A ‘green’ patina

In 2022, Cru expects recycling investments, strong demand from electric vehicles (EVs) and an increasing focus on sustainable, or green, copper. In addition, the physical copper market is expected to remain tight, creating substantial upside risk to pricing.

Expect more copper recycling investments

Three factors are coming together to drive recycling investments:

1) consumers want lower carbon metal,
2) scrap supply is rising and
3) policy changes present opportunities in developed markets.

A number of investments have been announced or are underway in the United States. Ames Copper Group’s  $50 million project will consume 54,000 tons per year of scrap and produce 50,000 tons per year of copper anode. The Shelby, North Carolina-based smelter, a joint venture between Prime Materials Recovery Inc. of Connecticut and Cunext of Spain, is set to come online in the second quarter of 2022. Ulm, Germany-based Wieland says it is investing $100 million in a recycling and refining center in Shelbyville, Kentucky, with production slated to begin in late 2022. Another German company, Aurubis, which is headquartered in Hamburg, says it plans to invest 300 million euros, or $342.5 million, in a secondary smelter in Augusta, Georgia, that will process 90,000 metric tons per year of complex material to produce 35,000 metric tons of blister, with start-up planned for the first half of 2024. Finally, the more speculative $800 million Reco project in Ohio would produce 80,000 metric tons of refined cathode from scrap, e-scrap and fines, with start-up slated for 2024.

Investments such as these are being made in the U.S. because countries in Asia no longer want to import low-grade scrap. Therefore, developed world policy is shifting to encourage processing at home, and consumers want circularity and metal with a lower carbon footprint.

Europe will see the next raft of investments. Aurubis, in its most recent Capital Market Day, Dec. 6, 2021, said that European recycled materials supply will see a compound annual growth rate ranging from 4 percent to 6 percent from 2019 to 2035, in line with the growth in the U.S. market. In addition, the European Union will move ahead with plans to restrict scrap exports. (Editor’s note: The European Commission says non-Organization of Economic Cooperation and Development, or non-OECD, countries must opt-in to receive secondary commodities shipments from EU nations.)

Battery foil emerges as major winner from EVs

Copper is set to benefit greatly from rising EV production, but investments in copper semifinished products capacity are lagging the increases seen in EV production. Battery foil is the exception, where a burst of investments is coming.

The weight of copper foil used in EV batteries depends on the battery size and the thinness of the copper foil. Foil typically uses high-purity copper wire as a raw material, which is dissolved and electro-deposited to form a thin layer of foil, which is further processed to produce copper battery foil.

Companies from Korea, Japan and Taiwan are the leaders in the market, but Chinese companies are investing and building expertise rapidly.

Korean company SKC is well-advanced with its plans to increase copper battery foil production from 43,000 tons per year to 202,000 tons per year by 2025. The company has announced plans to build a 50,000-ton-per-year plant in Poland and has announced plans to expand its existing capacity in Jeongeup, Korea.

Korean producer Iljin Materials currently operates a 40,000-ton-per-year plant in Korea and a 20,000-ton-per-year plant in Malaysia. Iljin is investing in Malaysia and plans to build foil plants in the U.S. and Europe. The company is targeting 200,000 metric tons of copper battery foil production by 2025 and has raised 1.15 trillion Korean won ($966 million) to fund these investments.

A subsidiary of Korea’s Doosan Corp., Solus Advanced Materials, has built a 50,000-ton-per-year copper battery foil plant in Hungary that plans to produce 24,000 tons of foil this year. A further expansion is expected to lift foil production in Hungary to 100,000 tons annually by 2026.

Solus Advanced Materials entered the North American copper battery foil market in November of last year with the acquisition of CFl’s foil plant in Quebec. The company says the facility has the potential to produce 60,000 tons per year of battery foil. Solus Advanced Materials signed a memorandum of understanding with the trading arm of Japan’s Toyota Group in May 2021, which could result in up to 30,000 tons of EV battery foil shipments.

First green copper deal occurs

Copper producers with a low carbon footprint are eager to mark their territory. Meanwhile, consumers are working to reduce emissions and want to tell their customers about it.

It is nearly certain that copper will follow steel and aluminum and get a high-profile green copper deal reported in 2022. Importantly, still unknown are what scope will be included and what level of carbon emissions will be considered green. Will low-carbon copper deals cover the full emissions from mine to smelter?

It is the mines that matter. The difference in emissions, according to Cru’s Emissions Analysis Tool, predominantly comes from concentrate processing.

A green copper premium is not likely, however, as stronger pull from consumers will be needed to see a meaningful low-carbon copper premium.

Inventories will stay at historic lows in 2022

Reported inventories will start this year at a record low and, after the normal seasonal build in China is worked down in the second quarter, we will be back at rock-bottom stocks by the third quarter. This likely will lead to volatility in forward spreads.

The copper market will remain tight in 2022. Our forecasted surplus in our October 2021 “Copper Market Outlook” of 50,000 metric tons only increases total stocks by less than one day of global copper consumption.

We enter 2022 with exchange inventories exceptionally low, and the forecast market surplus easily can be absorbed in consumer, producer or merchant off-exchange stocks, meaning exchange stocks will stay low.

Any major demand overshoot or supply disruption could lead to a year-over-year decline in inventories in 2022, likely tightening forward spreads and spurring a London Metal Exchange (LME) rally.

What could push the copper price to $12,000 per metric ton?

A number of factors could contribute to a higher price for copper in the year ahead. Chile’s new president and new constitution could be among them.

Gabriel Boric, Chile’s new president, will be limited in his legislative powers by the evenly balanced congress, but he has said he will oppose mines that destroy the environment. Additionally, the redrafting of the country’s constitution leaves uncertainty this year.

© salita2010 / stock.adobe.com

Peru also could see additional disruptions in the country’s mining sector this year after left-wing Pedro Castillo’s election this past summer.

China’s 20th Party Congress will be held in October. The country’s President Xi Jinping likely will emphasize common prosperity and ecological civilization. But additional stimulus will be needed if the Chinese economy remains weak, and green energy and EVs could get additional support.

If LME and COMEX copper stocks steadily trickle out of their warehouses in the first half of this year, we could reach the seasonally tight third quarter with very low exchange inventories.

These scenarios could set the copper price up for a substantial rally in 2022, with a price of $12,000 per metric ton highly possible.

Eoin Dinsmore has been with Cru, headquartered in London, since 2011. He is the head of the base metals demand and markets team. Through this work supporting the world’s leading metals and mining companies, he has built a reputation as a top metals analyst. He can be contacted at eoin.dinsmore@crugroup.com.