My Precious — South American Copper

Geographically, Chile holds the world’s largest reserves of 200Mt of contained copper, which account for 23% of the world’s total reserves. Chile remains the world’s largest producer of copper concentrate, with 25% of the world’s copper concentrate. 

Chile is also the world’s biggest copper concentrate exporter. Chile’s shipment of the copper ore and concentrate totalled at 12.91Mt in 2021, up by 1.1% year on year. The largest destination for Chilean copper exports was Asia. Chilean copper exports to Asia amounted to 11.79Mt (91% of the total export) in 2021, out of which 9.00Mt (70%) were designated to China. Japan was the second largest destination of Chilean copper that year, with 1.87Mt (15%), followed by South Korea (424kt, 3%) and India (328kt, 2.8%).

Hot on Chile’s tail, Peru holds reserves of 87Mt of contained copper, accounting for 10% of the world’s total reserves and ranking second in the world. Peru’s copper in concentrate output is expected to increase by 8.1% to 2.4Mt in 2022.

Peru is the second-largest global producer and exporter of copper concentrate. It produces approximately 13% of the world’s copper concentrate. Peru’s copper ore and concentrate shipments totalled 7.57Mt in 2021, out of which more than 70% were destinated to China, followed by Japan and South Korea being the second and third largest destinations for its copper ore and concentrate.

There have been rising concerns that a third of the word’s copper supply from Chile and Peru may be at risk given the fragility of their economies and their political shifts especially with the proposed higher taxes and royalties. Chile and Peru are both looking to reap the benefits of surging copper prices to help them pay for post-pandemic recovery and to boost their economies.

Chile’s proposal to increase taxes and royalties is making its way through its parliament, while Peru is evaluating an adjustment to taxes, which will target a share of the spoils that mining companies have earned from rising metal prices but ignore the large capital investments made.

Social unrest in Chile and Peru continues to threaten their supplies and exports. Las Bambas, the second largest copper mine in Peru, for instance, has suffered from repeated road blockades around operations as the surrounding communities are demand a bigger cut. The mine’s owner, MMG, estimated that Las Bambas has been blocked for a total of 400 days since the commencement of copper concentrate transport in 2016.

In Peru, rising food and fuel costs led to violent protests in early April, followed by a less-than-one-day curfew. Although it is unclear to what extent Peru’s copper supply and export have been affected by the uprising, increased instability is to hold the market’s attention. Nevertheless, as described above, Chile and Peru’s copper production is expected to continue to rise given their importance to global supply.

The Copper is Mine, Give it to Me — China

The centre of primary smelters, China, has nearly doubled its copper smelting capacity in 13 years, with its primary smelting capacity expanded to 9.30Mtpa in 2021 from 5.65Mtpa in 2008. Unsurprisingly, China has been struggling to meet this increasing demand for copper concentrate from their domestic resources.

Miners in China have been facing challenges such as declining copper grades and deeper mining conditions. This has led to copper producers in China to look to the seaborne market to import copper concentrate or partially processed copper ore. In the past ten years, China’s copper concentrate and ore imports grew at a CAGR of 11.6% to a record 23.4Mt in 2021. Over one third (38%) of China’s 2021 imports came from Chile, followed by Peru (24%), Mexico (7%) and Mongolia (6%).

China’s copper concentrate self-sufficiency rate almost halved over the past decade to around 22% in 2021 and is expected to further reduce to below 20% in the next decade. Looking to secure upstream resources, Chinese companies have been active in mergers and acquisitions of high-quality copper resources around the world.

In Peru, China controls Las Bambas and Toromocho mines which deliver a combined ~600ktpa of copper in concentrate to China. In the DRC, Chinese investors are making a big play in the country’s mining sector and are particularly dominant in the copper- and cobalt-rich Haut Katanga and Lualaba areas of the former Katanga province.

All the copper from the recently-launched giant Kamoa-Kakula mine, for example, is destined for China. The mine has signed off-take agreements with China’s Zijin Mining and CITIC Metal, for 50% each of the copper products from Kamoa-Kakula’s 200ktpa phase one production.

In Serbia, Zijin controls Bor’s four copper mines and one smelter. Zijin is undertaking technology upgrades and expanding capacities at the Bor complex. Zijin also owns Čukaru Peki Mine in Serbia. The Čukaru Peki’s Upper Zone started production last year and is designed to produce 91ktpa of copper at full capacity.

A number of countries, including the DRC and Indonesia, have attempted to ban exports of unprocessed ores and concentrates in recent years in order to strengthen their domestic smelting operations and direct investment into higher value-added mineral activities. However, insufficient smelting capacities in those countries have forced the governments to delay or reverse these export bans.  No matter when and whether the bans take effect or not, China will continue to seek new suppliers to secure the copper concentrate for its hungry smelters.

China is also the world's top refined copper consumer and importer, with the biggest demand sector being power (electricity generation and distribution) at 46% of total use, followed by home appliances (15%), transportation (10%), construction (9%), electronics and electronic products (9%) and others (10%). China's imports of unwrought copper and copper products totalled 5.53Mt in 2021, down 17.2% from 2020's record volume of 6.68Mt.

Driven by its continued growth in industrialisation and urbanisation, China’s demand for refined copper grew at a CAGR of 5.8% in the past ten years to 13.88Mt in 2021. AME forecast that China’s demand for refined copper will continue to increase.

Over the short to medium term (2022-2026), China's demand for refined copper is expected to grow at a CAGR of 2.6% to 15.78Mt, supported by the continuation of infrastructure investments and robust manufacturing, and by new growth sectors such as electric vehicle battery production. Meanwhile, China’s own refined copper supply is expected to grow at a CAGR of 2.6% to 11.92Mt by 2026. Unsurprisingly, China will continue to import a large amount of refined copper from the seaborne market. 

China, typically a net importer, rarely exports large volumes of copper. However, the country’s copper exports rose to a record high in 2021, with its exports of unwrought copper and copper products up by 25% year on year to 932kt in 2021 from 744kt in 2020. During 2021 when copper prices of SHFE were lower than that of LME, producers and traders were encouraged to ship copper outside China. Improving demand for copper in the rest of the world also helped boost shipments.

Stepping into 2022, global energy and commodity prices rose sharply, fuelled by the Russia-Ukraine conflict that has raised concerns about tightening supplies. The pace of the copper price increase in ex-China markets outpaced China’s domestic market, which was dampened by lockdowns in some major cities, such as Shanghai and Shenzhen.

Meanwhile, rising input costs have reportedly forced increasing numbers of manufacturers to reduce or suspend production. China’s copper producers and traders are expected to continue seeking export opportunities in the near term amid continued negative SHFE-LME arbitrage and declined import premium coupled with softened demand.