach normality and be reflected in the TC/RCs which are usually set by which contract happens to materialize internationally at the start of the year. For this year that was TC < 10$, a 70 percent drop from the previous year. Contract rates have continued to fall since then, while spot rates (for batches) aren't that great either. This is the reason I was questioning the visibility of returns. We are large net importers of concentrates and oxide ores.
Within India, perhaps Hindalco is able to manage returns little more than half of its installed capacity (around 600k tons) due to the agreement with Hindustan Copper but that ore (the Indian ore) is of lower quality compared to the ones arriving from mines in Peru or SA. India's demand for refined copper (copper cathodes) is roughly 750k (growing at about 6-7 percent annually). About 400k ton capacity is offline due to the Sterlite copper case, Hindalco doesn't operate at full capacity and combined with the small capacity that Hindustan copper has, the total refined copper output capacity is around 500-550k tons. The result is that copper cathode (99 percent Cu) and anode (92 percent Cu) imports have substantially increased since the last 5 years, particularly from downstream fabricators and industry producing value added products. Add to this the fact that Kutch Copper Ltd. (Adani) has brought online their first smelter in Jan 25 and expect to ramp up capacity to 500k tons by September (as per their media post, it was widely covered in the news), I suspect that Hindalco's margins will be affected. Thus, if demand in India grows at the same pace, once Kutch copper's second unit comes online, another 500k tons, somewhere in 2026-27, we will have oversupply of smelting capacity (like we used to have when Sterlite copper was at full capacity prior to 2019). I am just asking the question, perhaps you know more of Kiri's reasoning to enter this business.
Recent increases in Copper prices not a result of pickup of fabrication demand (where China dominates) but in fact from investment demand at COMEX, where panicky investors and US fabricators have rushed metal contracts at COMEX and subsequent deliveries in the last two months to avoid tariffs. The same is effect can be seen in Silver , Gold, and the Platinum Group Metals. In fact auto demand is falling in the US and EU, but Pt and Pa crossed 1000$ just because of investment demand. Thus I would take current hike in prices with a grain of salt. Of course, I agree that long term copper prices (a 3-5 year window) are definitely inching up on account of mines supply either closed or not coming online over the past 10 years. There is a sure deficit in the supply side and perhaps at >4$ it seems reasonable to assume that exploration might be feasible but I wonder who is willing to invest in new production (apart from mines already producing or the ones where exploration is designated indicated) in the new tariff scenario.
Happy to have your thoughts. I am less aware of what the company sees in the opportunity.
thanks for this nice post. really helpful in understanding the situation. my thoughts and comments below , open to any comments/criticism
this seems like a bet on their capital allocation skill rather than copper/fertilizer industry trends (which seem ok to positive). also unclear why they should exist among larger players (Adani plant , in fertilizer psus and coromandel etc.) , also arent they a bit late to the game? .i could be wrong but the equity could trade materially down given the large capex outflow and sizable debt that will build up post completion (even if that happens) so their enterprise value post the legal bounty is practically un guessable, i.e. another way of saying operational slip ups will be there. I also echo Prakhars nice note below that this sounds like a gravy train, bizarre situation but in interesting ways.
It is a bet on management's ability to handle a large copus and how do they execute. On paper, a dye company should have no visible moats running a copper plant.
However, risk-reward can be extremely favourable (at a negative enterprise value) if they execute it.
It's a very interesting situation, especially in india where there are not a lot of companies in India which are deep value.
https://www.bloomberg.com/news/articles/2025-05-28/key-copper-talks-begin-with-offer-of-negative-processing-fees?srnd=homepage-asia
Thanks for this. Prakhar.
This is a very interesting situation and will be a good case study in the next year or two.
This is a sharp contrast to domestic copper companies such as Hind Copper, who anticipate no softness in prices, but their forecast for demand supply will be based on the geographies they serve.
Having said that, Q2 is major maintenance season for smelters, which can ease supply and result in some rebound.
There could be a good case of persist weakness in copper prices for the next couple of years, which would put a lot of questions on unit economics and returns of greenfield capex in India.
Yes, the situation is interesting. Although I am not so hopeful about HINDCOPPER. They ore quality ain't that great compared to concentrates that are received from SA, Chile and Peru. There was a CAG report last year that was quite detailed in outlining how Hindustan Copper hasn't spent any meaningful capex on exploration despite having sole right to distribute/auction mining leases. I think they did some only last year after copper was raised a a critical mineral in the context of the PMO discussing it with international stakeholders.
Copper prices over the next 2-3 years are going to rise. There has been sustained global deficit due to ongoing political/technical disruptions in mine supply from Chile and SA. There are severe electricity issues in SA since 2022 that affect production. Most importantly exploration and mine development over the last 8-10 years has not grown to match demand. The only reason Cu is around 4.8-4.9$ today is because China is in a slow down. Under their normal growth trajectory (till about 2022 Q1, before their property prices tanked), today Cu would have been around 6-7$.
