The global drive to diversify supply chains away from China could leave a staggering $85 billion gap in the copper supply chain, threatening the world’s energy transition goals, according to a recent report by Wood Mackenzie. The report cautions that removing China, which has dominated the copper market for decades, would present a near-impossible challenge for Western economies to overcome.
Copper is essential for electrification and the broader transition to renewable energy. As the world pushes towards decarbonization, demand for copper is projected to increase by 75% to reach 56 million tonnes by 2050. However, meeting this demand without China’s significant contributions to the copper supply chain would be a daunting task.
China’s Dominance in Copper Processing
China’s influence in the copper industry is profound. Since 2000, the country has been responsible for 75% of global growth in smelter capacity and currently controls nearly all global smelting and refining capacity, accounting for 97% of the market. This dominance has allowed China to produce over 3 million tonnes of copper annually and invest nearly $25 billion in the sector.
Moreover, China has significantly expanded its copper and alloy production capacity, adding nearly 11 million tonnes since 2019. This expansion, particularly in wire rod production, has given China control of half of the world’s copper fabrication capacity, with further growth expected.
Zhifei Liu, managing consultant for copper markets at WoodMac, highlighted the evolution of China’s copper smelting industry. He noted that the country’s smelters have become highly competitive due to their low costs and adherence to strict environmental standards, particularly in sulfur dioxide capture.
Challenges of a World Without China in Copper Supply
Excluding China from the global copper supply chain would require a massive increase in processing capacity to meet energy transition targets. WoodMac estimates that an additional 8.6 million tonnes of copper demand outside China will emerge over the next decade, driven by growth in transport, power, and electrical networks.
To replace China’s contribution, nearly $85 billion in new smelting and refining infrastructure would be necessary. However, WoodMac’s report raises doubts about the feasibility of such an expansion, given that processing capacity outside China has remained relatively stagnant over the past two decades.
Nick Pickens, WoodMac’s research director of global mining, stated that a scenario without China in the copper supply chain would demand a “substantial increase in processing capacity,” which could lead to higher costs and potential delays in the energy transition.
The Need for Pragmatism in Supply Chain Diversification
While efforts to diversify the copper supply chain have begun in some countries, WoodMac’s report suggests that completely replacing China’s role is unfeasible. The scale of China’s dominance means that any attempt to decouple from its supply chain would likely result in a more expensive and slower transition to renewable energy.
Pickens emphasized that pragmatism and compromise are essential if the world is to achieve its net-zero goals. He noted that financing new smelting projects, particularly in regions like Europe, faces significant challenges due to environmental and social concerns.
In conclusion, while diversification away from China is a strategic goal for many Western economies, the realities of the copper supply chain suggest that a complete decoupling is neither practical nor economically viable. To ensure the success of the global energy transition, stakeholders must consider a balanced approach that acknowledges China’s critical role in the copper industry.
Source: Mining.com
