Demands of Clean Energy Placing Copper Supplies Under Strain

Mining
With the move to clean energy set to drive demand for copper over the coming decades, the question is whether copper miners can keep up.

More than any other mineral or metal, copper is seen as being a barometer of the world economy. It is a key component in the construction of buildings, bridges, and other infrastructure projects, which is why an increase in copper prices can have a ripple effect on the broader economy. 

Similarly, a fall in the demand for copper can signify economic slowdown.

For example Chile  – the world’s largest producer of copper, outputting 27% of global supply – saw a year-on-year fall of 7% in copper production in 2023. This was partly because of China’s property crash. But this China-prompted dip in copper demand does not come close to telling the whole story. Last year saw a global copper deficit, and analysts predict the shortfall could potentially extend throughout the rest of the decade.

The world’s copper shortage is being fuelled by increasingly challenging supply streams in South America. Peru, the world's second-largest copper producer, has been hit by social unrest. Meanwhile, Panama’s biggest copper mine (First Quantum Mine) is in a dispute with the government over taxes. Chile’s fall-off in copper production – the China property crash notwithstanding – was also explained by lower ore grades, water shortages and delays to major investment projects.

But the copper shortfall is mainly a demand-driven issue, and it is this that is driving price pressures.

As the world continues to shift towards sustainable energy sources the demand for copper – such a vital component in electrical systems – is soaring. 

Copper’s role in global electric vehicle (EV) production is particularly vital here. An EV requires more than three times the amount of copper than is used in an internal combustion engine, while buses require at least ten times as much. 

A total of 1.9 million new EVs were registered in 2023, a 17.9% increase on 2022, according to the International Energy Agency. That means the EV-charging ecosystem will also have to be ramped up – which will require a great deal of copper.

Then there’s the development of power grids in China and India. Together, these countries account for almost half the world’s population, and this is also a strong driver of the demand for copper. 

The copper problem is compounded by other factors, including sustained underinvestment in the sector, a paucity of new discoveries and shutdowns.

Analysts have been predicting a profound copper supply deficit for years, but this has been slower to materialise than many predicted. This is partly explained by global inflationary pressures, which has slowed growth and with it, the demand for copper.

But with global inflation set to fall throughout 2024, the economic brakes will be released, and demand for copper will skyrocket.

But how will the copper industry meet such demand. It will not be easy.

China is expected to contribute around 50% of the refined global copper production in 2024. China’s annual copper smelting capacity is about 8.8 million tonnes. A near-30% expansion of 2.4 million tonnes is set for completion by 2026, according to data from Antaike. 

Much of this copper is needed by the country’s huge EV manufacturing market  – the China-based BYD is now the world’s largest EV car maker – but it is a similar story in the US, with Tesla, and in Germany, with BMW, VW and Mercedes.

So where is all the extra copper the world needs going to come from?

According to the International Copper Association, one tonne of copper brings functionality to 40 cars, powers 100,000 mobile phones, enables operations in 400 computers and distributes electricity to 30 homes.

But copper production cannot simply be cranked up to meet soaring demand. Any new copper mine that came online within the past three years had an average lead time of 23 years from discovery to production.

“There’s a longer-term issue around the supply of copper in the energy transition industry, because the growth in both the automotive and transmission is going to be huge,” says Robin Griffin, Metals & Mining Research VP at Wood Mackenzie, a provider of data and analytics for the energy transition. 

“We’re already forecasting major deficits in copper up to 2030,” he added. “Anytime there’s political unrest it has a whole range of effects, and the obvious one is the potential for mining sites to have to close.” 

There are at least some encouraging signs, with copper mining companies worldwide forging partnerships to bring down costs and boost output. 

For example, in Chile the state-owned copper-mining giant Codelco – the world’s largest producer of copper – is exploring partnerships with the private sector, as it seeks to recover from a production slump and surging debt.

Codelco Chairman Maximo Pacheco told investors he expects “some conclusions” this year around talks for an operational tie-up between its Andina mine and Anglo American adjoining Los Bronces mine. The deal would see the companies tap rich ore sitting between the two mines, as well as sharing processing plants.

For Codelco, squeezing more out of existing operations – as well as  sharing risk and investments – has real appeal, given that production levels are at the lowest levels for 25 years.

“New projects and new partnerships are part of the essence of what we do in Codelco,” Pacheco told Bloomberg. “We have tremendous opportunities that we can develop jointly.”

If copper supply is to meet ongoing demand then the copper mining industry will need to forge many such partnerships, as well as looking to bring new mines online wherever possible.

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Robin Griffin

Metals & Mining Research VP at Wood Mackenzie

Mining analytics

Griffin has spent 16 years at Wood Mackenzie, before which he was a Senior Consultant in Australia with Barlow Jonker, a mining company.

Robin Griffin

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