The world is going to need 9.7 million tonnes of copper in the next decade and significantly more copper investment if net-zero targets are to be achieved, Wood Mackenzie believes.
The research and consultancy firm said the global energy transition presents an “almost unattainable mine supply challenge” for the copper industry, with greater investment and price incentives needed.
“Assuming an average capital intensity of the project pipeline and accounting for the volume of copper required to achieve climate targets, Wood Mackenzie estimates that more than $US23 billion ($36.24 billion) a year will be needed over 30 years to deliver new projects under an accelerated energy transition scenario,” the firm said in its recent report, ‘Red metal, green demand: copper’s critical role in achieving net zero’.
“This is a level of investment only previously seen for a limited period from 2012 to 2016, at the back end of the China-induced commodity super-cycle.”
WoodMac said the investment required to produce one tonne of copper has been steadily rising amid rising inflation and declining grades.
“The cost of producing a tonne of copper has increased, and projects need to scale up to improve economics, raising the initial capital cost,” WoodMac said.
“This means that the list of potential developers is limited to those that can afford the multi-billion-dollar upfront cost.”
WoodMac said that emissions reduction is not just limited to copper producers, with the wider metal supply chain also needing to reduce its footprint.
In order to achieve an accelerated energy transition, it is believed the world will need to burn more fossil fuels initially to achieve desired mineral production and feed the technologies needed for a green future.
This is placing increased cost pressures on stakeholders, with carbon taxes threatening profitability and potentially derailing future investment.
“This combination of cost pressures, together with the larger volumes required from an accelerated energy transition, has implications for the industry incentive price,” WoodMac said.
“Under AET-1.5*, the copper price needed to induce the marginal project to meet demand rises substantially to $US9370/tonne ($US4.25/pound) in constant 2022 US dollar terms. In theory, this would be sufficient to close the supply gap and maintain market equilibrium.
“This compares with $US7716/t ($US3.50/lb) under a no-carbon-tax and base-case demand scenario.”
WoodMac said there was approximately 17 million tonnes of annual copper production in the project pipeline, which is nearly double what is required to limit warming to 1.5°C.
However, bringing this tonnage into production isn’t so simple.
“In reality, some of these projects have not been developed because of poor economics, and even those that can offer an attractive return on investment have other hurdles to overcome prior to development,” WoodMac said.
WoodMac research director Eleni Joannides said conditions were challenging.
“In theory, higher prices should encourage project sanctioning and more supply,” she said. “However, the conditions for delivering projects are challenging, with political, social, and environmental hurdles higher than ever. For example, social and environmental licences to operate are proving elusive in major producing countries, including Chile and Peru.”
*Stands for WoodMac’s Accelerated Energy Transition 1.5-Degree Scenario.