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Birla Said to Profit From Rival’s Copper Woes: Corporate India

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Billionaire Kumar Mangalam Birla
Hindalco Industries Ltd. Chairman Kumar Mangalam Birla. Photographer: Kuni Takahashi/Bloomberg

May 21 (Bloomberg) -- Hindalco Industries Ltd., India’s second-largest copper producer, is benefiting from the shortage in the market caused by the closing of its bigger rival’s smelter, said two people familiar with the situation.

Billionaire Kumar Mangalam Birla’s company increased the premium it charges over the London benchmark price of copper by about 15 percent, the people said, asking not to be identified because they aren’t authorized to speak to the media. The price of sulfuric acid, a by-product, was also raised by a similar margin, they said.

Local supplies of primary copper, derived from metal ore and concentrate, plunged 50 percent after Sterlite Industries (India) Ltd. was ordered on March 30 to shut its plant in the southern state of Tamil Nadu following a gas leak, the people said. The closing of billionaire Anil Agarwal’s smelter has given Birla an opportunity to reverse five straight quarters of profit decline at Hindalco, which also owns Atlanta-based aluminum maker Novelis.

“The closed Sterlite unit may enable Hindalco to charge a higher local premium for copper and its realization from sulfuric acid should also improve,” said Goutam Chakraborty, an analyst at Emkay Global Financial Services Ltd., who has a buy rating on Hindalco. “Though the company is likely to benefit, it’s very difficult to quantify by how much.”

The shares of Hindalco rose 0.2 percent to 110.4 rupees at the close of trading in Mumbai. The stock has declined 15 percent this year, compared with a 3.5 percent increase in the benchmark S&P BSE Sensex index.

Sharing Customers

Hindalco, which shares many of its copper customers with Sterlite, is focusing on the domestic market, the people said. Hindalco increased its premium by about $30 a ton on the London Metal Exchange price, the people said.

Hindalco spokeswoman Pragnya Ram declined to comment.

Trouble for Sterlite began in September 2010, when the Madras High Court ruled the 400,000 metric-ton facility, located at Tuticorin in the southern state of Tamil Nadu, should be shut for environmental breaches. The Supreme Court, which allowed the plant to operate in an interim order the next month, imposed a penalty of 1 billion rupees ($18 million) on the company on April 2 this year.

In a separate case in March this year, the pollution control authority of Tamil Nadu said the plant violated emission norms and must be closed. Sterlite has challenged the board’s decision and the case is pending before the National Green Tribunal, which rules on environmental breaches.

Price Outlook

Copper lost 8 percent this year amid Europe’s debt crisis and slowing growth in China, the biggest metals consumer. Europe and China make up about 60 percent of world consumption.

The metal, used in cables and wires, may rise almost 10 percent to as much as $8,000 a ton should the price exceed this month’s high of $7,480, according to technical analysis by Marex Spectron Group. In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

Sterlite, which accounted for half of India’s 670,000 tons of primary copper output in the year ended March 31, hasn’t produced a single ton since April 1. Hindalco produced 315,000 tons of copper in the last fiscal year from its factory in the western state of Gujarat.

Metal Demand

India’s annual demand for copper, both from primary and secondary sources, is estimated at 500,000 tons, which is mainly supplied by Sterlite and Hindalco, according to a report by the mines ministry last month. Secondary producers that refine the metal from imported scrap supply about 20 percent of local needs. The surplus is exported.

Hindalco, which is slated to announce quarterly earnings on May 28, may say standalone profit plunged 39 percent to 3.87 billion rupees in three months ended March 31, according to the median of 25 analyst estimates in a Bloomberg survey. Revenue from the company’s copper business stood at 183.6 billion rupees, or 23 percent of the 808.2 billion rupees of group sales for the year ended March 31, 2012.

The group’s share of revenue from aluminum was 77 percent at 620.6 billion rupees in the last fiscal year. Novelis, the world’s biggest rolled-aluminum maker, contributed more than two-third of the group’s revenue.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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