Chinese dominance in copper is so strong that countries looking to limit China’s role in their energy transition plans risk higher prices, and ultimately a slower response to climate change, according to Wood Mackenzie.
The U.K.-based research firm counts Canada among the nations where efforts to cut reliance on China are at odds with decarbonization goals.
Ottawa’s critical minerals strategy lists copper among 31 minerals considered critical to the transition from fossil fuels. The federal government has taken a tough stance against Chinese state-owned companies getting involved in the sector. Since 2022, Ottawa has asked Chinese investors in Canadian graphite, lithium and copper companies to divest their holdings, even if the assets are outside of Canada, due to national security issues.
This hasn’t curbed China’s interest in Canadian mining.
In January, Zijin Mining Group of China announced plans to buy a 15 per cent stake for $130 million in Vancouver-based copper development company Solaris Resources (SOL.TO) A subsidiary of the same Chinese company recently launched a judicial review against Ottawa regarding its purchase of a gold mine in Peru from Pan American Silver (PAAS.TO). (Gold is not considered a critical mineral under the federal government’s strategy.) In 2022, Zijin purchased Canada-based Neo Lithium for nearly $1 billion.
Stakeholders need to chart a realistic course that involves China.Wood Mackenzie global mining research director Nick Pickens
Copper wire is the backbone of electrification, with global demand for the metal set to grow 75 per cent to 56 million tonnes by 2050, according to Wood Mackenzie. However, the International Energy Agency warns global copper mines will meet only 80 per cent of demand by 2030. In Canada, copper and nickel production declined for a fourth consecutive year in 2023, according to S&P Global Market Intelligence.
Canada aims to achieve a net-zero electricity grid by 2035. Last year, an executive with global cable supplier Nexans warned the country’s power lines are “miles away” from being ready to connect all of the renewable sources needed for that target.
“The world cannot decarbonize without copper,” Wood Mackenzie global mining research director Nick Pickens wrote in a recent report titled Securing copper supply: No China, no energy transition.
Pickens says China effectively controls two of the four stages of copper’s value chain – smelting and refining. This follows a decades-long “investment spree” to support rapid industrialization and urbanization.
“Since 2000, China has accounted for 75 per cent of all global smelter capacity growth,” Pickens wrote. “Hundreds of billions of dollars in new copper processing and fabrication capacity would be required to replace China. This would create inefficiencies that would result in significantly higher-priced finished goods, and increase the cost and timeliness of the energy transition.”
Canada has one copper smelter, and one copper refinery in operation today. Both are located in Quebec, and operated by Switzerland-based Glencore (GLEN.L).
Wood Mackenzie estimates nearly half of the US$55 billion committed to new copper mine supply since 2019 was spent by China, mainly on overseas projects. It found that almost US$85 billion in new smelting and refining assets would be needed to displace Chinese supply.
Pickens warns energy transition plans attempting to sideline the world’s second-largest economy will be slower and costlier.
“Legislation such as the [U.S.] Inflation Reduction Act aims to subsidize supply chain investments in the U.S. Meanwhile, critical minerals strategies in Europe, Australia and Canada that now include copper lean towards supporting mineral extraction and the circular economy,” he wrote.
“These dual goals – of decarbonization and reducing dependence on metals supply from China – are at odds,” he added.
“Stakeholders need to chart a realistic course that involves China.”
With files from Reuters
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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