Bypassing China in Copper Supply Chain 'Will Cost $85bn'

A major new report says that countries seeking to reposition critical minerals supply chains outside China is causing inefficiencies that are likely to increase the cost of finished goods and delay the energy transition.

The report, from energy transition specialist Wood Mackenzie suggests that shifting away from China will require massive investments in new copper processing-and-fabrication facilities.

Demand for copper is expected to rise by 75%, to 56 million tonnes (Mt) by 2050, it points out, adding that this will “necessitate substantial investment”.

“A scenario without China for the copper supply chain would require a substantial increase in processing capacity to meet energy transition targets,” says Nick Pickens, Research Director, Global Mining at Wood Mackenzie. “The world cannot achieve decarbonisation without copper, which is a crucial component in electrification. Currently China dominates copper mining, smelting and refining and semi-manufacturing.” 

The report – Securing copper supply: no China, no energy transition –  says that replacing China’s smelting and refining capability alone to meet the rest of the world's demand will require nearly US$85bn.

Pickens adds: “Based on our projections, there will be an additional 8.6 Mt of copper demand outside China over the next decade. This demand represents 70% of smelter capability and 55% of fabricator capacity in the rest of the world. As governments and manufacturers aim to diversify away from China, it is crucial to consider the entire supply chain, not just mining operations.”

The report says the global copper supply chain is a complex system comprising four key stages: mining, smelting and refining, semi-fabricating, and manufacturing of finished goods. 

Copper, it adds, flows from raw material extraction in the Americas and Africa to downstream processing and manufacturing, predominantly in China, whose substantial investments in downstream processing and semi-manufacturing sectors “present significant challenges to global copper supply security”.

The report states that, since 2000, China has accounted for 75% of global smelter capacity growth and currently controls 97% of global smelting and refining capacity, contributing over 3Mt of production and nearly US$25 billion in investment. 

It adds that China has also added nearly 11 Mt of copper and alloy capacity since 2019, representing around 80% of global additions. Approximately two-thirds of these facilities, it says, produce wire rods, giving China half of the world’s fabrication capacity, with further expansion underway.

“China's copper smelting industry has undergone significant evolution,” sas Zhifei Liu, Managing Consultant, Copper Markets at Wood Mackenzie. “In the 2000s, a drive for stricter environmental and efficiency standards led to the modernisation of smelting capabilities.

“Today, Chinese smelters are low cost and meet high environmental standards, particularly in sulphur dioxide capture, making them highly competitive.”

Pickens, meanwhile, adds that semi-fabricators outside of China, especially those in Europe, are “facing challenges due to lower utilisation and higher operating costs”. 

He adds that tegulations on carbon emissions, like the European Union’s Carbon Border Adjustment Mechanism, could “reduce competitiveness by imposing higher taxes on the European copper industry without providing equivalent benefits”. 

He continues: “Additionally, US government incentives such as the Inflation Reduction Act may not ensure the long-term sustainability of the industry.”

Copper smelting landscape 'shifting'

The report also highlights significant shifts in the global copper smelting landscape, with new facilities set to come online this year outside China. India, it says, is launching a custom smelter, Indonesia is adding two integrated smelters, and adds that a new smelter in the Democratic Republic of the Congo is “expected to be completed by 2025, primarily driven by Chinese investment”. 

According to Wood Mackenzie, these additions will add 1.6 Mt to global smelting capacity, the largest increase outside China in decades.

However, the report says there are “no plans for new primary smelting capacities in North America or Europe”, but that instead, the US is “focusing on the secondary market and scrap copper, including establishing its first secondary smelter for complex materials in Georgia”.

“While copper supply risks can be mitigated and some rebalancing has begun in various countries, the scale of China’s dominance in the supply chain means complete replacement is unfeasible,” said Pickens. “The introduction of new processing and fabrication facilities may result in higher costs and delays in the energy transition.”

He adds: “Financing these investments presents additional hurdles, with resistance to new smelter projects on environmental and social grounds particularly strong in Europe. Pragmatism and compromise will be essential to achieve net zero goals without imposing excessive costs on taxpayers. Easing global trade restrictions could be one necessary concession.”