Could a Lack of Investment in Copper Supply Derail the EV Story?

Copper supply deficit ahead, more investment needed

When looking at how copper resources are distributed, copper production is quite geographically concentrated today. In fact, the two top-producing countries, Chile and Peru, account for about 38 percent of total output. In 2021, Chile produced 5.6 million MT of copper, with Peru hitting 2.2 million MT, according to the US Geological Survey.

On the refining side, China alone accounted for almost 50 percent of the refined copper produced globally in 2020.

In the short term, there are a few copper projects expected to come online, with 2022 forecast to be well supplied. But with lower grades and not many new discoveries in the pipeline, the long-term picture for the base metal turns blurry.

“The nearby data suggests that the copper market is moving into a surplus over the next few years as supply growth outstrips that of demand growth,” Eleni Joannides, research director at Wood Mackenzie, told the Investing News Network. “However, beyond 2025 the market begins to tighten once again.”

Furthermore, the lack of investment in new copper projects could see the sector enter a period of shortage right at the time when the metal will be needed the most. In a recent study, S&P Global outlines a scenario in which production remains largely at current rates; in this case, the annual copper supply shortfall would reach almost 10 million MT in 2035. In a more optimistic scenario in which mines increase utilization and ramp up recycling, the market would still be in a deficit for most of the next decade.

Further to that point, a new copper mine takes 16 years, on average, to get off the ground, as per the International Energy Agency.

“The wire and cabling within the vehicles will require refined copper,” Joannides said. “If the industry does not invest, there will be a shortfall in supply.”

In its latest report, WoodMac estimates that more than US$23 billion a year will be needed over 30 years to deliver new projects under an accelerated energy transition scenario.

For Joannides, uncertainty surrounding social, environmental and fiscal policy/barriers, especially in Latin America, where the bulk of the projects are located, are the main challenges for miners developing copper projects today.

“Copper’s critical role in the energy transition is undisputed. It’s the significant pull on the metal’s existing and potential supplies, and the investment required that needs urgent attention,” said Nick Pickens, WoodMac's research director of copper markets.

According to the firm, 9.7 million MT of new copper supply will be needed over 10 years from projects yet to be sanctioned if the industry is to meet Paris Climate Agreement targets — that's equivalent to nearly a third of current refined consumption.

“To successfully meet zero-carbon targets, the mining industry needs to deliver new projects at a frequency and consistent level of financing never previously accomplished,” Pickens added.

Similarly, analysts at S&P Global believe unprecedented quantities of copper will be needed over the next 25 years.

“Understanding this unprecedented demand is essential to meeting the challenge ahead,” they said.

Researchers and analysts are not the only ones concerned about a future potential copper shortage. Mining executives from large producers, including Freeport McMoRan (NYSE:FCX), Codelco and Teck Resources (TSX:TECK.A,TSX:TECK.B,NYSE:TECK), have all warned about the challenges of meeting long-term demand.

“This current economic turmoil is only making the problem worse,” said Richard Adkerson, CEO of Freeport McMoRan. “Companies are reluctant to invest in today’s world.”

Can copper recycling and substitution help fill demand?

When asked about the use of secondary copper production, Joannides said copper scrap is already playing a role in the electric vehicle sector. The copper foil consumed in batteries globally, excluding China, is manufactured using scrap.

“In China, however, it is worth noting that refined copper is used to manufacture the copper foil for batteries in that country,” Joannides said. “There have been significant announcements of investments in copper foil capacity across Asia, including China, as well as in the US and Europe. Much of this capacity is being set up close to the battery manufacturing hubs.”

But could copper, which is seen as one of the biggest winners in the energy transition, be replaced in the future?

“It is very difficult to comment on how substitution may evolve, but this could arise amid technological advancements, such as changes in battery technology, or thinner foils and/or cabling with the potential development of different copper alloys,” Joannides said. “Of course, there is also the potential risk of copper being substituted by aluminum.”