The new age of copper: Opportunities for Latin America

Karina Fernandez-Stark, Penny Bamber and Martin Walter in this voxeu piece discuss how the disease and the recovery packages will lead to demand for copper. Will this lead to opportunities for Latam?

These trillion-dollar, multi-year recovery plans require significant quantities of copper. This will accelerate the demand for the metal which has picked up steadily since 2016. This rise in demand is thanks in part to copper’s central role in the digital and green economy of the future. Clean energy is the fastest growing segment to support electrification, with solar panels and wind turbines requiring some 12 times more copper than previous generation methods (Copper Development Association 2020a). Further, electric vehicles use four times the amount of copper used in internal combustion engines (Glencore 2017). A Chinese national 5G network will require some 72,000 tons of copper (Mills 2020). COVID-19 has also brought copper to the forefront of the healthcare industry due to its antimicrobial properties, adding entirely new sources of demand (Copper Development Association 2020b). Even before the pandemic, it was estimated that the sector would drive one million metric tonnes of demand over the next 20 years (Morrison 2020). While demand in 2020 may yet fluctuate (as countries respond to the pandemic), the fundamentals of copper demand have changed for the better (Hall 2020, Jacks and Stuermer 2018).

This boost in future demand is taking place against a backdrop of tightening supply in a globally concentrated industry, contributing to a likely copper deficit (Mining.com 2019). Five countries – Chile, Peru, Indonesia, Australia, and Canada – export three quarters of traded copper concentrate. The two ‘Latin leaders’ – Chile and Peru – are by far the most important in terms of meeting the new demand since they account for close to half of the world’s supply. Chile is home to both the world’s biggest copper mine (Escondida) and the world’s single largest copper company (the state-owned CODELCO) (Chen 2019). This company alone accounts for 10% of the world’s copper. 

Stung by end of the ‘supercycle’ in 2012, CODELCO and other leading miners have operated conservatively. They have focused on consolidating their high-value assets, cutting costs, and boosting productivity. They have also focused on divesting from low-grade projects and limiting exploration and new project development. There are currently very few new projects set to come into operation before 2023. COVID-19 has brought the construction of most of these new projects to a halt. In Chile, CODELCO stopped the underground expansion of its two largest copper mines (El Teniente and Chuquicamata), while Teck Resources’ Quebrada Blanca 2 announced a six-month delay as it sought to protect its 15,000 strong workforce (Reuters 2020b, Fundacion Terram 2020, Jamasmie 2020). Similarly, Peru’s largest new project, Anglo American’s Quellaveco, was brought to a standstill for months. 

Hmm..

They wrote about new age of copper requires changes in appraoch:

In this ‘new age of copper’, producer countries need to do better. Mining value chains can help them achieve ambitious innovation, sustainability, and inclusiveness goals. Their development requires decisive and coordinated action from diverse public and private sector stakeholders. First, national mining innovation systems must be geared towards supporting existing (and fostering new) competitive suppliers, as well as creating conditions for local players to access industry opportunities. Open innovation platforms can help bridge market failures and information asymmetries (Bnamericas 2019). Second, as the backbone of the future green economy, copper extraction itself has to become more sustainable, reducing its greenhouse gas emissions and water usage.6 It is also essential to obtain and maintain social licenses to mine, and to respond to increasingly sustainability-minded customers within the value chain. The industry is already actively seeking to adopt zero-emissions, waterless, and desalinisation solutions within its operations (Leotaud 2020, InvestChile 2019).7 Third, it needs to be inclusive – both from a gender perspective and in terms of engagements with local communities (Fernandez-Stark et al. 2019). Generating shared value necessarily means increasing participation from all key stakeholders, as well as effectively leveraging local human capital. It is not just good practice, it is good business (Doku 2019).

Economically, Latin America has been hit extremely hard by the COVID-19 pandemic.8 The economic reactivation plans of China and the EU can be leveraged to support the economic recovery of the region through their demand for copper. It is now up to these countries to seize the moment and make the most of the opportunity.

 

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