Micro, small and medium enterprises (MSMEs) in Coimbatore are struggling to make margins thanks to the volatility in copper prices. The majority of the 50,000 MSMEs located in the manufacturing hub have reported that a pronounced spike in input costs has dried up funds, which in turn has seriously impaired expansion and capital-expenditure prospects of these companies.

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The crisis has impacted companies that manufacture motor, pump and wires, the most. “Earlier, if you take a small motor, out of the total cost of the motor, the copper content will be somewhere around less than 20 percent,” said Muthuraj Raveendran, President, Coimbatore Compressor Industries Association, adding, “Now, because of the price-rise, the copper content in a small motor is 33 percent. So, one-third of the motor's cost is the copper.”

Almost half the output caters to motor and compressor manufacturers, who in turn supply parts for automobiles, air conditioners, washing machines, microwaves, refrigerators, and more. But copper prices have risen pretty sharply in the last few months.

‘COVID loans used to buy copper’

On the MCX, copper prices have surged from Rs 540 per kg in November 2020, to a high of Rs 722 per kilogram in February 2021. This spike has hit margins for these small units hard.

According to estimates by the Tamil Nadu industries department, Coimbatore’s manufacturing MSMEs consume nearly 1,800 tons of copper every year, to make a range of products from coils, tubes and plates.

For an industry that was already struggling to get back on its feet after being knocked down by the lockdown and poor economic conditions of 2020, the situation is dire. Many units say that they have had to redirect a large percentage of the capital they secured through COVID-19 loans towards procuring copper at higher prices.

“The government gave us COVID loans… but all our loans, because of raw material prices, have gone to meet the price rise,” said Raveendran. “Actually, we were planning to use that amount in some development and expansion activities, but all these funds given as COVID loans have been wiped out.”

‘Sterlite Copper shutdown has worsened the situation’

Many say that the situation may not have been so difficult if Vedanta's Sterlite Copper smelter in Tuticorin had not been shut three years ago due to widespread agitation over allegations of pollution. The closure of Tamil Nadu's primary copper smelter has meant that India has turned a net importer of copper for the first time in 18 years.

"When Sterlite used to be there, the prices were stable. Today, domestic production is hugely hit,” said G Krithiha, Director, Sriram Air Compressors. “With many of us exporting to other countries, the copper shortage and volatility in pricing has affected the industry in a large way," said Krithiha.

The problem is that the costing for many of the orders these units are trying to fulfil, were worked out keeping prevailing copper prices in mind, and the sharp spike in copper prices has blindsided many.

Manufacturers say they have two options now: either wait for prices to fall and convince clients to settle for delayed orders, or rewrite job cards and rework estimates based on present-day copper prices. However, given the pent-up demand following COVID-19 slowdown, both options come with their own share of difficulties.

First Published:Mar 23, 2021 10:04 AM IST