The impact of the COVID-19 pandemic could continue to weigh on copper production into 2023 after companies reduces activities to protect staff, a top analyst warned April 13.
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Speaking at the World Copper Conference, CRU's director of copper research Vanessa Davidson said that government-imposed lockdown reduced copper production by around 500,000 mt last year, particularly at mines in the Americas. Worst affected was Peru, the world's second largest producer of the metal, where production fell by around 15%.
However, a rapid recovery in mine production after the second quarter meant that the loss of production was much less than the 900,000 mt originally anticipated.
Although copper mine production is expected to increase 2.5% this year, the decision by many mining companies to delay key activities including stripping and maintenance to protect workers, could mean the impact of the pandemic will continue to be felt in the coming years, Davidson noted.
Meanwhile, the growing interest to reduce carbon emissions is likely to drive copper demand globally faster than producers can expand, said Erik Heimlich, CRU's senior copper analyst.
"Demand caused by the greening economy will lead to a significant supply gap opening up by the mid-2020s, providing strong price support," he said.
With production from existing mines set to peak in 2023, the gap between supply and demand is set to reach 5.9 million mt by 2031 if no new operations are developed.
There are plenty of mine projects in development, enough to increase production by almost 11 million mt.
But just building enough to fill the supply gap is expected to require more than $100 billion of investment, Heimlich noted.
In particular, the growing demands from stakeholders that the mining industry collaborate with local communities, reduce their carbon emissions, and limit their environment impact are pushing up costs.
One example is desalination plants so mines do not impact local water supplies. Antofagasta plans to complete a new desalination plant in Chile by 2025 that provides 90% of the water required by its mines, said CEO Ivan Arriagada
According to initial analysis by CRU, such expenditures could increase initial capital costs of new mines by 10% to 25%.
"ESG is already the biggest challenge for project development, and this is only going to increase," Heimlich said, referring to environmental, social, and governance factors.