China’s Secret Weapon in the Global Copper War

Via Metal Miner

Copper demand continues to surge globally. And as the rest of the world struggles with the rising price of copper and the ever-changing copper market, guess who is sitting pretty? Hint: it's China.

Despite fears of a worldwide copper shortage driving copper prices to new highs, the world's largest producer and consumer of refined copper continues to run production at near-record levels. Lending a helping hand in this endeavor is copper scrap, which China uses to get around the shortage of raw materials.

According to a Reuter's report, not every country is feeling the copper shortage, and China is one of them. This serves as a stark reminder to the rest of the world that it's not running out of supplies just yet. In fact, copper prices rose by 0.95% on Tuesday, closing at U.S. $11 (Rs 880.1). This increase mainly stemmed from strong factory activity in China and signs of stabilizing U.S. inflation, which bolstered expectations of potential interest rate cuts by the Federal Reserve later this year.

China's Production Growth Contrasts with Official PMI Decline

Meanwhile, a private sector survey revealed that China's manufacturing activity reached its fastest pace in nearly two years in May, propelled by robust production and new orders from smaller, export-focused firms. That said, this trend contrasted with an unexpected decline in the broader official purchasing managers' index.

The recent surge in manufacturing activity, especially in the world's largest consumer, China, continues to boost copper's appeal. Some experts suggest there will be further expansion, an assertion that also contributed to the recent two-year high in the price of copper.

Several Factors Driving the Price of Copper Today

So, why the craze for copper? Among other things, copper is a critical component in the defense, automobile, and construction sectors. It also sees extensive use in the manufacture of products like electric cars and wind turbines, to name a few.

But to get to those copper deposits, one has to dig deep. The shortage stems from not all mining companies being able to keep up with demand. As per one estimate, the existing and projected mines under construction will only be able to supply about 80% of the copper demand by 2030. As a result, there is already an anticipated shortage within the next five years. Meanwhile, CNBC recently outlined the many difficulties involved in constructing new mines, including the high cost - a problem made even worse by inflation.

Moreover, leading copper producers such as Chile and Peru continue to grapple with strikes, protests, and diminishing ore grades. Meanwhile, Russia, the seventh-largest copper producer, is anticipated to see a decline in production due to the ongoing war in Ukraine. All of this means that copper-producing nations aren't even on track to meet the expected mining targets, let alone handle increased demand.

It All Comes Down to Supply and Demand

Another issue affecting the price of copper is the fact that many nations have ambitious targets to move from petrol vehicles to EVs. In the U.S., for instance, California recently pledged to sell only new zero-emission vehicles by 2035. Additionally, an order from President Joe Biden sets an ambitious target for 50% of all new cars sold to be electric within the next six years.

But the world simply isn't mining enough copper to cover all of that. In fact, the Fortune report said meeting all these green goals would mean the world would need to mine twice as much copper over the next 25 years as has been mined throughout all of history up until 2018. Needless to say, that's a pretty tall order.

On average, a new copper mine takes over a decade to build and bring online, so there is simply no chance of ramping up production overnight. And to hit those long-term targets, countries need to start now. So, policymakers and governments must make the hard choices to ensure they can start digging those mines. For instance, the U.S. currently has some of the most stringent environmental regulations and land ownership laws in the world, making it one of the costliest places to mine. Addressing these impediments could be an excellent first step forward.

By Sohrab Darabshaw

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