Copper, the most important transition metal, reached a price of $11,000 per tonne a few months ago. Goldman Sachs predicts that the price could rise to $12,000 when electrification really gets going – because there are not enough copper mines.
But the lack of mining capacity is only one problem for the transition. The other problem, at least in the West, is copper processing capacity. Most of this is in China. Without it, the transition will stall and possibly fail.
“Without China, there will be no transition,” Wood Mackenzie said bluntly new report on the global state of copper. The consultancy predicts a 75% increase in global demand for the metal by 2050, which would naturally require an increase in investment in mining. It would also require an increase in investment in refining – outside of China. And that will cost an estimated $85 billion, according to Wood Mac.
That China dominates virtually every aspect of the industrial transformation complex is nothing new. The country is the largest producer of solar power and wind turbines. It is the largest market – and manufacturer – of electric cars. It has the world’s largest rare earth refining capacity. China Is In a way, that’s the transition. And the rest of the world has been happy to outsource its heavy industry to China until recently. Now the West has realized that it might be a good idea to be more independent and less dependent on others for industries that are considered critical, especially when there are certain geopolitical differences with those others.
The problem is that the West is about two decades late to the transformation party. Building a copper refining industry from scratch would require time, money and resources that governments in Europe, the US, Canada and Australia simply lack – especially money.
“Governments and manufacturers seeking to transition away from China must consider the entire supply chain, not just mining,” wrote Wood Mac analysts. “Replacing China would require hundreds of billions of dollars in new copper processing and manufacturing capacity.” This may sound like a worthwhile sacrifice, but, the analysts continued, “it would create inefficiencies that would lead to significantly more expensive end products and increase the cost and time of the energy transition.”
So Western governments committed to the energy transition face a double problem, and neither part is easy, if not impossible, to solve. First, they need more copper mines wherever they can be built – preferably in countries not already in China’s sphere of influence, which has grown in recent decades through infrastructure and mining investments. China’s share of global copper production is one-fifth of total production, thanks to its overseas mining facilities.
At the same time, Western transitional governments need more copper refining capacity – but it has to be cheap to make sense. Otherwise, the transition will die a natural death because of exorbitant costs that no population can bear, at least not voluntarily or just like that. But this capacity expansion cannot be cheap because Germany, for example, is not China and neither is Canada: the costs are higher and it would be really difficult to bring them down to the level of Chinese costs over the last 20 years or so. Finally, according to Wood Mac, it is due to the higher costs that copper refining capacity outside China has remained essentially unchanged.
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 smelters are being built in Europe or North America.
The situation is as clear as it gets, if rather uncomfortable for those who assumed that governments could simply regulate their countries to adopt an energy transition. Without copper, there can be no energy transition. Everything in the energy transition needs copper, because everything in the energy transition depends on electricity, and most of the electricity runs on copper wires.
Solar panels need copper cables to connect them to their inverters and from there to the power grid. Wind turbines need copper cables for the same reason. Electric vehicles need copper for their electric motors. The list goes on and on. The world would need enormous amounts of copper, which theoretically availableare not Strictly speaking available.
So it seems that Western transitional governments are at a crossroads. They can either grit their teeth and work with China, which may require some geopolitical adjustments, or they can go it alone and bear the massive investment in new processing capacity and the equally massive investment in new mines – assuming there are miners willing to share the burden – and risk producing a flop that is too expensive for everyone.
By Irina Slav for Oilprice.com
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