Copper stocks in warehouses on the Shanghai Futures Exchange fell in May to their lowest point since January. The phenomenon reflects rising demand for copper in China, which consumes more than half of the world's copper.
Last month, the prestigious International Society for Copper Studies (ISCG) revised its 2023 forecast. The association now expects that instead of a copper surplus this year, the market will have a deficit of 114,000 tonnes. The factors contributing to this problem are the operational and technical difficulties that many copper producers are having in opening mines.
At the same time, global demand for copper continues to rise, driven by China, whose GDP grew by 4.5% at the end of the first quarter of 2023, well ahead of expectations. As the most important industrial metal, copper is known as an economic barometer for a reason, and the country's demand for copper usually increases in line with GDP growth.
However, in recent years, the energy transition has become an additional factor in the growth of copper demand. In order to prevent global temperatures from rising by more than 2 degrees Celsius by 2050. The world's leading countries have agreed to phase out fossil fuels in favour of renewable energy sources and electric vehicles. In these emerging industries, copper is essential as a metal with unparalleled electrical conductivity. Copper is also used in solar panels and wind turbines. Each electric car contains 80 kg of copper in its batteries and wires.
China is a world leader in renewable energy. Green energy sources - solar and wind - already account for a third of the total installed capacity of the Chinese energy system. China makes 60% of the world's electric cars, with 10 million manufactured last year. Home-grown BYD and niche, well-known electric car brands - Weilai, Xiaopeng and RISO - are gradually pushing the well-known US brand Tesla out of the market.
In addition, China is also supplying manufacturing equipment to this 'green' industry and is actively exporting it both at home and abroad. According to Wood Mackenzie, China accounts for 50% of global wind turbine production, 66% of solar module production and 88% of battery production (especially for electric vehicles). China produces equipment for renewable energy and exports large quantities. Last year, China earned around USD 100 billion from the export of renewable energy technologies and therefore requires large amounts of copper for production.
The transition to clean energy is also supported by markets for other metals such as lithium or nickel, which are scarce and highly susceptible to price fluctuations, so copper is also used extensively in construction, engineering and electronics. However, the use of copper in the green energy sector has increased the demand for additional copper, which current mining operations are not able to meet.
The journal Mining Intelligence recently published a ranking of new copper mining projects based on their projected durations. At the top of the list is the Udokan copper project in eastern Russia. The Udokan mine was discovered in 1949, but has remained undeveloped for a long time due to difficult natural conditions and lack of technology. The construction of the mining and metallurgical complex at Udokan is currently 95% complete. Copper operations are about to start. The mine has reserves that can be mined for 70 years.
The Oyu Tolgoi mine in the Gobi Desert, a joint venture between mining giant Rio Tinto and the Mongolian government, was the runner-up in Mining Intelligence's 'longest-lived' project ranking. The project will increase annual production capacity to 500,000 tonnes when underground mining operations begin, with enough reserves to last 30 years. What Russia's Udokan mine and Mongolia's Oyu Tolgoi mine have in common is their geographical location - bordering China, the world's largest consumer of copper.
Interestingly, Chile, the world's largest copper producer (with a quarter of the world's copper production), has only one place in this ranking. Its Quebrada Blanca copper project has a predicted life of 25 years. The project is owned by Canadian company Teck resources, which is currently attempting to acquire commodities trading giant Glencore. The remaining large copper projects (depending on their duration) are located in countries that were not previously known as major copper producers, but have also entered the race to provide their metal resources for the world's energy transition. These include copper projects in Greece, Brazil, Oman and Botswana, as well as China's Sichuan Road and Bridge Group's investment in a copper project in the Eritrea region of Africa.