Wednesday, March 24, 2021

Wood Mackenzie: "Will a lack of supply growth come back to bite the copper industry?"

From WoodMac, March 23:

With copper on the frontline of the energy transition and a mining super-cycle on the way, can the red metal meet the challenge of transformational demand? Julian Kettle, Senior Vice President, Vice Chair Metals and Mining asks whether a mismatch between the rhetoric and the reality of supply development could constrain copper market growth – and even slow the pace of the energy transition

Copper will play a pivotal role in the energy transition. Aluminium may be an abundant and cheap competitor for electrification applications, but carbon footprint issues for primary metal may give copper the edge. Ultimately that point is somewhat moot, as both will experience rapid growth in power generation, transmission, distribution, storage and motive uses. Put simply, the energy transition cannot happen without sufficient, timely and ESG-compliant copper and aluminium supply in place.

Under our base case scenario demand for primary copper is set to grow by an average of around 2% per year over the next 20 years. That represents an incremental rise of around 9 Mt over the period. Our Accelerated Energy Transition Scenario (AET-2), which limits the average global temperature increase to 2˚ C above 1990 levels, boosts copper demand growth to 3.5% per year. This scenario would double global primary demand by 2040, equivalent to an additional 10 Mt.

So, can copper keep pace with demand growth and claim its energy transition crown as ‘King Cobre’? Or will a lack of investment in supply development come back to bite the industry?

Rhetoric on supply development is no substitute for action

Grade decline and mine closures are an ongoing feature of the copper industry — without additional investment in supply this will lead to output declining.

Currently, we estimate the industry has committed around US$120 billion in capex to expand production to offset the impact of grade decline and depletions. Nonetheless, without additional substantial investment, production will decline from 2024 onwards. Coupled with demand growth, this decline in output will lead to a theoretical shortfall of around 16 Mt by 2040.

Plugging that gap requires an investment of in the region of an additional US$325 billion, which under our AET-2 scenario leaps to in excess of US$0.5 trillion. In short, the copper industry is just not investing enough to meet burgeoning requirements; it’s all well and good governments stimulating the demand side of the equation through policy, and miners talking up the same, but where is the investment in supply?

Obstacles to rapid supply growth

Developing mines is not getting any easier for a number of reasons:...


HT: the FT's Natural Resources Editor, Neil Hume.

"The World Will Need 10 Million Tons More Copper to Meet Demand"