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Industry showing its Mettle for Metal

Raw material prices continue to play hide and seek in the wire & cable industry and price volatility has impacted many important decisions in companies. The industry has become used to of operating in an environment of parabolic raw material prices. The prices of metals have been gradually fluctuating, which is one of the key challenges for the wire & cable industry. To understand the scenario in detail team WCI presents below the views from the industry people about what they feel about the future, recent past and the way forward with regard to metal prices.

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Mr. Anil Gupta Chairman & Managing Director

KEI Industries Ltd

Trends in terms of raw material availability, prices, competition, quality etc

Conductor material either copper/aluminium constitutes about 40-60% of the raw material of the cables. Apart from that, polymers such as PVC, polyethylene and other engineering plastics also constitute an important and significant cost. The availability of metals and polymers has all along been comfortable with high volatility in the prices. But more than the prices in dollar terms, the exchange rate parity of Indian rupee vis-à-vis USD/Euro has brought more volatility and uncertainty to Indian wire & cable industry. More and more overseas companies have set up selling base in India to sell raw materials to the cable industry thus bringing better quality and availability to the user industry.

Encouraging signals ahead

Metal availability of Indian manufacturers of copper/aluminium almost remains stagnant and may pose supply constraints in future. It is mainly due to restriction on mining of bauxite used for production of aluminium and pollution/environmental issues raised on the plants producing refined copper and aluminium, which is affecting the future growth in production of these metals in India. There is a good technological growth in the capability creation on wire & cable compounds by Indian manufacturers including production of XLPE compounds of high voltage cables.

Steps to be taken for redemption from volatility

Since the present practice by all the producers is to benchmark their prices with respect to landed prices of imported raw material, it will be difficult to suggest any steps towards restricting the price volatility. The individual manufacturer has to take company specific steps of hedging of prices with LME/MCX as well as hedging of foreign currency.

Are there any substitutions available for copper?

For electrical cables, the only substitution available for copper is aluminium and which can be used to a large extent by selecting the size of the cable with respect to the current carrying capacity of aluminium conductor. It is more useful for large sized underground power cables. But in signal/ instrumentation, data cables, internal wiring cables, this substitution cannot be done, due to the requirements of flexibility of conductor, less availability of space/conduits available for accommodating higher diameter of cables. Also copper can also be substituted to a large extent in tele-communication cable network by using optical fiber cables.

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Mr. KS Rao Chief Operating Officer – Telecom and Power Transmission Business

Sterlite Technologies Ltd

Trends in terms of raw material availability, prices, competition, quality etc

Metals – We have seen high volatility in base prices of metals such as Al and Cu, coupled with abnormally high premium levels. Availability of metal has not been a concern (barring Copper in the last few months) and deals have moved from fixed premium to index-linked variable premiums. Looking at the unpredictability, long-term deals on fixed premium are now considered risky. Barring a few stray instances, quality of metal has been consistently good.

Sheathing material prices have risen and remain unpredictable. Suppliers have been reluctant to enter to medium or long term fixed price deals, which is causing product pricing uncertainties. What we need is medium to long term fixed pricing arrangements.

Encouraging signals ahead

Aluminium regular premiums continue to be high and unsustainable, however, actions by LME to regulate quick retrieval of material from warehouses should help to reduce premium levels. Demand consolidation coupled with volume linked deals can provide some support and we see suppliers willing to discuss these arrangements now. Also, good spot deals are available – hence it is important not to tie up the entire requirement in long-term deals and keep quantities free for spot opportunities.

In sheathing materials, availability of lower cost but equally effective/ efficient solutions is a necessity and we are working actively towards developing these alternatives.

Steps to be taken for redemption from volatility

While there is index linked customer pricing (LME based) for Aluminium, it is not so for polymers. The industry should work together to develop such indices, which would take away the pricing uncertainty.

Are there any substitutions available for copper?

Aluminium alloys can be one viable alternative for copper and work is happening in this direction.

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Mr. Shripal Choudhari Managing Director

EMGEE Cables and Communication Ltd

Trends in terms of raw material availability, prices, competition, quality etc

It was always easier for the SME’s to work in controlled conditions. Now with such high volatility the small units are facing huge difficulties. They can neither stock nor play with MCX. Lot of units has burned their fingers at the commodity exchange. In my opinion the safest bet is to keep a pooled stock and refill daily. At EMGEE, we daily book orders upto 3 pm and buy the copper same day. In last several years we didn’t lost a single penny because of volatile market. Competition has not helped because of cartels made by all large manufacturers. Information through internet has definitely helped in knowing fair prices and varieties available across the globe. New products are now easily available to small units also.

Encouraging signals ahead

The only fear is that due to this volatility, small units will disappear and only the mighty ones will survive. This is not good for any country as contribution of SME’s is great in terms of direct and indirect employment.

Steps to be taken for redemption from volatility

Small units should pool their requirements and only that can create strength. A cluster approach will be of immense help.

Are there any substitutions available for copper?

Yes, for certain applications CCA or CCS is being used. Some more research is required for replacing copper from the flexible cable region.

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Mr. Rakesh Agarwal CEO

Leebo Metals Pvt Ltd

Trends in terms of raw material availability, prices, competition, quality etc

The availability of raw material was never the issue, until two major industries Sterlite & Hindalco (Birla Copper) stopped their supply for various reason. The important issue is price and unevenness in various government policies, taxation part is a concern.

Encouraging signals ahead

Yes, very soon both the producer will line up their production and start feeding the industry as usual unless any new unseen circumstances arises. Also we have lined up many new overseas vendors for raw material. Only one big constrain is SAD i.e. special additional duty applicable on imports. However the SAD is modvatable but what’s the point. Large part of our working capital is blocked in Part II due to this.

