Can the West afford to build its own copper industry?

Copper, the key transition metal, hit $11,000 a tonne a few months ago. Goldman Sachs estimated it could rise to $12,000 as electrification really takes off because there aren’t enough copper mines.

However, the lack of mining capacity is only a problem for the transition. The other, at least in what is commonly referred to as the collective West, is copper processing capacity. Most of it is in China. Without it, the transition will falter and eventually collapse.

“No China, no transition,” Wood Mackenzie said in one tone new report on the global state of copper. The consultancy predicts a 75% increase in global metal demand by 2050, which would naturally require an increase in mining investment. It would also require a boost in refining investment – ​​outside of China. And that will cost about $85 billion, according to Wood Mac.

That China dominates virtually every aspect of the transition industrial complex is not news. The country is the largest producer of solar energy and wind turbines. It is the largest market – and producer – of electric cars. It has the largest rare earth refining capacity in the world. China it is the transition, in a way. And the rest of the world was happy to outsource its heavy industries to China until recently. Now the West has realized that it might be a good idea to be more self-sufficient and less dependent on others when it comes to so-called critical industries, especially if you have some geopolitical differences with those others.

The problem is that the West is about two decades late to the transition party. Building a copper refining industry from scratch would require time, money and resources that the governments of Europe, the US, Canada and Australia simply do not have, especially money.

“Governments and manufacturers seeking to diversify outside of China need to consider the entire supply chain, not just mining,” Wood Mac analysts wrote. “Hundreds of billions of dollars in new copper processing and manufacturing capacity would be needed to replace China.” That might sound like a sacrifice worth making, but, the analysts continued, “This would create inefficiencies that would lead to significantly higher-priced finished products and increase the cost and opportunity of the energy transition.”

Western governments in the service of the energy transition thus have a double whammy, neither side of which is easy to solve, if at all. First, they need more copper mines wherever they can be built — preferably in jurisdictions not already in the Chinese sphere of influence, which has grown over the past two decades through infrastructure investment and mining investment. China’s share of world copper mining production is a fifth of the total, thanks to its overseas mining assets.

At the same time, transitional governments in the West need more copper refining capacity, but it has to be cheap to make sense. Otherwise, the transition will die a natural death due to exorbitant costs that no population can absorb, at least not willingly or easily. However, this capacity building cannot be cheap because Germany, for example, is not China, and neither is Canada: the costs are higher and it would be very difficult to bring them down to par with Chinese costs in the last 20 years or so. After all, because of higher costs, new copper refining capacity outside of China remained essentially unchanged, according to Wood Mac.

This is beginning to change, the consultancy said, but the changes are not happening in the West. Wood Mac reported that three new copper smelters are due to come online this year, one in India and two in Indonesia. Another copper smelter is being built in the Democratic Republic of Congo, with Chinese money. No new copper smelting capacity is being built in Europe or North America.

The situation is as clear as can be, though quite unpleasant for those who assumed that governments could simply regulate their countries in an energy transition. Without copper, there is no transition. Everything in transition needs copper because everything in transition depends on electricity, and most electricity flows along copper wire.

Solar panels need copper cables to connect to their inverters and from there to the grid. Wind turbines need copper cables for the same reason. EVs need copper for their electric motors. The list goes on and it is a long one. The world would need enormous quantities of copper, which, while theoretically availableI’m not actually available.

So it seems that transitional governments in the West are at a crossroads. They can either absorb and work with China, which may require some geopolitical adjustments, or they can go it alone, bearing the massive investment in new processing capacity, the equally massive investment in new mines, provided there are miners willing to share the load , and taking the risk of making a mistake that is too expensive for everyone.

By Irina Slav for Oilprice.com

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