Copper is essential to the energy transition.The world is lagging behind producing enough

  • Demand for copper could nearly double by 2035, and mining companies are struggling to keep up.
  • Copper’s role in the energy transition has led to bullish bets on copper, but at the same time multiple political and market forces are making moves that could destroy demand.
  • The current shortage and mixed outlook for miners, including Freeport-McMoRan and Rio Tinto, will not only hinder the growth of clean energy, but also reduce the ability to reach net zero by 2050, the benchmark to prevent climate catastrophe. There is also a risk that emissions targets will not be achieved.

A worker in a heat-resistant protective suit supervises the liquid copper mold production line at the KGHM Polska Miec SA smelter plant in Glogow, Poland, Tuesday, March 9, 2021.

Bloomberg | Bloomberg | Getty Images

Dr. Copper, the nickname for the ubiquitous red metal that has historically been the heartbeat of the world’s economy, is currently busy diagnosing the health of the transition to clean energy. Naturally conductive, copper is one of the key minerals, along with lithium, cobalt and nickel, in the production of electric vehicles, EV batteries, solar panels, wind turbines and the power grids that connect renewable energy to homes and businesses. . However, the outlook for the industry’s ability to supply enough copper to meet rapidly growing demand is less positive.

A recent report by S&P Global, Wood Mackenzie, the International Energy Agency and other researchers says demand for copper could nearly double by 2035, but mining companies are struggling to keep up. I conclude. This shortfall not only hinders clean energy growth, but also threatens to miss the goal of net-zero emissions by 2050, a benchmark for preventing climate catastrophe. Solutions to this problem include improving existing mining operations, developing new extraction techniques, and increasing recycling efforts.

At the same time, copper reserves are finite, so the industry “needs to continue to invest and make decisions.” [new] “We need mining projects to accommodate future growth,” said Nick Pickens, global mining research director at Wood Mackenzie. “Regardless, we don’t see that speed.”sanctions [of new projects] We need to fill that supply gap,” he said.

Meanwhile, copper customers are delaying clean energy projects and reducing their need for copper in anticipation of shortages, an economic principle known as demand destruction. For example, the growth of offshore wind projects has slowed due to high costs of copper-containing materials and supply chain bottlenecks. Engineering innovations have allowed Tesla and other EV manufacturers to reduce the amount of copper in their vehicles and batteries.

Politics may also be playing a role in destroying demand for copper. A group of conservative organizations led by the Heritage Foundation created Project 2025 in anticipation of a Republican victory in the 2024 presidential election. Project 2025 would, among other things, dismantle most of the clean energy projects initiated by the Biden administration. And on September 20, British Chancellor Rishi Sunak cut many of the UK’s pledges to mitigate climate change, including extending the ban on the sale of new cars powered by petrol or diesel from 2030 to 2035. This has influenced the auto industry’s heavy investment in EVs.

A “significant” shortage in copper production and a new era of demand

Richard Adkerson joined Phoenix-based Freeport-McMoRan, one of the world’s largest copper mining companies, in 1989 and became CEO 20 years ago. During that time, he has witnessed the ups and downs of the global economy and the cyclical nature of copper. “Copper was the commodity most closely correlated with industrial production,” he said. “When the business cycle improves, copper inventories decline and prices rise. The existence of the resource becomes known, investment occurs, inventories increase, and prices fall.”

When Mr. Adkerson took over the reins of Freeport, China was emerging as an industrial powerhouse and by far the largest consumer of copper for its burgeoning solar, wind, and electric vehicle industries. “It adds a whole new dimension of demand that didn’t exist before,” he said. . At that point, the consensus was that there would be a major reaction to copper supplies. Rather, what Adkerson discovered was that “the resources simply didn’t exist,” he says. “It’s amazing how little copper is being developed.” [globally] Over the past 20 years. ”

This ushered in a whole new era of copper demand for the industry, Adkerson said. While China’s economy is slowing, the United States and European countries are working to transition to clean energy. Next, on the supply side, investment in mining projects is sluggish due to inflation, rising interest rates, the situation in China, and geopolitical turmoil. “This is ultimately leading to a view that I share with others of impending scarcity,” Adkerson said.

Freeport security personnel tour Freeport-McMoRan’s Grasberg mine facility, one of the world’s largest gold and copper mines, located in eastern Papua province, Indonesia. Freeport’s Indonesia operations reported producing an annual record 3 million tonnes of copper concentrate in 2022.

AFP | AFP | Getty Images

A key driver of copper supply is the long lead time for the establishment of new mining projects, an inherent reality of mining companies’ investment strategies. “Mining is a long-term business,” Rio Tinto Copper Chief Operating Officer Clayton Walker said in an email. “It can take decades to bring a new greenfield project online.” I wrote that I achieved production.

Barclays mining analyst Matt Murphy said planning for such long lag times was all about copper miners de-risking their balance sheets. “They want to optimize their capital spending schedules to avoid a pinch point where they spend far more than their operating cash flow and become too leveraged.”

For outside investors looking for short-term profits, that period could last forever. “If a company says it’s going to build a project, some investors may avoid investing until the project is de-risked,” Murphy said. “I think that’s why money isn’t flowing into new supply.”

How metal miners plan for the future

Meanwhile, to meet current and projected copper demand, companies are focused on maximizing the use of existing assets, namely brownfield assets. Walker pointed to recently announced investments totaling nearly $1 billion to expand underground mining, rebuild smelters and improve smelters at Rio Tinto Kennecott Copper Operations near Salt Lake City, Utah. . Kennecott’s 120-year-old operation supplies about 12% of the nation’s copper needs.

Rio Tinto, Freeport and other mining companies are also working on a technique known as leaching, which could recover copper from low-grade sulfide deposits that may not have been commercially viable in the past. It will look like this. “Leach requires very limited capital, has low operating costs, has no carbon emissions and generally requires no permits, all of which are important parts of conventional mining,” Adkerson said.

Another supply-side innovation is operational automation and electrification. Beyond the initial capital investment, this will reduce the cost of skilled labor, improve safety and efficiency, and enable miners to meet their own net-zero goals. Freeport is bringing robotics to Indonesia’s Grasberg underground mine and working with Caterpillar to develop a giant battery-electric haul truck. This is part of Caterpillar’s ambitious plans to eventually put self-driving industrial vehicles on the moon. Rio Tinto is testing electric trucks and trucks powered by renewable diesel at its Kennecott facility.

Recycling of copper scrap from used products is also important. According to the International Copper Association, recycled copper accounted for about 32% of copper demand over the past decade. Coincidentally, that number is expected to increase further as clean energy components such as EV batteries, solar panels and wind turbines reach the end of their lives and end up being recycled rather than sent to landfills. “Copper can be reused indefinitely without losing its conductivity,” Pickens says. “Our forecast is that the proportion of scrap use will increase to 45-50% of total waste in the long term. [copper] market. “

Even if the predictions come true and mining companies struggle to meet near-term demand for copper, the transition to clean energy is inevitable, as is the critical demand for copper. “We predict that more than 25% of copper consumption in 2050 will likely come from additional demand associated with the transition to net zero,” Walker said.

Mr. Pickens agreed with that opinion. “Copper plays a huge role in the energy transition,” he said. “We need it. It’s always going to be there, and it has a great story. Fundamentally, copper is what we need to power the future.”

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