The world’s largest copper miners predict closer collaboration with end users from carmakers to utilities, upending a hitherto fragmented supply chain as shortages of the metal crucial to green technologies are set to flare up in the years ahead.
Executives at leading mining groups see increasing signs of a shift to direct deals with cable manufacturers and other big buyers to secure supply of the “metal of electrification” at an affordable price.
“Ultimately those that will be utilising the copper — whether that is for charging stations, grid buildout or vehicles — will start to get more interested in how they access this copper,” said Jonathan Price, chief executive of Teck Resources, a Canadian copper and zinc producer.
“We will start to see more interest in direct linkages between the miners and those ultimate end users — we are starting to see and hear more of that.”
BHP’s foiled £39bn takeover bid for Anglo American as well as copper spiking to an all-time high above $11,000 per tonne earlier this year shone a spotlight on the predicted shortages of copper later this decade. Although demand for renewables, grid upgrades and electric cars continue to rise, new mines are becoming ever harder to build.
The Bank of America predicts copper supply to be about 5mn tonnes, or 15 per cent lower than demand, by 2030. The bank forecasts the rollout of renewables, grid infrastructure spending and electric cars globally to double annual copper demand growth to 4 per cent per year, from its historical average of 2 per cent.
Executives point to a cocktail of factors blocking construction of large projects, including deteriorating geology, lengthening permitting times, and surging costs as a result of inflation and sustainability considerations. Investors’ demand for dividends over growth and copper prices that are too low are also causing miners problems.
“It’s just getting harder and harder,” said Tristan Pascall, chief executive of First Quantum, which had its vast mine in Panama shut down by the government after protests. “There’s no easy jurisdiction now. You can say you shouldn’t go into Argentina or into the Democratic Republic of Congo but where is easy to go now?”
The debate raging within the industry is whether miners need to consolidate into “supermajors” or become more open to partnering to build complex multibillion-dollar projects — both moves that have precedent in the oil industry.
Increasing supply chain integration would be another option in addressing the concerns of end consumers, concerned about higher prices resulting from consolidation, and middling miners, vulnerable to takeovers by BHP, Glencore, Freeport-McMoRan and Rio Tinto.
To date, the only major financing deal for copper by a car company with a miner — between which smelters and several layers of manufacturers and suppliers sit — has been Stellantis, owner of the Jeep, Fiat and Peugeot brands, with McEwen Copper, which faces a unique foreign currency issue in Argentina, where its project is.
Executives say copper could follow lithium, nickel and cobalt in having carmakers finance mines in return for supply or could look to how utilities have signed long-term deals with miners to fast-track new uranium supply.
Paul Gait, group head of strategy at Anglo American, said that more customer involvement — as seen with the battery metals — was “the direction of travel that copper is likely to go”.
For renewable energy project developers and EV makers, volatile commodity prices can mean the difference between success and catastrophe.
Michael Widmer, commodities strategist at the Bank of America, says that the rule of thumb is a 10 per cent increase in commodity prices lowers the internal rate of return of renewable projects for investors by 1 per cent — which are typically only single-digit to begin with.
Nexans, the world’s second-largest cable manufacturer, is an early mover in supply chain integration. It owns its own rod mills and held on to them foreseeing the scarcity coming years earlier, meaning it can buy copper sheets directly from the miners and smelters through long-term supply contracts.
“There’s enough copper in the world — but the capacity for extraction is not increasing as fast as consumption,” said Vincent Dessale, chief operations officer at Nexans, who sees boosting recycling from 5 per cent to 30 per cent of its supply as “the key” to coping with tight supply.
Not everyone buys the dire copper supply predictions. Some are confident that at 25mn tonnes per year, the copper market is liquid enough to not need direct intervention. Weak demand this year, especially from China, has pushed prices down 15 per cent from their peaks to $9,300 per tonne.
“Currently we are not of the view that we face a copper shortage in coming years . . . in 2013 there were predictions of supply gaps in 2023, but that’s not what happened,” said Jimmy Hermansson, senior vice-president and head of group procurement at NKT, a Danish cable manufacturer. “We have secured copper for our order backlog. Beyond that, it’s speculative.”
Substitution and reduction of copper use is also likely to occur if prices remain elevated. China is replacing it with aluminium in long-distance power wiring. US aluminium producer Alcoa’s chief executive William Oplinger sees 1mn tonnes of extra demand coming from substitution. As for demand destruction, Anglo’s Gait says that in plumbing, which accounts for 9 per cent of copper consumption, it “is the easiest material to remove”.
But ultimately, most analysts and executives agree that the predicted shortfall for copper has been years in the making because of under-investment in discovering and developing projects that take about 15 years to reach first production.
“I think we are heading into a world of serious supply constraints for copper,” said Christopher LaFemina, analyst at Jefferies. “It’s not like you can switch a flip to bring the capacity online.”
