The rush to secure future supplies of copper is most obvious in the record price for the metal and takeover activity, but a more important event is moving into sight, China’s potential control of copper which could replicate its stranglehold on rare earths and other critical metals.
Rolls of copper sheeting are seen at a factory which makes copper products in Dongyang, in China’s eastern Zhejiang province. (Photo by AFP) / China OUT (Photo by STR/AFP via Getty Images)
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Rare earths, a family of 17 metals which are neither rare nor earths, have caught attention of western governments thanks to their use in modern technologies, especially weapons systems, and because China controls 90% of supply and is prepared to use its market power as a weapon in trade disputes.
Japan has been most affected by China’s willingness to restrict rare earth sales to countries it considers unfriendly, which is what’s happening today because of a dispute over Taiwan which threatens to drag in other countries.
But rare earths, despite their exotic uses in small quantities, are not essential in heavy industry and electrification. The big German car maker BMW, for example, has invented an electric motor for its vehicles which is rare earth free.
Copper is in a different category with widespread uses across industry, from construction to plumbing, and in the electrification of everything.
No AI Without Copper
Artificial intelligence (AI) data centers could not be developed without a large supply of copper.
China does not have the grip on mining copper as it does on rare earths with Chile and other South American countries the biggest miners of the metal.
But where China is able to put pressure on price and supply is in the refining of copper where it has 50% control of finished production.
Other metals are likely to feel a rare earth-like Chinese squeeze before the world’s biggest manufacturer turns its attention to copper. Tungsten processing is already 83% under Chinese control. Antimony processing is 80% Chinese. Lithium 75%.
The Jinguan Copper smelter, operated by Tongling Nonferrous Metals Group Co. in China. Photographer: Qilai Shen/Bloomberg
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The common thread connecting basic industrial metals which have both commercial and military applications is that the China invested in their production whereas the western world lost sight of their importance in a rush to embrace banking and computing software.
The cost of shifting old-fashioned and occasionally polluting processes to China and other low-cost countries is now becoming obvious in the stampede for mining assets and the rush to rebuild refining and smelting capacity, a process which will take years and possibly decades.
The merger earlier this month of Canada’s Teck Resources with South Africa’s Anglo American is a deal driven by copper which has rocketed up in price by 40% over the last 12-months to be trading today at an all-time high of US$6.03 a pound.
Rio Tinto and Glencore, the world’s eighth and ninth biggest copper miners, are edging toward a deal which could create the world’s biggest producer of newly mined metal.
Their proposed merger of equals is being closely watched by BHP, currently the world’s third biggest copper miner which tried twice last year to merge with Anglo American.
BHP Hungry For More Copper
It is BHP’s obvious hunger for more copper which could see it gate-crash the Rio/Anglo merger.
Governments, especially those of China, the U.S. and Europe, and watching the corporate maneuvers closely.
S&P Global, a consulting firm, estimates that by the year 2040 the world could be experiencing a shortfall of 10 million tons of copper a year, equivalent to 33% of current demand.
The potential copper shortage was described by S&P last week as “a systemic risk” to the global economy.
Copper tubing at the Golden Dragon Precise Copper Tube Group Inc in Chongqing, China. (Photo by VCG/VCG via Getty Images)
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Daniel Yergin, vice-chairman of S&P, told London’s Financial Times newspaper that copper is “the great enabler” of electrification, but the accelerating pace of electrification is an increasing challenge.
“At stake is whether copper remains an enabler of progress or become a bottleneck to growth and innovation,” he said.
China clearly understands the importance of basic industrial materials which is why it has invested heavily in mining, refining and value-added processing.
The rest of the world is now being forced to play catch-up with China or pay the prices China demands for the essential metals it controls.