The roles of Asia and Chile in the world copper market

Due to copper’s remarkable chemical features, it is highly heralded as the most cost-effective metal for a raft of renewable energy structures, such as the like of wires, batteries, conductors, and transformers.

Even for its widespread use in many influential domains of technology, construction, and transportation, many consider Doctor Copper as the reliable index of economic health, especially when many countries around the world are determined to fulfill the goals of climate change, generating enormous demand for copper to produce electric vehicles and other devices of renewable energy sources.

While there is not a shadow of a doubt that the role of copper is indispensable for the transition to a green future, copper prices in 2022 have been subject to considerable fluctuations.

In other words, notwithstanding the presentiment of rising demand and the supply shortage, the short-term prices of copper are currently marking down.

Perhaps that is due to the global market’s tightened financial policy, the European energy crisis, China’s real state turmoil, and the slightly Russian-Ukraine war.

But what is crystal clear is the fact that most of the market volatility is not to stand forever, and in the end, it is the supply and demand balance that would determine the world copper market in the long run.

For instance, consider what happened to the market during the COVID-19 pandemic in 2020, when global copper production underwent a 2.6% fall in comparison to the previous year. In the sense of pandemic lockdowns and restrictions, although the copper mines of the producing countries all around were closed, the copper market was revived in 2021, with its production expected to rise at a CAGR of 5% until 2025.

As a result, what is happening on the copper commodity’s demand and supply side, especially the copper producer and consumer countries, is the main determiner of the global copper market status.

So it is due regard to scrutinizing the roles of Asia and Chile in the world copper market, which are the major consumers and producers of copper, respectively.

Asia, the world’s largest copper consumer

As the copper demand and supply balance plays a pivotal role in the global copper market, let’s dig deep through them respectively to see if there is a gap between the two.

In order to fulfill the targets of net-zero emissions by 2050, it is predicted that the copper demand across the globe would increase to the amount of 50mn by 2035, which is approximately twice the current copper demand.

This amount would further rise to reach 53mn by 2050 as all of the copper used in the world during the timespan of 1900 and 2022 would hardly reach such an eye-watering amount.

Moreover, as per the ICA, for the sake of satisfying the demand raised from the use of sustainable solar and wind energy sources, it is estimated that a 56% increase in demand would be observed by 2027.

As 67% of global refined copper in 2021 was consumed by Asia, among which 50% was allocated just to China, it is self-evident how significant Asia's role is in the copper market's demand side.

In recent decades the amount of copper consumed in Asia has intensified, just as today when the continent has grabbed the first spot among copper consumers by using 70% of refined copper consumed around the world just in 2018.

The main reason behind this rise in copper consumption is the Asian countries’ abrupt industrialization process, being a good representative of the consumed copper around the world.

Yet because various countries on the continent are at differing ranges of economic growth, their amount of consumed copper has different rates.

This huge amount of copper is primarily used in constructing and manufacturing industries of urbanized and dense populated countries that have staggering economic development, the most salient of which is China.

While China currently holds the record for the annual establishment of wind turbines, it is estimated that the country would be a prominent manufacturer of electric vehicles by 2025 due to its Made in China 2025 initiative, which would further stimulate copper demand, especially when EVs uses around four times of the copper needed in usual vehicles.

Besides, as China is determined to switch to green energy sources to have net zero emissions by 2060, it will urgently need a considerable amount of copper to be imported, despite the fact that it is already the third copper producer itself. Its refined copper product reached the amount of 10.49 Mt in 2021, up 7.4% year on year, as its output was estimated to increase in 2022 as well.

Be that as it may, even now, China’s copper consumption is more than its production. Being considered the biggest importer of copper metal across the globe, 43% of the worldwide copper ore is allocated to this economically influential Asian country.

Among the other outstanding Asian producers, one can suggest Indonesia, which its products are primarily exported to China and in a lower amount to Japan, yet it is to be said that an export ban is set to be in place for the Indonesian copper concentrate since 2023.

Therefore, with China being the largest copper consumer in the world as well as one of the largest copper producers itself, its presence in the global demand and supply chain is by no means negligible, having a special place in the roles of Asia and Chile in the world copper economy.

