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Western copper supply chain strategy faces warning: Leaving China is costly and difficult to achieve

2024-08-17

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Cailianshe News, August 16 (Edited by Zhao Hao)On Thursday (August 15th) local time, Wood Mackenzie, an internationally renowned consulting firm, released a report saying that some Western countries are seeking to promote "de-Chinaization" in the copper supply chain. This approach is "unfeasible" and will only delay energy transformation and increase costs.

Wood Mackenzie noted that the United States, Canada, Australia and some European countries are trying to weaken China's influence in the copper market through subsidies and investment. In this regard, the agency warned that the two goals of "achieving decarbonization" and "reducing dependence on China" are contradictory.

Source: Wood Mackenzie official website

The report, titled "Securing Copper Supplies: No Energy Transition Without China," warned that copper metal is a key component of electrification and "without copper, the world cannot decarbonize. We expect copper demand to grow 75% to 56 million tons by 2050."

According to the International Energy Agency (IEA), existing mines and projects under construction can only meet 80% of copper demand by 2030, indicating that shortages may occur at the initial stage. The report wrote that most of the world's mining activities are mainly in the Americas and Africa, with China accounting for 8%, and this proportion can be close to 20% when overseas mining assets are included.

Although the proportion in mining is not too high, Wood Mackenzie pointed out that the copper supply chain has other key stages such as smelting and refining, manufacturing and finished product manufacturing, and it is in the downstream processing and semi-finished product manufacturing that China has overwhelming strength.

Nick Pickens, Wood Mackenzie’s global mining research director, wrote that replacing China’s share of the supply chain would require hundreds of billions of dollars in investment in copper processing and manufacturing capacity, “which would result in lower efficiencies, significantly higher finished product prices, and increased costs and timelines for the energy transition.”

According to Wood Mackenzie data, China has been responsible for 75% of the world's smelting capacity growth since 2000; since 2019, the country has accounted for about 80% of the world's new copper and copper alloy manufacturing capacity, and currently has half of the world's manufacturing capacity.

The report points out that China's dominant position in the supply chain is so large that complete replacement is unrealistic. At the same time, North America and Europe have no plans to build new primary smelting capacity. The United States will focus more on the secondary market and copper recycling, and recently established a secondary smelter for multi-metal recycling for the first time.

Wood Mackenzie mentioned that although legislation such as the US Inflation Reduction Act can provide subsidies for key mineral investments, Western countries' efforts in the copper sector are still constrained by factors such as low capacity utilization, high operating costs, and environmental regulations.

Pickens said that in order to achieve the net zero emissions target without imposing excessive costs on taxpayers, "pragmatism and compromise will be essential, and easing trade restrictions may be one of the necessary concessions."

(Cailianshe Zhao Hao)
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