Steps to be taken for redemption from volatility

The first thing is to shut down the all hedging portal e.g. like MCX. This promotes high speculation in market since it is non-delivery base. Secondly allow all raw material imports duty free, and most important is to increase the duty on finish product imports.

Are there any substitutions available for copper?

No, there is no substitute of copper, it not only gives the best results in its usage but also adds value with time.

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Mr. DM Karandikar Sr. Vice President & Business Head

UM Cables Ltd

Trends in terms of raw material availability, prices, competition, quality etc

We are involved in both copper cable and optical fiber segments of the telecom cables sector. As far as raw material availability is concerned, copper, poly-aluminium film and poly-ethylene (HDPE/ LLDPE) required for manufacturing cables are available when required. However in last two years as per global swings in business environment, copper prices have moved between USD 9000 per MT to USD 6700 per MT. Add to it the rupee – dollar fluctuation which has seen the swings between Rs. 48 for a USD to now crossing Rs. 60 for a USD. The basic uncertainty in these rates forces one to be cautious in maintaining inventory. Big inventory may result in big losses or windfall gains which are not good for a long term approach of the business. As far as optical fiber cables are concerned, the fiber prices have not seen much variation and have remained between the bands of USD 7 to 8 per km. Hence the prices of these cables are comparatively steady.

As far as competition & quality is concerned UM Cables Ltd, a part of Usha Martin Group, being the company standing in the market based on good quality of cable supplied, we have a very satisfied customer base as they value our USP of reasonable rates, good quality, very quick delivery and trustworthy and transparent relationship. Competition makes us tough, helps us in innovating and developing new products and processes and keeps us gainfully occupied with smiles on our faces of delivering consistent results. We value competition as that keeps us going and trying something new every day.

Encouraging signals ahead

Telecom sector has been going through the rough patch after the episodes of 2G cases, very high prices paid by telecom companies for 3G auctions which will not see any returns for a long time, and general uncertainty due to policy swings seen in rules and regulations. As telecom companies were reluctant to do any new investment, domestic telecom cables sales were adversely affected. Various new projects such as NOFN by BBNL and NFS by BSNL will act to help energise the sector again.

Steps to be taken for redemption from volatility

Booking of exchange rates on imports, for sales costing and offering based on RM rates for both domestic and export sales will ensure the stability in approach. Over booking RM and then expecting windfall gains also has the other side of very high risks of getting wiped off due to changes in rates. Maintaining liquidity in business will only mark the difference between survivors and those who may have to shut the shop. That possibility is very real today.

Are there any substitutions available for copper?

Fiber cables have and will keep replacing copper cables for various reasons. Copper cables will continue to be used for last leg connectivity, and for maintaining the old networks.

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Mr. Dilip Kumar Director

SBEE Cables India Ltd

Trends in terms of raw material availability, prices, competition, quality etc

The availability of raw materials was a major concern as we just had few suppliers for basic raw materials such as copper, aluminum, PVC, steel etc. Today there are plenty of them available in the market, which give a manufacturer like us a wider scope. With regards to the pricing, today’s market is a buyer’s market and the buyer is much more educated than what they were about 10 years ago. Competition has grown multifold especially in wires & cables as every new entrepreneur who puts up a facility to manufacture wires & cables feels that this industry and segment is a very profiteering business. This thought would immediately change when the new entrepreneur faces cut throat competition, price cuts when competing with the giants in the industry who have already established themselves. Quality is one aspect, which is mostly forgotten at times and ignored by our people. Quality product comes at a cost/price and it certainly cannot be generalized. In the coming days, reliability, durability and long term functioning of a product will definitely make a huge difference. Most of us are not aware that “Cheap is never the cheapest”.

Encouraging signals ahead

Future is always encouraging as it allows us to do better than our present. With this volatility who will be the last person in the supply chain to get affected? The end consumer!!! Will they pay more for this volatility? We as a manufacturer are just buying for our present requirement and are not over stocking too much. Dollar is becoming stronger creating a sense of fear of loss among all the importers today. This is just a temporary phase and as nothing is permanent, even this phase has to end.

Steps to be taken for redemption from volatility

Buying when it is absolutely required. Not to trade during this time of high volatility as we will not know what it would result in, either a gain or a loss.

Are there any substitutions available for copper?

100% substitute is not available at present. But industry has started to go in for CCA (Copper Cladded Aluminium) in order to reduce the consumption of copper as well as cost. We do not know as this industry is very new to India and how far it will be successful. This technology is becoming increasingly popular in western countries. Like copper, we have aluminum also but it cannot be used extensively where copper is used.

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Mr. Nitesh Vaghasiya Managing Director

Ultracab (India) Pvt Ltd

Trends in terms of raw material availability, prices, competition, quality etc

After 2005, there has been high volatility in copper rates. Fluctuation of such a big scale is mainly due to copper MCX trading & market has not been able to gain stability due to this. Cable industry is mainly based on availability of stock and even further; to maintain dealer network in Indian market stock is the key. Due to instability in copper prices, manufacturers suffer very often.

Today, demand is less than supply available in the cable industry & hence competition has hold the bottleneck as pricing which ultimately affects the bottom of the pyramid, i.e. “manufacturer”. Said this, “quality” oriented organizations have retained their share & in fact have seen growth pattern in their balance sheet.

Encouraging signals ahead

For the better future of this Industry, top 10 industrialists from the fraternity should make a combine strategy to avoid price wars. Only because of these price wars, industry has lost its identity from quality driven market to price driven market, which is ultimately a loss to the end user. In my view, industry should have “quality” war than a price war which enhances the quality parameters of Indian cable manufacturers & put them into global map as “quality manufacturers”. I hope one day, global buyer prefers Indian manufacturers before European & American manufacturers.

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