So whatever occurs in the country in terms of incentives and policies that might be imposed in sections that heavily depend on copper consumption, as the likes of real estate and infrastructures of energy sources, would cause fluctuations in the copper market.

For instance, consider the volatile prices of copper in 2022, which is to some extent due to the fact that the copper demand in the real estate and household section of China’s consumption has declined. Yet this would not be a very serious case in the long run because some counter-cyclical projects of China’s government have generated less volatile demands in the form of the usage of copper in the transition to green energy that is not under the influence of the tightened cycle of the market.

Finally, in this section, it is worth mentioning that copper demand in China in 2021 exceeded 10 million tons, and this amount will not change in 2022, while the demand is predicted to rise by 4.0% to the amount of around 13.580 Mt.

It remains to be seen whether copper supply across the globe, especially in Chile, would be enough to satisfy the world’s soaring demands considerably generated by Asian countries, particularly China, at least in the short term, to guarantee a less volatile market or not?

Chile, the world’s largest copper producer

Since copper has allocated more than half of the overall Chilean amount of exports, there would be no doubt at all about the importance of copper in the country’s economy, to the point that with the current decrease of global copper demand in the cope of world market inflation, Chile might go into recession in the second half of 2022.

But when it comes to the supply side of the red metal, USGS reported that the refined copper production across the globe rose by 3% to the amount of 26 Mt in 2021 from 25.3 Mt in 2020, while the produced copper of several countries, most notably Chile melted down in 2021. This is while Chile is the world’s leading copper producer, bringing out an estimated amount of 5,636 thousand tonnes of copper in 2021, down 1.7% yearly.

According to the graph below, this was the third successive year that Chile’s copper production reduced in comparison to the previous years, and that was owing to the fact that the outputs of Chile’s largest copper mines of Escondida, Spence, El Teniente, and Los Pelambres decreased.

Aside from the COVID-19 pandemic, labor strikes and environmental factors, especially the water shortage, the drop-off of the concentrator feed grade of Escondida, and the lower ore grade of Spence were the main reason behind the decline in Chile’s copper production.

But even worse than that, the country’s copper product in January 2022 dropped by 7% YOY, which was unprecedented for about 11 years as it was the lowest amount of copper production in the month of January since 2012.

While BMO predicts that Chile’s copper production in 2022 is set to become lower than in 2004, it is to be said that the country’s copper products would increase in 2023, as the Quebrada Blanca mine would be expanded in the second half of 2022.

Furthermore, with the onset of several new mining projects, such as Esperanza Sur Pit, Quebrada Blanca Phase 2, and the expansion of some others, including the Los Pelambres, copper production in Chile is anticipated to rise between 2022 and 2026.

Be that as it may, as a result of a constitutional amendment, the government of Chile introduced a new mining royalty bill in 2022 that would impose a 1% tax on gross revenue for those projects that produce lower than 200kt copper each year and up to 3% for the other mining projects. Now, as miners have to shoulder such a tax burden, investors may be discouraged from plowing their money into new mining projects making such investments even more uncertain.

This is while a new surge of demand for copper might be conducive to serious unsustainable shortages of supply, especially when neither the expansion projects nor the new mines could not rush out to satisfy the soaring demand.

In other words, for the development of a new mine, at least 16 years are needed. Hence the current new cooper mind would not be prolific enough to meet the buoyant demand, nor would copper recycling cope with such a surge in demand.

The case is more serious for Chile, especially after billions of dollars were capitalized for the commencement of new projects in the previous 18 years. Still, the country’s copper output has decreased for at least three consecutive years until now.

Consequently, with the presentiment of a gap between copper supply and demand, significant economic repercussions would be felt throughout the world, as not only supply chains for industries would be cut off, but also the usual consumers and producers would be under the mounting pressures of the expensive cost of the goods and energy.

Such a tight copper market calls for considerable investments in the mining section that requires further advancement of technology along with effective cooperation of governments.

Investing in mining and the production process is not possible for everyone, especially retail investors. Cryptal.Global aims to solve all the problems by combining Blockchain technology, the mining industry, copper production, and tokenization.

Still have questions? Get in touch:
Telegram | Twitter | Youtube | Whitepaper | Reddit | FAQ