The Copper Crisis: How the World’s Largest Miners are Rethinking Supply Chains
The world’s largest copper miners are predicting a shift towards closer collaboration with end-users, such as car manufacturers and utilities, to address the looming shortage of the metal crucial to green technologies. With demand for renewables, grid upgrades, and electric cars on the rise, new mines are becoming increasingly difficult to build.
A Changing Landscape
The mining industry is facing a perfect storm of challenges, including deteriorating geology, lengthening permitting times, and surging costs due to inflation and sustainability considerations. Investors’ demand for dividends over growth and copper prices that are too low are also making it harder for miners to operate.
"We will start to see more interest in direct linkages between the miners and those ultimate end-users," said Jonathan Price, CEO of Teck Resources. "We are starting to see and hear more of that."
A New Era of Supply Chain Integration
To address the concerns of end-users, who are worried about higher prices resulting from consolidation, and middling miners, who are vulnerable to takeovers by larger companies, there is a growing trend towards supply chain integration.
One example is Nexans, the world’s second-largest cable manufacturer, which owns its own rod mills and has long-term supply contracts with miners and smelters. "There’s enough copper in the world, but the capacity for extraction is not increasing as fast as consumption," said Vincent Dessale, COO of Nexans.
The Role of Car Companies
Car companies are also taking a more active role in securing copper supply. Stellantis, owner of the Jeep, Fiat, and Peugeot brands, has partnered with McEwen Copper, which faces a unique foreign currency issue in Argentina, where its project is.
Copper could follow lithium, nickel, and cobalt in having car companies finance mines in return for supply. This approach has precedent in the oil industry, where companies like ExxonMobil and Chevron have partnered with smaller oil producers to secure supply.
A Shift in the Market
The market is shifting towards a more direct and collaborative approach between miners and end-users. This is driven by the need for certainty and security of supply in a market where volatility is increasing.
"We’re heading into a world of serious supply constraints for copper," said Christopher LaFemina, analyst at Jefferies. "It’s not like you can switch a flip to bring the capacity online."
Conclusion
The copper market is facing a perfect storm of challenges, including under-investment in discovering and developing new projects, deteriorating geology, and surging costs. The industry is shifting towards a more collaborative approach, with miners and end-users working together to secure supply and address the looming shortage.
FAQs
Q: Why is copper in short supply?
A: Copper is in short supply due to under-investment in discovering and developing new projects, deteriorating geology, and surging costs.
Q: What is driving the shift towards supply chain integration?
A: The shift towards supply chain integration is driven by the need for certainty and security of supply in a market where volatility is increasing.
Q: How can car companies secure copper supply?
A: Car companies can secure copper supply by partnering with miners and smelters, or by financing mines in return for supply.
Q: What is the impact of copper prices on renewable energy projects?
A: Copper prices can have a significant impact on renewable energy projects, with a 10% increase in prices lowering the internal rate of return by 1%.
Q: Can copper be substituted with other materials?
A: Copper can be substituted with other materials, such as aluminum, in certain applications. However, this is not a viable solution for all applications.
Author: www.ft.com
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