STOP 1: ENGINEERING EXPORTS BODY

Value-addition norms eased

STOP 2: SCRAP COPPER IMPORTERS

STOP 3: INPUT PROVIDERS

STOP 4: COPPER MANUFACTURERS

NEW DELHI: Earlier this month, the government admitted to overstating export numbers for the first seven months of 2011-12 by $9 billion because of computation errors and said it would review the data. While it is rechecking, it may want to review the 2010-11 export numbers too. ET probed deeper into the astonishing 80% increase in engineering exports for that year, and found no explanation for the highest increase by category - 350% - in copper.In value terms, that is $6.3 billion - increase to $8.1 billion, from $1.8 billion - of unexplained copper exports. Higher copper prices don't fully explain it as that increase in 2010-11 was only 33%. So, ET went top-down and knocked on each of the four links in the copper chain, but neither data nor officials could justify this sharp rise. Not copper manufacturers, not makers of an essential input, not traders, not even the government.When we showed data on copper exports to Shakeel Ahmed, chairman and MD of Hindustan Copper, he said: "There has been some mis-reporting in data, knowingly or unknowingly."As per the commerce ministry website, 781,000 tonnes of refined copper was exported in 2010-11. But, asks Ahmed: "How could so much be exported when India's entire production that fiscal was an estimated 650,000 tonnes?"Emails and calls to Anup Pujari, the director-general of foreign trade, who heads the body that looks after trade policy formulation, went unanswered. An October 10 report by Kotak Institutional Equities that analysed overall export data alludes to the possibility of money laundering.Its authors, Sanjeev Prasad, Sunita Baldawa and Amit Kumar , write: "Given limited available data, we are cautious about drawing definitive conclusions...(but) some reports have alleged that some individuals may have been compelled to bring back funds through the 'official' route by over-invoicing exports or even resorting to fraudulent exports."To make sense of the copper export numbers, our first stop was the Engineering Exports Promotion Council (EEPC), a body set up by the ministry of commerce and industry to drive engineering exports.Suranjan Gupta, senior joint director, attributes the spike in copper exports to a policy change. In February 2010, the government increased the incentive for Indian copper refiners to import scrap copper, process it and export it.The government reduced the minimum value-addition requirement for copper cathodes (essentially sheets) and wires made from scrap copper to 8%, from 15% earlier. So, if an Indian refiner imported $100 of scrap copper, the earlier policy mandated a minimum finished-product price of $115 for it to be exported. This was now reduced to $108. Gupta says "it is likely" that Indian companies imported scrap copper in large quantities, converted it into sheet and wire, and exported those to China in a big way. China consumes about one-third of the world's copper production. According to Gupta, in 2010-11, China faced a 40% deficit in copper products.The same year, he adds, India's scrap copper imports increased by 161% and its exports of copper sheets to China rose 917%. Ruling out suggestions of over-invoicing, Gupta says: "We should be celebrating the role of our exporters rather than blaming them for over-invoicing." However, the ministry of commerce trade data for that period does not support Gupta's assertion. That data shows a 77% increase in imports of copper waste and scrap - to $625 million, from $352 million. Even at a minimum of 15% value addition, the older norm, $8 billion of exports seems far out.ET asked four active traders, based in Mumbai and Punjab, if there was a spike in scrap copper imports. "There is no surge in demand for scrap copper," says Suresh Mehta , director in Mumbai-based Asha Mercantile Private Limited. "In fact, it's only declining. I have stopped importing scrap copper, and others too are either importing at the same level or trying to opt out of copper."Traders, say Mehta, are struggling to cope with the spike in copper prices, which means they need more money to buy the same amount of copper. In the past five years, he says, the price of scrap copper has jumped from $2,200 per tonne to $7,300 per tonne. According to Mehta, in 2010-11, the rise in price of scrap copper was relatively muted - from 370 per kg in March 2010 to 450 per kg in March 2011.Another way to ascertain whether copper smelting in large numbers has occurred or not is to check the demand for borax, or boric acid. There are many ways in which copper can be smelted and using borax is one such. If the volume of copper smelting increased by more than 300%, the demand for borax should have increased too. There are two listed companies that sell boron products in India: Borax Moraji Limited and Indo-Borax & Chemicals Limited. There's no estimate in India for the market size of boron products, but two industry officials said these two were the largest.According to the annual report of Indo-Borax & Chemicals, "boron materials are not found in India. The basic inputs have to be essentially imported". Indo-Borax's revenues increased by 15% in 2010-11, while Borax Moraji posted a 6% rise. The annual reports of both the companies attribute the growth primarily to higher prices. Borax Moraji, which is the bigger of the two, registered a volume growth of 0.3%. Officials of both companies could not be reached for comments.Lastly, we asked producers if they produced more. Public sector undertaking Hindustan Copper has a monopoly in copper mining. However, its annual production of 3.6 million tonnes of iron ore meets about 4% of domestic requirement. With 1% copper content, it takes 100 tonnes of ore to make 1 tonne of finished copper.In other words, Hindustan Copper's 3.6 million tonnes of ore can produce 36,000 tonnes of finished metal - about 5% of 2010-11 production. Thus, copper refiners such as Sterlite Industries (India) and Hindalco - the two biggest - rely on copper imports to meet demand. It's not known how much ore or scrap copper they imported. However, numbers on their copper sales are available. Let alone a spike, these show a fall in production in 2010-11. Sterlite, India's largest producer, posted a 9% drop in production of copper cathode and a 5% fall in copper rods.