The Cost of Bypassing China in Copper Supply Chain

Countries attempting to reposition critical minerals supply chains outside China is causing inefficiencies that are likely to increase the cost of finished goods and delay the energy transition.

That's according to a new report from global energy transition specialist Wood Mackenzie, which highlights the significant challenges facing countries attempting to diversify critical minerals supply chains.

The study, entitled 'Securing copper supply: no China, no energy transition', suggests such efforts could lead to inefficiencies, potentially increasing the cost of finished goods and impeding the global energy transition.

Nick Pickens, Research Director of Global Mining at Wood Mackenzie, emphasises the crucial role of copper in the transition to clean energy: "The world cannot achieve decarbonisation without copper, which is a crucial component in electrification. Currently, China dominates copper mining, smelting and refining and semi-manufacturing."

Substantial investment in copper facilities required

Wood Mackenzie's report projects a 75% increase in copper demand, reaching 56 million tonnes by 2050. This surge in demand will necessitate substantial investment in new processing and fabrication facilities, particularly if countries aim to reduce reliance on China's dominant position in the supply chain.

"A scenario without China for the copper supply chain would require a substantial increase in processing capacity to meet energy transition targets," Pickens explains. "Replacing China's smelting and refining capability alone to meet the rest of the world's demand will require nearly US$85bn."

The complexity of the global copper supply chain, which encompasses mining, smelting and refining, semi-fabricating and manufacturing of finished goods, further complicates efforts to diversify.

China's significant investments in downstream processing and semi-manufacturing have created a formidable challenge for other countries seeking to secure their copper supply.

Zhifei Liu, Managing Consultant for Copper Markets at Wood Mackenzie, highlights China's evolution in copper smelting: "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."

Chinese dominance 

The report also notes that semi-fabricators outside of China, especially in Europe, face challenges due to lower utilisation and higher operating costs. Pickens points out that regulations on carbon emissions, such as the European Union's Carbon Border Adjustment Mechanism, could further reduce competitiveness by imposing higher taxes on the European copper industry.

While new copper smelting facilities are set to come online outside China, including in India, Indonesia and the Democratic Republic of Congo, the scale of China's dominance in the supply chain means complete replacement is unfeasible. The US is focusing on the secondary market and scrap copper, including establishing its first secondary smelter for complex materials in Georgia.

Pickens concludes with a call for pragmatism: "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."

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