Burdened by rolling blackouts and industrial power shortages, India is bent on expanding its power capacity, potentially boosting copper demand sharply and reviving global interest in the metal.
Because of India's roaring economy, India's power production needs to rise by 15 to 20 percent annually, and with it, lots of copper consumed to meet the demands of its billion-plus populace.
If the projects take off as planned, India will likely have less copper to export, which could ease worries that copper demand will slump if the US economy continues to falter. "We could turn into a net importer of copper, provided all these power projects come on stream," Hitesh Aggarwal, vice president of research at Angel Broking.
Copper has fallen 20 percent since October to $6,755 a tonne on a dimming demand outlook. "The need for more power has sunk into everybody's head," said Gnanasekhar Thiagarajan, director of Commtrendz Risk Management. "We suspect that many Indian players would start making bulk purchases of copper now as prices are low."
Because of the new building in plants and other infrastructure, India's annual copper demand is expected to more than double to nearly 1.5 million tonnes by 2012, from 600,000 tonnes now.
The country's production is estimated at 700,000 tonnes and India usually exports between 100,000 tonnes and 150,000 tonnes a year. "For every addition of 1000 megawatts, there will be new demand of 10,000 to 15,000 tonnes of copper," said a senior Mumbai-based analyst, who did not want to be identified. "We know of at least three power projects coming up now which will consume an additional 50,000 tonnes of copper," he said.
Domestic copper producers, including Sterlite, Birla Copper and Hindustan Copper are able to meet domestic demand now, and are able to even export small quantities. "We don't see the situation changing for at least two years," said the Mumbai-based metals analyst. "That is because many of the projects are still in the initial stages." "The picture could well change once the new power projects come on board."
Private and state-run power firms are planning capacity expansions of nearly 60 percent over the next several years, which will not completely solve the ongoing shortages. "We would need to raise capacity by at least this much, if not more, to even maintain the present level of shortages," said Harry Dhaul, director general of Independent Power Producers Association of India.