The writer chaired the new S&P Global study’The Future of Copper: Will the looming supply gap short-circuit the energy transition?’
As countries try to figure out how to meet their targets for net zero emissions, minerals have become a big target of concern. Several governments and international organizations have expressed alarm about whether there will be sufficient supply to meet the needs of, as the International Energy Agency puts it, moving “from a fuel-intensive to a mineral-intensive energy system”.
There has been much discussion of the lithium and cobalt needed for electric vehicle batteries. But less attention has been given to copper, though it is the foundation for the energy transition, indeed the “metal of electrification”. A new report focuses on this key role.
Copper is the oldest metal used by mankind, going back to 8000BC. It acquired its modern use in the 19th century, as a superb conductor of electricity.
It is also nicknamed “Dr Copper”. Owing to its widespread use and its sensitivity to business cycles, its price has an uncanny ability to provide early warning of what’s ahead for the economy. The current fall in the price of copper is seen as a portent of slowdown or outright recession.
But Dr Copper is now taking on a new role as the critical metal for net zero emissions. This “energy transition demand” adds to the traditional demand for the metal in construction, kitchen appliances, computers and the innards of your mobile phone.
Many carmakers are pleading that all their new vehicles will be electric by the 2030s. The Biden administration in the US is targeting emissions-free electricity generation by 2035, while the EU’s RePowerEU strategy pledges an accelerated switch to renewable power.
The key point is that the technologies central to the energy transition — such as EVs, charging infrastructure, solar photovoltaics, wind turbines and batteries — all require much more copper than their conventional hydrocarbon-based counterparts. For instance, a battery-powered electric car requires at least two and a half times more copper than a conventional car; a medium-sized truck four times as much.
Where will the additional copper come from? Only a relatively small portion will be from new mines currently in development. Bringing entirely new mines on is very time-consuming. The IEA estimates that it takes at least 16 years from discovery to first production — and it can often be much longer, owing to permit and government approval delays.
The main growth in supply will come from two sources. One is increased “utilisation” — improving the recovery rate from existing mines, even as ore quality deteriorates. The other is gathering up copper embedded in discarded equipment and recycling it into pure copper that can be put back into the market.
Consider two scenarios. First, a continuation of current trends leads to an enormous shortfall of 20 per cent by 2035. In the second scenario we would see utilization and recycling accelerate to a level that has never before happened, industry-wide. But there is still a shortfall much higher than any previous one.
Moreover, a host of operational challenges confront future copper supply. Copper mining is actually more concentrated than oil production. Just two countries — Chile and Peru — account for 38 per cent of mined copper. And Chile’s proposed new constitution includes a provision that would make the approval process for mining more difficult.
Obtaining permits for mines in the US is increasingly hard, which is one of the reasons US copper production has failed by almost half over the past 25 years. Meanwhile, China occupies a central role in the entire copper value chain, with the risk of the global trade becoming enmeshed in the great power competition between Washington and Beijing.
Gaps between supply and demand do not last. There will certainly be a drive to accelerate the pace of recycling. And substitutes will be found, as is now the case with aluminum, which, despite being less conductive than copper, works in long-distance transmission lines. Innovation will be critical.
But all of this will take time, and the requirements of energy transition demand are already pressing. So what is Dr Copper’s message for the energy transition? Unless solutions are found quickly, which will be challenging, insufficient supply of minerals risks short-circuiting the drive to achieve net zero by 2050.
The study referred to in this article is an independent work conducted by S&P Global. Financial support for the research was received from mining companies. S&P Global is solely responsible for the analysis, conclusions and methodology. The study makes no policy recommendations.