Copper’s record-breaking rally has found fresh fuel, with prices surging to an all-time high of $14,533 per metric ton. The latest leg of the run, which has largely been driven by tariff-related trade flows, is adding to bullish bets that a lack of growth in mine supply could send prices even higher.
Those bets are gaining credibility as a string of disappointing production numbers points to a tightening supply picture. Data from the International Copper Study Group showed global mine output declined 1.1% in the first half of the year, with major producers Codelco and Freeport-McMoRan Inc. both reporting double-digit drops.
Morgan Stanley, which began the year expecting mine supply to expand, now sees production as little changed or slightly lower. That raises the prospect of the first annual decline in mine supply since 2017.
For Indian cable makers such as Polycab India, RR Kabel, KEI Industries, among others, the pressure is coming from another direction too. UltraTech’s Ultravolt entry into the sector and robust target to become the second biggest player therefore potentially comes as a double blow for listed incumbents.
Will listed wire and cable players feel the heat?
The companies have started passing higher input costs through to customers. Polycab India during its Q4 earnings call said it has taken approximately 18% to 19% price hike cumulatively from January to March after a sharp rise in copper prices. RR Kabel has also announced increases, although it has so far kept the hikes on hold.
The recent price hikes reflect concerns over rising copper costs and the ability of companies to pass on higher input costs without affecting demand. RR Kabel has announced hikes of 2% to 3.5%, although its implementation is currently on hold, media reports stated.
Domestic brokerage JM Financial said it was raising three key questions on the Indian cables and wires industry and adopting a cautious approach. The first is whether C&W growth is peaking. After a strong growth rally, the brokerage said it is time to question the absence of volume growth and recognise that with elevated copper prices as the base starting late third quarter or Q4 FY27, revenue growth could look weaker over the next 12 months.The second question is whether the Street is underestimating new competition. UltraTech and Diamond Power by FY29E could cumulatively command more than 12% market share, a scale that may not be ignored, with Crompton and Bajaj adding to the competitive landscape.
“While market share losses for incumbents can be debated given that the industry comprises around 20% unorganised players, margin risk remains due to the likelihood of disrupted pricing discipline.”
The third question is whether valuations leave room for a dip in growth. JM Financial said looking at a longer time frame is crucial to appreciate changes in valuation across different phases. Today, C&W names are trading at a 4-5% premium to their 5-year average P/E multiple and around 25% above their long-term average P/E multiple.
Japanese brokerage Nomura echoes the view, stating that any moderation in industry volume growth following a sharp increase in copper prices remains another headwind.
However, Motilal Oswal said that for Ultravolt, copper will be available near the plant, within a 100km range, and UTCEM will be able to manage working capital well. It will be able to operate this business with negative working capital, similar to its cement operations.
Wire stocks selloff triggered
UltraTech’s entry into the wires and cables business has already triggered a sharp selloff in listed players, wiping out about Rs 21,500 crore in market value in just two trading sessions.
Polycab India suffered the biggest rupee erosion, with Rs 8,766 crore wiped off its market capitalisation in two days. KEI Industries followed with a Rs 5,158 crore decline, while Havells India, RR Kabel, APAR Industries and Finolex Cables lost a combined Rs 7,501 crore.
The selloff reflects growing investor concern that UltraTech’s Rs 1,800-crore Ultravolt investment could intensify competition, put pressure on margins and force established cable makers to spend more on distribution, advertising and electrician engagement.
“Competition in the Indian C&W space is clearly intensifying,” JM Financial said in a report, adding that the possibility of a “sector-wide derating” could not be ruled out.
Ultravolt entry
UltraTech has started commercial production at its Jhagadia facility in Gujarat earlier than initially expected and launched Ultravolt under the Aditya Birla Group. The company has begun with an installed capacity of about 1.1 million kilometres, focused on house wires and light duty cables. Its initial portfolio includes home wires, flexible and submersible cables, solar cables, communication cables and select power and industrial cables.
UltraTech plans to distribute these products across more than 500 districts and 6,000 pin codes, while targeting more than 100,000 retailers. It is also leveraging more than 5,000 UltraTech Building Solutions outlets and has onboarded over 1,600 electricians ahead of the launch.
The company has said it aims to become one of the top two wires and cables players within five years. Its eventual capacity could rise to 3.5-4 million kilometres.
Nomura estimates that UltraTech could capture around 6%-7% of the organised wires and cables market by fiscal 2030, assuming strong industry demand and asset turnover of 5-6 times.
Copper outlook
Last week, benchmark LME prices were headed for a 10th consecutive weekly gain, the longest such stretch since 1994.
Citigroup Inc. analyst Tom Mulqueen forecasts copper at $15,000 a ton by year-end, with the potential to reach about $17,000 if manufacturing recovers or demand from the energy transition, data centers or strategic stockpiling proves stronger than expected, a Bloomberg report said. He plays down the threat from the vast US inventory buildup, arguing that even without tariffs, those stockpiles are likely to unwind gradually rather than flood back onto the global market.
With demand set to outpace supply growth in the coming years, prices are likely to remain elevated, according to Anglo American Plc Chief Operating Officer Ruben Fernandes.
“Everyone is investing in copper, everyone likes copper,” he said in an interview last week. “Supply will come, but the question is how quickly.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
You must be logged in to post a comment Login