India's Cu supply isn't that large to match demand. Look at the amount of finished Cu (anodes and cathodes) imports from 2022-2024. It has skyrocketed. Given that inflation is at almost a 10Y low, I suspect costs to importers will rise, thus eating margins of downstream players like consumer durable companies. I don't see how smelters are going to make any decent margins from finished Cu sales if they have to pay more for imported concentrates. Sulphuric acid and spent copper ore might fetch them normal margins but beyond that I am concerned about the entire mid-stream copper value chain.
Perhaps the only bright spot would be copper recycler. I have hears news of new units being commissioned as copper scrap availability eases internationally and the news is from Gujarat. Not sure if Kiri sees that opportunity but the relative value of copper scrap sales to smelters keeps getting more attractive as global smelting capacity rises in its oversupply.
I wish Hindustan Copper would have developed more mined prior to 2020. India could have reaped benefits of that right now.
Thanks for the interesting read. What are your thoughts on the fact that there is an oversupply of smelting capacity of copper globally and domestically ( with Kutch Copper's first unit having already come online and to be ramped up to more than the current entire capacity India has including the shutdown Sterlite unit) resulting in global TC/RCs dropped significantly(currently negative) by last month ? I wonder what this means for the return on that capital planned.
Lot of smelters have actually closed down in international market which is visible in copper prices rising and also from the fact that sulphuric acid prices have sky rocketed.
Going ahead its highly unlikely India's demand would be satisfied by 2035 or so from domestic capacities.
Reasonable ROCE’s can be achieved at current copper prices, on paper it doesn’t seem like a poor investment. However, running a copper mine is materially different than running a dye company
The last point sure is a risk. But to your point about smelters closing isn't entirely true. They are finding it hard to stay alive yet 4 of China's bigger smelters have not shut down, instead chosen to close the smelters for maintenance in March, which in normal year is not only peak demand month but also an active trading month on COMEX (pointing to the combined effects of fabrication and investment demand). China's massive demand for copper (under normal circumstances) is yet to pick up and likely will only see in the last quarter of this year picking up. It might take 2 financial years for baseline demand to reach normality and be reflected in the TC/RCs which are usually set by which contract happens to materialize internationally at the start of the year. For this year that was TC < 10$, a 70 percent drop from the previous year. Contract rates have continued to fall since then, while spot rates (for batches) aren't that great either. This is the reason I was questioning the visibility of returns. We are large net importers of concentrates and oxide ores.
Within India, perhaps Hindalco is able to manage returns little more than half of its installed capacity (around 600k tons) due to the agreement with Hindustan Copper but that ore (the Indian ore) is of lower quality compared to the ones arriving from mines in Peru or SA. India's demand for refined copper (copper cathodes) is roughly 750k (growing at about 6-7 percent annually). About 400k ton capacity is offline due to the Sterlite copper case, Hindalco doesn't operate at full capacity and combined with the small capacity that Hindustan copper has, the total refined copper output capacity is around 500-550k tons. The result is that copper cathode (99 percent Cu) and anode (92 percent Cu) imports have substantially increased since the last 5 years, particularly from downstream fabricators and industry producing value added products. Add to this the fact that Kutch Copper Ltd. (Adani) has brought online their first smelter in Jan 25 and expect to ramp up capacity to 500k tons by September (as per their media post, it was widely covered in the news), I suspect that Hindalco's margins will be affected. Thus, if demand in India grows at the same pace, once Kutch copper's second unit comes online, another 500k tons, somewhere in 2026-27, we will have oversupply of smelting capacity (like we used to have when Sterlite copper was at full capacity prior to 2019). I am just asking the question, perhaps you know more of Kiri's reasoning to enter this business.
Recent increases in Copper prices not a result of pickup of fabrication demand (where China dominates) but in fact from investment demand at COMEX, where panicky investors and US fabricators have rushed metal contracts at COMEX and subsequent deliveries in the last two months to avoid tariffs. The same is effect can be seen in Silver , Gold, and the Platinum Group Metals. In fact auto demand is falling in the US and EU, but Pt and Pa crossed 1000$ just because of investment demand. Thus I would take current hike in prices with a grain of salt. Of course, I agree that long term copper prices (a 3-5 year window) are definitely inching up on account of mines supply either closed or not coming online over the past 10 years. There is a sure deficit in the supply side and perhaps at >4$ it seems reasonable to assume that exploration might be feasible but I wonder who is willing to invest in new production (apart from mines already producing or the ones where exploration is designated indicated) in the new tariff scenario.
Happy to have your thoughts. I am less aware of what the company sees in the opportunity.
thanks for this nice post. really helpful in understanding the situation. my thoughts and comments below , open to any comments/criticism
this seems like a bet on their capital allocation skill rather than copper/fertilizer industry trends (which seem ok to positive). also unclear why they should exist among larger players (Adani plant , in fertilizer psus and coromandel etc.) , also arent they a bit late to the game? .i could be wrong but the equity could trade materially down given the large capex outflow and sizable debt that will build up post completion (even if that happens) so their enterprise value post the legal bounty is practically un guessable, i.e. another way of saying operational slip ups will be there. I also echo Prakhars nice note below that this sounds like a gravy train, bizarre situation but in interesting ways.