Adani’s giant copper smelter caught up in global ore shortage

Competitor Hindalco Industries Ltd. bought a little over 1 million tons during the same period

Indian tycoon Gautam Adani’s $1.2 billion copper smelter in Gujarat is receiving only a fraction of the ore required to operate the 500,000-ton-a-year plant at full capacity, as a global supply squeeze tightens.

Kutch Copper Ltd., which began processing metal in June after multiple delays, has brought in less than a 10th of the raw material required, according to customs data. In the 10 months to October, it imported about 147,000 tons of copper concentrate. Competitor Hindalco Industries Ltd. bought a little over 1 million tons during the same period, according to the data compiled by Bloomberg.

The smelter requires about 1.6 million tons of concentrate to function at full strength, Bloomberg reported earlier.

Questions sent to the Adani group did not elicit a response.

Supply for copper smelters everywhere has been hit by a wave of mine disruptions this year, including at major producers like Freeport-McMoRan Inc., Hudbay Minerals Inc., Ivanhoe Mines Ltd., and Chile’s state-owned giant Codelco. Adding to that squeeze, China’s relentless expansion of its own smelting capacity has battered profit margins and pushed some producers outside the country to cut output or shut down.

As a result, treatment and refining charges — the fees miners pay for processing — have hit a record low this year, indicating smelters are willing to accept ever-tighter margins to secure material.

For new entrants such as Kutch Copper, which plans to double annual capacity to 1 million tons in four years, tight supply means higher expenses to maintain the facility, plus an even longer ramp-up process.

“Adani’s smelter is new and so should be more efficient than many competitors, so in the short term the smelter could ramp up at a loss,” Bloomberg Intelligence analyst Grant Sporre said, adding India could also introduce higher tariffs to protect its industries. That would mean accepting “short-term pain for a longer term gain,” he said.

BHP Group has supplied 4,700 tons to the smelter, while other shipments came from Glencore Plc and Hudbay, customs data show.

Kutch Copper’s slow start is a reminder of the hurdles facing India’s efforts to increase its metals self-reliance. Surging demand from infrastructure, power and construction sectors far outpaces constrained processing capacity and limited domestic ore reserves.