Will renewables stand the copper stress test?
Energodigest | 26 August 2022
While many pessimists deny a future to renewables, global renewable energy funding, according to BloombergNEF, hit a new high of $226 billion in January-June 2022, up 11% from the same period last year. Investments in solar energy totaled $120 billion (+33% y-o-y), while funding for wind-related projects rose 16% to $84 billion, with China being the top investor in both solar and wind segments ($41 billion and $58 billion, respectively).[1]
Along with extreme weather conditions, with sizzling heatwaves and drought across many regions prompting a drop in renewable power generation, this growth trend could be stalled by problems with copper supply, an essential metal for renewables.
Between January and June, copper prices plunged 17.2% to $8,100 per tonne, down 14.5% y-o-y (see Fig. 1) in response to lackluster demand from China. This sharp drop, however, triggered a buying blip in China, with its imports of this metal rising markedly in the following month.[2] Apart from the waning demand, copper woes could be worsened by a supply shortage anticipated for the remainder of the year, as Chile, the world’s largest copper producer, grapples with declining production levels amid the prolonged drought that has lasted over a decade.[3] The challenge for Chile is heightened by rising MET rates, which add to the uncertainty about investments in the domestic copper sector; currently, Chile ranks first in terms of copper capex and the number of projects with planned construction kickoff in 2022-23 (see Fig. 2).[4] In its recent tax package, the Chilean government proposed to increase the tax burden, which could drive the effective tax rate up by 10%-15%.[5] Faced with these cost pressures, many copper miners revised their production forecasts downward for the next two years.
Along with extreme weather conditions, with sizzling heatwaves and drought across many regions prompting a drop in renewable power generation, this growth trend could be stalled by problems with copper supply, an essential metal for renewables.
Between January and June, copper prices plunged 17.2% to $8,100 per tonne, down 14.5% y-o-y (see Fig. 1) in response to lackluster demand from China. This sharp drop, however, triggered a buying blip in China, with its imports of this metal rising markedly in the following month.[2] Apart from the waning demand, copper woes could be worsened by a supply shortage anticipated for the remainder of the year, as Chile, the world’s largest copper producer, grapples with declining production levels amid the prolonged drought that has lasted over a decade.[3] The challenge for Chile is heightened by rising MET rates, which add to the uncertainty about investments in the domestic copper sector; currently, Chile ranks first in terms of copper capex and the number of projects with planned construction kickoff in 2022-23 (see Fig. 2).[4] In its recent tax package, the Chilean government proposed to increase the tax burden, which could drive the effective tax rate up by 10%-15%.[5] Faced with these cost pressures, many copper miners revised their production forecasts downward for the next two years.
Indeed, there is a rocky road ahead for copper: according to estimates by S&P Global,[6] the global copper market in 2035 could see a deficit of 1.5 million to 9.9 million tonnes, depending on how well companies manage to cope with pandemic-induced difficulties and supply disruptions.
Will the market weather these storms or will it give up on its renewables plans altogether? We’ll soon know.
Will the market weather these storms or will it give up on its renewables plans altogether? We’ll soon know.