De-risking from Chinese copper would cost world US$85 billion, ‘mess up’ supply chains

A global supply chain shift away from China’s copper manufacturing industry would take “massive investments” in new plants, including US$85 billion for refining and smelting, analytics firm Wood Mackenzie said on Thursday.

China controls 97 per cent of global smelting and refining capacity, representing almost 3 million tonnes of production, along with US$25 billion in investment, Wood Mackenzie said in a report.

Goods manufacturers typically use copper to make cables and appliances, as well as equipment for decarbonisation.

“As major global economies look to reposition critical minerals supply chains outside China, the resulting inefficiencies could increase the cost of finished goods and delay the energy transition,” said the report.

“[China’s] substantial investments in downstream processing and semi-manufacturing sectors present significant challenges to global copper supply security.”

Brazil and the US have their own copper reserves, and their supplies make the Americas “poised to play a key role” in any de-risking of mineral supply chains, the US-based Centre for Strategic and International Studies think tank said in April.

On the manufacturing side, India is starting up a “custom” smelter, while Indonesia is adding two, said Wood Mackenzie.

But China’s copper production runs at low costs and meets rigorous environmental standards, making its factories “highly competitive”, said Wood Mackenzie copper markets managing consultant Liu Zhifei.

China possesses half of the world’s capacity to make wire rods from copper, and that capacity is still expanding, added the report.

Semi-manufacturing – which involves taking copper goods part of the way to completion – outside China, such as in Europe, faces “lower utilisation” and higher operating costs, said the report, quoting the analytics firm’s global mining research director Nick Pickens.

In the US, Wood Mackenzie said, government incentives may “not ensure the long-term sustainability of the industry”.

And according to Zhao Xijun, a finance professor at Renmin University in Beijing, it makes little sense for Western leaders to advocate decoupling of the copper supply chain because “China’s advantage is in manufacturing” even though some other countries have more raw materials.

“The US idea of decoupling from a low-cost and high-efficiency industry would mess up the supply chain,” Zhao said.

“Politicians might be able to walk away with votes, but the industry will lose out.”