A crisis of copper

The world’s growing need for copper is becoming increasingly evident. However, several factors, such as declining growth, lower grades, political instability, and conflicts between miners and governments, are hindering its production. Therefore, it is essential to explore new solutions and identify potential sources to ensure a steady supply of copper in the future. 

Commodity analysts have been repeatedly banging the drum for a global copper shortfall which would short-circuit ambitions of an energy transition already in flux. 

According to McKinsey, the demand for copper is expected to increase to 36.6 million tonnes annually by 2031 due to global electrification. However, there is a projected shortage of 6.5 million tonnes. S&P Global Market Intelligence predicts an even higher demand of nearly 50 million tonnes by 2035.  

There is an increasing belief that producers should take more action to tackle this issue. 

The great hope was Chile. The South American producer accounts for around a quarter of global production. However, its low outputs since January are causing concern, which has had a rippling effect on supply chains across the planet. 

The nation’s state miner Codelco has cut its copper output forecast for the year following months of declines, and other major South American producers face similar setbacks. 

Still holding the world’s number two spot, Peru aims to get its output back on track after its worst outbreak of political violence in years and a nearly twenty per cent drop in year-on-year sales but still stares down an institutional crisis.  

First, Quantum was forced to stop processing at its titanic Cobre mine in Panama after a bitter tax dispute. Teck Resources has revised down production targets for the year after its Chilean operations failed to meet output figures. 

Mining billionaire Robert Friedland has previously focused on Africa, saying it was silly to consider Chile a safe place to mine. At the same time, the Democratic Republic of the Congo has a heavy discount rate. 

“There’s this fiction that somehow Africa is dangerous, and it’s safe for the industry to go to Chile or Peru. I challenge that. I would rather be in Africa – in the DRC,” Mr Friedland said. 

Although Mr Friedland has chosen a continent, things there often don’t go as planned due to supply chain issues and political turmoil, which hinder production. 

Zambian production will fall to its lowest in 22 years, and the Democratic Republic of the Congo, once predicted to take the number two spot from Peru, continually faces internal strife and humanitarian crises and is now pushing for an audit of mining contracts it considered to be heavily in favour of Beijing. 

Economic litigation between governments and miners increases as the global resources industry expands into new jurisdictions. 

Toronto-based Charles River Associates found that between 2013 and 2022, the number of treaty arbitrations has nearly doubled, with roughly 80 per cent of cases originating in Africa and South America – up 167 and 57 per cent, respectively, since 2016. 

The world’s biggest miners appear almost universally bullish on copper demand, and there remains optimism that Latin American and African production can get back on track.  

Peru has doubled down on efforts to ramp up production, Rio Tinto and Codelco have partnered up to find more Chilean copper, while there is hope for renewed production in the safer African jurisdictions. 

But governments change, and if prices begin to reflect better the gulf between supply and demand, tax disputes and the spectre of nationalised resources are unlikely to ease. 

And worldwide, even in safer jurisdictions, a low copper price and lack of investment have led to a shortage of discoveries. 

In the previous year, Glencore’s CEO, Gary Nagle, expressed the need for a successor to the ongoing production projects. 

“Whatever was planned to be built has been built. There is nothing coming behind,” Mr Nagle said. 

According to analyst Sam Crittenden from RBC Dominion Securities, the shift towards clean energy will create a demand for copper equivalent to opening one large mine yearly. However, the locations of these potential projects with high-quality copper deposits still need to be determined. 

“When we look at the list of available copper projects, it’s notable that there is much copper out there, but a lot of it may never come out of the ground,” Mr Crittenden said. 

Existing projects are not faring much better. A 2016 study found that the average ore grade had fallen by around a quarter in just ten years prior and Glencore, Teck, Codelco, and Anglo-American are just a few multinational miners forced to lower production guidance. 

Despite the global commitment to climate targets in the Paris Agreement several years ago, achieving net-zero goals seems a distant reality. Furthermore, the current scenario indicates a potential shift from a copper surplus to a considerable deficit. 

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