Copper prices this week fell to their lowest level since last November due to weak economic data from China. However, the International Copper Study Group, a group of copper exporters and importers, just said it expected a deficit in the metal this year.
Others, such as commodities giant Trafigura, are also sounding the long-term shortage alarm, hoping for record prices for the metal, without which the energy transition would be impossible. However, prices remain weak. And that’s a big problem.
Wind and solar installations require eight to 12 times more copper than coal and gas-fired generation capacity, according to the International Bar Association. Notoriously, electric vehicles require three to four times more base metal than vehicles with an internal combustion engine.
Therefore, a transition to net zero would require much more copper than we are currently producing on a global scale. According to S&P Global, demand for copper will double by 2035. According to McKinsey, by 2031, the world will face a gap of more than 6 million tons per year between copper demand and its supply.
The ICSG said earlier this year that only two new copper mines came online between 2017 and 2021. It also said that copper production last year rose much less than expected , and the same goes for this year. Something is wrong with the copper. And copper is just one of a dozen or more metals we’d need more of if we’re going to reach net zero goals.
These are starting to look extremely elusive in the context of the latest trends in the mining industry. One of them, perhaps the most worrying, is that it would now take 23 years for a mine to go from the discovery of copper to the start of real industrial production.
It’s more than the time when the UK and California have set out to go fully electrified in the passenger transport department. And it means there won’t be enough copper for all the electric vehicles they see in 2035. Related: European natural gas prices are set for a sixth straight weekly loss
Just a few months ago, miners were talking about a decade from discovery to production, but with tighter environmental regulations in mineral-rich developed countries and rapidly evolving regulation in developing countries, that’s where the industry is : 23 years, according to data. from consulting firm Airguide, Reuters’ Clyde Russell reports.
The figures, interestingly, were reported at a mining industry conference where attendees had nothing nice to say about the permitting regimes in most mineral-rich jurisdictions.
The US administration has been promising faster mining permitting, but even if it follows through on that promise, there are activists to watch out for, including activists who like wind and solar power, but it seems that the likes nature more as it is. And that they have shown that they can stop new mining developments.
Moreover, such activism is evolving, and commentators have now coined a new term to replace the widespread not-in-my-backyard sentiment among activists and regular taxpayers alike. Instead of NIMBY, they’re now talking BANANA, or building absolutely nothing near anyone.
These people, Russell says in his report, are, for the mining industry, the very people who are the strongest advocates for the energy transition. And indeed they are the people who are working hard to make this transition impossible.
These somewhat ironic challenges are in addition to more fundamental ones, such as falling ore grades and a significant drop in the number of new discoveries. Industry dynamics have also changed, notes Russell in his report on the Mining Investment Asia Summit.
Before, junior miners would discover a resource, prove it, and then either raise more money to develop it or hand over to one of the big players. Junior miners are now suffering from a shortage of project leaders and major miners are reluctant to invest in new discoveries. Because prices do not reflect copper fundamentals.
Perhaps it is only a matter of time before they start reflecting these fundamentals instead of following the economic reports coming out of China. Indeed, copper is in a special position as a key metal, its price widely used to indicate the direction any economy is taking. Weak copper prices typically reflect weaker economic growth and vice versa.
However, copper’s crucial role in the energy transition should have added a vector in pricing. It should have, but it hasn’t, and that’s keeping copper prices low and financing harder to come by for the junior miners on whom this crucial future supply of copper depends.
“Governments might work to accelerate approvals once they recognize the need to expand mineral production, but history suggests that government action only occurs when the crisis point has already been reached,” wrote Russell of Reuters in its report.
Indeed, governments are not the quickest to act unless things are really bad, as we saw last year in the EU. But this time, governments are leading the rise in demand for metals and minerals. They really talk about encouraging more mining activity.
But even they probably know the gap between talk and action. BANANAS are on the lookout, ready to protest against any new mine that threatens a rare and endangered species. And that’s because many people want an energy transition but without all the mining necessary to make it possible. They want to have their cake and eat it too. Unfortunately, as history has shown time and time again, this is outside the realm of the possible.
By Irina Slav for Oilprice.com
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