Copper, a vital ingredient in the electrification drive, faces a looming supply crunch as demand surges towards a 75% increase by 2050, reaching 56 million tonnes. While new mines are being built, the International Energy Agency warns that they will only meet 80% of copper needs by 2030. However, the true bottleneck lies not just in mining but also in downstream processing, a sector dominated by China.
China's Copper Colossus
China's dominance in copper smelting and refining is staggering. It accounts for 97% of global capacity, contributing over 3 million tonnes of production and $25 billion in investment. Its vast fabrication capacity, with over half of the world's wire rod production, makes it a key player in the supply chain.
This dominance is a result of strategic investment and stringent environmental standards, allowing Chinese smelters to become highly competitive. In contrast, smelters outside China face higher operating costs and lower utilisation, despite efforts like the US's Inflation Reduction Act.
A World Without China?
Without China, whose domestic copper demand accounts for 50% of the global total, the world would need significantly more processing capacity to meet energy transition targets. WoodMac estimates an additional 8.6 million tonnes of copper demand outside China over the next decade, requiring an additional 70% of smelter and 55% of fabricator capacity.
To compensate for China's absence, almost $85 billion in new smelting and refining infrastructure would be needed. However, the lack of significant capacity growth outside China over the last two decades raises concerns about the feasibility of such a shift.
Compromise and Pragmatism
While some rebalancing is occurring, China's grip on the copper supply chain makes complete decoupling unrealistic. The introduction of new processing facilities outside China may lead to higher costs and delays in the energy transition, further hindered by environmental and social resistance to new smelter projects, particularly in Europe.
To achieve net zero goals, a pragmatic approach is essential. A complete break from China would likely result in a significantly more expensive and slower energy transition.
WoodMac's report highlights the crucial role of China in the global copper supply chain and the challenges faced by the rest of the world in achieving a sustainable energy transition without it. The report calls for a collaborative approach, acknowledging the need for both China's continued participation and the development of alternative processing facilities to ensure a secure and timely copper supply for the global energy transition.
