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China must be part of the solution, suggests Wood Mackenzie

 

By  Carly Fields

 

As the world races towards a decarbonised future, copper - a key component of electrification - is in high demand. As the demand for copper surges, securing a reliable supply and the trade to support that has become a top priority for governments and industries alike. However, a report from Wood Mackenzie warns that achieving this goal may be more complex than simply investing in new mines.

"The world cannot decarbonise without copper," said the report’s authors. "Amid efforts to secure minerals for the energy transition and achieve climate goals, demand is set to surge. We estimate that demand for copper will grow by 75% to 56 million tonnes by 2050."

Meeting this soaring demand will require significant investment in new mining capacity. But while the scale of the investment needed in new mine supply is well understood, the implications for the downstream processing (smelting and refining) and semi-manufacturing of copper are often overlooked. Currently, China dominates both of these sectors.

"The scale of China’s dominance in the copper supply chain means it cannot be fully replaced," said the report. 

For the copper market to remain effective and deliver on the world's requirements, key stakeholders need to chart a realistic course that involves China

Supply questions

The report highlights the dual goals of decarbonisation and reducing dependence on metals supply from China, which are often at odds. Governments and manufacturers that seek to diversify away from China need to consider the entire supply chain, not just mining. Hundreds of billions of dollars in new copper processing and fabrication capacity would be required to replace China, which would create inefficiencies that would result in significantly higher-priced finished goods and increase the cost and timeliness of the energy transition.

"For the copper market to remain effective and deliver on the world's requirements, key stakeholders need to chart a realistic course that involves China," said the report. "[While] supply risk can be mitigated, and a certain amount of rebalancing has already begun in some countries … the scale of China's dominance in the copper supply chain means it cannot be fully replaced."

The WoodMac report also emphasises that the copper supply chain is a complex, global system comprising trade in both raw materials and semi-fabricated products. Geographically, the net flow of copper units is between raw-material extraction in the Americas and Africa and downstream processing and manufacturing largely in China.

The value chain for primary supply can be broken down into four key stages: mining, smelting/refining, semi-fabricating, and the end-use manufacturing of finished goods. Each stage involves different types of company and there is limited vertical integration.

"Mining isn't the only issue," said the report. "The world, excluding China, currently has more primary mine supply than it needs to meet its requirements. China's domestic supply accounts for just 8% of global mine output, but its share rises closer to 20% when we include Chinese mining assets overseas. This is still way short of its needs."

Unless there is a seismic shift in the rate and efficiency at which the rest of the world deploys capital and operates, decoupling from China completely will mean a more expensive and much slower energy transition

Downstream interest

As with many other critical metals and minerals, it is China's overwhelming investment in the downstream processing and semi-manufacturing sectors that presents the biggest challenge to the supply security agenda. These are the sectors that the rest of the world will struggle to dissociate from and, for copper, the risks least discussed in the mineral security debate.

The report concludes that while the need to secure minerals for the energy transition and meet climate targets is a global priority, protectionist measures to secure raw materials for geopolitical reasons ignore the complexities and current efficiencies of copper market supply chains. Developing more and potentially higher-cost capacity swims against the tide of market economics, and the investment required to change the trade flows is huge.

Unless there is a seismic shift in the rate and efficiency at which the rest of the world deploys capital and operates, decoupling from China completely will mean a more expensive and much slower energy transition.

Moreover, the report highlights the potential consequences of a complete decoupling from China on global economic stability. Copper is a crucial commodity for various industries, and disruptions to its supply chain could have far-reaching implications for manufacturing, transportation, and other sectors. A sudden shift in the global copper market could lead to price volatility, supply shortages, and potential economic downturns.

The report also emphasises the importance of collaboration and international co-operation in addressing the challenges of securing copper supply. Governments, industries, and international organisations must work together to develop sustainable and resilient supply chains, invest in research and development, and promote responsible mining practices.

While decoupling from China may be a tempting option for some, the reality is that it is a daunting and potentially costly endeavour. A more pragmatic approach that recognises the importance of China's role in the global copper market is likely to be necessary to achieve a sustainable and equitable transition to a decarbonised future.

The report raises concerns about the potential for geopolitical tensions to exacerbate the challenges of securing copper supply. As countries compete for access to critical minerals, there is a risk of trade disputes, sanctions, and other measures that could disrupt global supply chains.