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Copper shortfall’s ‘dramatic impact’ on energy transition drives search for answers
The global clean energy transition is moving at full speed, with the electrification of energy generation happening quicker than expected as governments fast-track regulatory support for green power sources in response to the energy crisis.
As demand is rising for greentech such as electric vehicles (EVs), solar panels and transmission cables, so is the need for the copper that conducts the electricity powering the energy transition. The historical metal has traditionally been used for building engines, roofing or industrial machinery. The electrification of the energy sector in the name of reducing carbon emissions is giving a second life to the copper market.
Renewable energy plants require on average 8–12 times more copper than fossil-based forms of power generation and EVs 3–4 times more than an internal combustion engine vehicle. Analysts at S&P Global expect copper demand to double to 50 million metric tonnes by 2035. This prospective demand boom has turned the red metal into a red-hot investment case. Analysts at SEB Commodities forecast copper prices could rise as high as $11,000 per tonne by 2024, up from around $8,400 per tonne currently.
But where commodity prices are set to climb, the market often expects a severe supply crunch, and copper is no exception. The current outlook for copper supply over the coming years falls well short of demand because capital-intensive copper mines typically require more than a decade to develop, and relatively low commodity prices have disincentivised investments over the past years. Commodity marketer Glencore sees a cumulative copper shortfall of 50.5 million tonnes between now and 2030 on the back of record-high demand.
‘Quite frankly, this shortfall will have a dramatic impact on our ability to make the infrastructure needed for the energy transition – such as wind turbines, EVs and charging stations’, says Kate Southwell, General Counsel at Pala Investments, an investment company focused on raw materials needed to decarbonise. ‘Copper cannot be easily substituted in these uses so it is highly likely to see cost increases that will ultimately be borne by consumers and OEMs [original equipment manufacturers].’
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Mining companies are again looking enthusiastically for copper projects with a new perspective
Vice-Chair, IBA Energy, Environment, Natural Resources and Infrastructure Law Section
Since the severe pinch of the financial crisis beginning in 2008, many mining companies have focused their investments on short-term profits to maximise returns for their shareholders. Since copper prices have been comparatively low, and building new mines requires billions of dollars of upfront investments, mining copper has not been a priority, with the exception of a couple of boom years around the early 2010s.
Additionally, some of the world’s largest copper producers, including Peru and Chile, have seen social and political unrest that have caused miners to shy away from signing large investment checks in these environments. ‘Although Peruvian copper production will remain high in 2023, this will also depend on the quantity of social conflicts that may arise in the mining sector […] We are a country whose strength is the production of raw materials such as copper; however, social conflicts and environmental aspects are other issues that obstruct the path’, says Licy Benzaquén, a partner at Estudio Olaechea, a Peruvian law firm.
How can the mining and energy industries address the supply shortfall to prevent it from derailing the clean energy transition? The answer lies in a mixture of measures that can be taken on all sides. The obvious solution for the miners is to ramp up copper production as quickly as possible. As the copper price is rising, investors are seeing extra incentive to focus on copper mining in their search for long-term profits. ‘What was previously a price ceiling is now a price floor which makes copper an enticing investment’, says Nolan Peterson, Chief Executive Officer of Toronto-listed miner World Copper, which is developing copper mines in Chile.
Mining companies also have a substantial lever to pull when it comes to efficiency gains at operating mines. Miner Anglo American, for example, has fully digitalised and automated its recently opened Quellaveco mine in Peru, allowing production hiccups to be more efficiently prevented. Its coarse particle recovery technology, for example, has improved the way the company grinds larger material and has already led to a 15–20 per cent increase in throughput and a 20 per cent reduction in energy use at a different copper mine in Chile.
‘Mining companies are again looking enthusiastically for copper projects with a new perspective. Projects which were not attractive in the past have become now feasible and worth assessing’, says Florencia Heredia, Vice-Chair of the IBA Energy, Environment, Natural Resources and Infrastructure Law Section and Head of the Energy and Natural Resources Practice at Argentine law firm Allende & Brea.
A largely untapped solution involves the recycling of existing copper material. The metal is 100 per cent and infinitely recyclable without any loss to its chemical or material properties, making it an excellent resource for sustainable reuse. The International Copper Association estimates that the world’s urban waste skips contain as much copper as can be produced in mines over 33 years, while the International Energy Agency has calculated that if 85 per cent of copper used in old electricity grid infrastructure was recycled, the world would reduce new copper needs by nine million tonnes in 2040.
Finally, end users of copper can find an alternative in aluminium, especially for overhead electricity transmission lines, where the lighter metal can provide significant efficiencies. Aluminium was a popular alternative for copper in post-war European economies where the reconstruction boom caused copper prices to spike sixfold into the 1960s. However, aluminium only has around 60 per cent of the conductivity of copper, meaning its wires need to be thicker and better insulated to fulfil the same role as the copper alternatives.
Overall, the copper shortfall poses a problem for electrification investors as the supply crunch will swell costs and route supplies to regions with the highest purchasing power. But both the mining and the energy industries have options to mitigate the impact and will need to remain creative in applying all possible alternatives.
‘What will happen is that the price of copper will increase until new investments start to flow into the industry and new mines are opened. However, this will take time and in the meantime the energy transition will suffer’, said Anton Löf, an independent consultant to the mining sector and founder of RMG Consulting.
Image credit: Close-up of an open-pit copper mine in Peru. Jose Luis Stephens/AdoobeStock.com