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Copper Producers Discuss Looming Metal Deficit at Chile Conference

Editorial Staff
Apr 21, 2023
A copper mine in Chile. Image: Bruna Fiscuk via Unsplash

Major copper producers and traders met this week at the World Copper Conference in Chile, the industry’s major annual gathering. Participants, including Codelco, BHP, Rio Tinto and Trafigura, discussed the challenging market situation. On the one hand, the energy transition is boosting demand for copper, which is used in everything from electric cars to solar panels. On the other hand, miners are reluctant to start large-scale greenfield projects, which may result in a deficit of the metal in 2026 – 2027, according to the consulting firm CRU Group.

Chile, the world’s largest copper producer accounting for a quarter of global output, is a good example of why this is happening. The Chilean government is preparing to introduce a new mining royalty to fund social programmes. The move has been opposed by producers BHP and Antofagasta, which argue that a sharp tax hike would discourage new investments and make Chile a less competitive destination for mining than other copper-rich countries, like Australia and Peru.

This so-called “resource nationalism” has also manifested itself in other countries rich in copper. The government of Panama last month convinced Canada’s First Quantum to pay higher taxes to keep its mining operations in the country. The Democratic Republic of Congo had been restricting Chinese producer CMOC from exporting its copper and cobalt until a more favorable royalty agreement is reached. In Peru, indigenous communities seek to participate in profits from mining on their land.

Meanwhile, global demand for copper is rising as countries transition to renewable energy sources, where the metal plays a key role in green infrastructure. Companies in China, the U.S. and Europe are installing new solar and wind energy capacities with the use of state subsidies. Production of electric vehicles is growing. Over the past year, carmakers increased the use of lithium-iron-phosphate (LFP) batteries versus more expensive nickel-cobalt-manganese (NCM). LFP batteries require 50% more copper than NCM batteries, which is an additional factor boosting demand.

Copper producers are feeling the appetite for the metal, but most of them consider investment into new projects too risky because of possible project delays, regulatory issues and the risk of exceeding planned capex. Only two major greenfield copper projects were brought online in the last several years, according to the International Copper Study Group (ICSG). These are Anglo American’s Quellaveco in Peru, which was launched last year, and Kamoa-Kakula in the Democratic Republic of Congo, launched in 2021 by China’s Zijin Mining and Canada’s Ivanhoe Mines. This year, another major greenfield project – Udokan in Russia’s Far East – is set to launch copper production, having already completed 95% of the processing plant at the mining site.

New projects in the Congo and Serbia have enabled China’s Zijing Mining to become a top-6 global copper producer last year and helped to secure demand in China, which consumes more than half of the global copper output. But other producers have largely bet on brownfield projects, which entail the expansion of existing mines, or increasing their copper portfolio through acquisitions. To that end, there has been a lot of recent activity. Glencore offered to buy Canada’s copper and coal producer Teck Resources for $22.5 billion. BHP is in the process of acquiring Australian producer OZ Minerals for $6.4 billion. Rio Tinto spent $3.1 billion last year to increase its share in the Oyu Tolgoi copper project in Mongolia. And Canada’s Lundin Mining recently agreed to acquire a copper project in Chile for $950 million.

These deals help companies to increase their exposure to copper, but they don’t address the problem of the looming copper deficit. According to industry analysts, it will be necessary to develop new greenfield project to drastically increase the copper supply in the future. McKinsey forecasts that replacing hydrocarbons with renewable power sources will boost demand for copper and may create as much as a 6.5 million-tonne deficit of the metal by 2031. The development of untapped copper deposits will become key to overcome this deficit – and to continue to power the renewable energy transition.

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