Shifting away from China for critical minerals would increase costs and delay the energy transition, warns Wood Mackenzie
14 Agosto 2024 - 11:15PM
Shifting away from
China for critical minerals would increase costs and delay the
energy transition, warns Wood Mackenzie
Replacing Chinese copper supply chains
requires US$85 billion for new smelting and refining
SINGAPORE/LONDON/HOUSTON/ 15 August 2024
– As major global economies look to reposition critical minerals
supply chains outside China, the resulting inefficiencies could
increase the cost of finished goods and delay the energy
transition. The world cannot achieve decarbonisation without
copper, a crucial component in electrification. Currently, China
dominates copper mining, downstream processing (smelting and
refining) and semi-manufacturing. According to a new report by Wood
Mackenzie, demand for copper is expected to rise by 75% to 56
million tonnes (Mt) by 2050, necessitating substantial
investment.
Shifting away from China will require massive
investments in new copper processing and fabrication facilities.
The August Horizons report, Wood Mackenzie's ‘Securing copper
supply: no China, no energy transition,’ states that replacing
China’s smelting and refining capability alone to meet the rest of
the world's demand would require nearly US$85 billion.
“A scenario without China for the copper supply
chain would require a substantial increase in processing capacity
to meet energy transition targets,” said Nick Pickens, research
director, global mining at Wood Mackenzie.
“Based on our projections, there will be an
additional 8.6 Mt of copper demand outside China over the next
decade. This demand represents 70% of smelter capability and 55% of
fabricator capacity in the rest of the world. As governments and
manufacturers aim to diversify away from China, it is crucial to
consider the entire supply chain, not just mining operations.”
China’s role in the copper supply chain,
2023
Source: Wood Mackenzie
The global copper supply chain is a complex
system comprising four key stages: mining, smelting and refining,
semi-fabricating, and manufacturing of finished goods. Copper flows
from raw material extraction in the Americas and Africa to
downstream processing and manufacturing, predominantly in China.
The country’s substantial investments in downstream processing and
semi-manufacturing sectors present significant challenges to global
copper supply security.
The report states that since 2000, China has
accounted for 75% of global smelter capacity growth and currently
controls 97% of global smelting and refining capacity, contributing
over 3 Mt of production and nearly US$25 billion in investment. The
country has also added nearly 11 Mt of copper and alloy capacity
since 2019, representing around 80% of global additions.
Approximately two-thirds of these facilities produce wire rods,
giving China half of the world’s fabrication capacity, with further
expansion underway.
Growth in global copper smelter capacity is
dominated by China
Source: Wood Mackenzie Lens Metals &
Mining*
“China's copper smelting industry has undergone
significant evolution,” said Zhifei Liu, managing consultant,
copper markets at Wood Mackenzie. “In the 2000s, a drive for
stricter environmental and efficiency standards led to the
modernisation of smelting capabilities.
“Today, Chinese smelters are low cost and meet
high environmental standards, particularly in sulphur dioxide
capture, making them highly competitive.”
Pickens added that semi-fabricators outside of
China, especially in Europe, are facing challenges due to lower
utilisation and higher operating costs. Regulations on carbon
emissions, like the European Union’s Carbon Border Adjustment
Mechanism, could reduce competitiveness by imposing higher taxes on
the European copper industry without providing equivalent benefits.
Additionally, US government incentives such as the Inflation
Reduction Act may not ensure the long-term sustainability of the
industry.
The report also highlights significant shifts in
the global copper smelting landscape, with new facilities set to
come online this year outside China. India is launching a custom
smelter, Indonesia is adding two integrated smelters, and a new
smelter in the Democratic Republic of the Congo is expected to be
completed by 2025, primarily driven by Chinese investment.
According to Wood Mackenzie, these additions will add 1.6 Mt to
global smelting capacity, the largest increase outside China in
decades.
However, there are no plans for new primary
smelting capacities in North America or Europe. Instead, the US is
focusing on the secondary market and scrap copper, including
establishing its first secondary smelter for complex materials in
Georgia.
“While copper supply risks can be mitigated and
some rebalancing has begun in various countries, the scale of
China’s dominance in the supply chain means complete replacement is
unfeasible,” said Pickens. “The introduction of new processing and
fabrication facilities may result in higher costs and delays in the
energy transition.
“Financing these investments presents additional
hurdles, with resistance to new smelter projects on environmental
and social grounds particularly strong in Europe. Pragmatism and
compromise will be essential to achieve net zero goals without
imposing excessive costs on taxpayers. Easing global trade
restrictions could be one necessary concession.”
ENDS
Editor note:
The global shift toward clean energy and
decarbonisation hinges significantly on copper. With the increasing
demand for copper, efforts to secure critical minerals and reduce
reliance on China's supply pose challenges. Although the necessity
for investing in new mines is evident, the effects on downstream
processing and semi-manufacturing are frequently disregarded. Our
latest Horizons report addresses these issues. You can read it
here.
Wood Mackenzie Lens Metals & Mining is an
integrated cross-commodity data analytics platform for key mined
commodities, providing a complete picture of how markets and assets
develop within the energy and natural resource value chain across
Wood Mackenzie’s energy transition scenarios.
- China role in the copper supply chain, 2023
- Growth in global copper smelter capacity is dominated by
China