The arid and infertile Atacama Desert in Northern Chile is nonetheless an industrial breadbasket, home to a hefty chunk of global copper production. Chuquicamata, the world’s largest opencast copper mine, which has been in operation for over hundred years but is still finding more of this orangey-red metal plays a vital role for modern industry across the globe. Copper has longed been prized, originally in ancient times for creating tools, weapons and jewellery, then more recently for its superb conductivity and use in wiring and cables.
Now copper has a crucial role in the global energy transition. Copper’s ability to conduct electricity makes it a key element in solar panels, wind turbines, electrical cars and batteries. Immense amounts of this metal need to be plucked from the earth in order to decarbonise the global economy.
It is no surprise that as net-zero plans take flight global refined copper demand is projected to almost double from just over 25 MMt in 2021 to nearly 49 MMt in 2035. Eventually demand is expected to reach approximately 53 MMt in 2050.
Like any major mining project, new supplies of copper take years to plan and even longer before any is produced. Environmental concerns, resource nationalism and anger against governments have meant copper mines become the centre of protests and demonstrations. In Peru workers at the huge open cast Las Bambas mines, owned by Chinese concerns became the focus of protests aimed at the government.
Targeting a big export earner like copper is the ideal way to pressurise the government. In Chile plans to open a mine 500 km north of the capital were halted by the government which pointed to the extensive environmental damage and threat to a local penguin colony the mine would inflict.
China is the axis on which copper turns. Chinese factories consume 54 percent of refined copper globally, some of this is used in building climate technology, wind turbines, electric cars and batteries and many other electrical items. China is also a significant copper miner, enjoying 8 percent of global production. However, it remains second tier compared to the South American giants Chile and Peru which between them enjoy over a third of global production.
Who controls the deposits of copper (and other metals) has shot up the political agenda in the last couple of years. As the shift toward a net-zero carbon economy has accelerated, the need to replace fossil fuel with renewable energy has become obvious. Even if actual progress has been too slow. Climate friendly technologies require huge amounts of metals and minerals. Copper is one of those metals.
Can the West take the initiative in Critical Materials?
US and EU legislation has created tax incentives for importers of critical materials that use friendly suppliers. This places copper supply chains as a geopolitical flashpoint. Western countries want wrest control of copper and other metals away from China. German Chancellor Scholz visited the region earlier this year on a mission to improve relations with South American leaders.
Chinese firms have strong connections after two decades of rapid investment growth in the region and it will be a struggle to compete with them. One area that China is perceived to be weak is environmental protections. The new Chilean governments and others may be more willing to deal with a German or other European firms which perhaps take ESG measures more seriously.
The Geopolitical Struggle
Ultimately, just like China, western countries want more control over copper because they recognise the need to develop a strong climate tech manufacturing sector which requires reliable supplies of raw materials. This comes at a time when relations between China and the West are in decline and both sides are concerned that the other has too much leverage over their respective economies. This has led to new strategies such as economic resilience, de-risking, made in China and strategic autonomy.
These geopolitical shifts mean more attention, pressure and conflict over the supply of copper. China has a major built-in advantage, an established lead in copper supply chains which overlaps with similar stranglehold over other metals. Beijing supports its state and private companies overseas with diplomatic support and at home climate technology is subsided and treated as a priority by the government.
There is a major risk that demand for copper will outstrip supply, the price will rise dramatically, delaying the global energy transition by pushing up the cost of change.
However, it is also certain that higher demand will lead to new mining projects, spur innovation to produce the metal more efficiently, or perhaps to reduce the amount of copper required in climate technology. Effective recycling can also reduce demand. The high cost of copper creates a powerful incentive to recycle the metal rather than rely on freshly mined material.
Along with recession, the biggest risk to copper demand comes from conflict in the Straits of Taiwan. Any disruption around trade routes to China would be disastrous for manufacturing in the country. Demand for copper and other metals and minerals would collapse rapidly as their main consumer was cut off.
Climate change is a major factor in copper production, growing climate risks will demonstrate the need for urgent transition to a net-zero economy, pushing up the demand for the metal. At the same environmental and social concerns around opening new mines may stymie supply. What is certain is that copper’s profile on the world stage is on the rise thanks to its crucial role in the ongoing energy transition.