Ch2: Decoding The Dragon's Copper Shakeup

Buckle up, because we're about to dive into the hottest story in the metals market – China's copper takeover!

Think mountains of cash, sizzling tech advancements, and enough wires to wrap the moon twice. And it's not just some dusty old industry- This is the future of green energy, sleek gadgets, and everything in between.

Imagine a world where one country's strategic moves could reshape global markets and alter the very fabric of industrial development. That's precisely what's happening in China with its copper industry, a saga of rapid transformation and global impact.

And in 2023, China did not just participate in the copper market. It rewrote the rules.

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Context

Let's travel back in time.

• For years, China was a major consumer of copper, relying heavily on imports to satisfy its burgeoning industrial needs. However, the narrative began to change around the mid-2000s.
• Think steel. Until 2006, China was a net importer of metals like steel. But then something remarkable happened. A massive expansion in smelting capacity transformed China into a significant exporter, stirring the global trade waters. We studied all of that in the Ch1 of Decoding The Dragon.

Now, the same trajectory is unfolding in the copper industry.

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The Making of an Industry:

• Pre-2000s:?Picture dusty drills and rickety carts – China's copper scene was stuck in the slow lane.?Imports ruled,?and that’s what kind of a non-starter China’s copper industry was.
• 2000s-2010s:?Boom time!?With real estate and manufacturing beginning to roar like no one could imagine, a massive copper hunger followed.?And as that fuelled refined copper imports, the Chinese Government responded with a resounding backing for setting up copper smelters and refineries, while also propping up state-owned miners to ensure enough ore supplies to feed them. Domestic mines roared to life,?churning out tons of the red metal.
• 2010s-2018:?Acceleration!?Government policies fuelled the fire,?promoting domestic tech and squeezing import reliance.?Chinese giants like Jiangxi Copper and Chinalco emerged,?swallowing up mines and refineries world over like Pac-Man on a copper pellet spree.?Think mega-corporations with tentacles wrapped around the global copper supply,?their grip tightening by the day.

However, China was still importing a lot of refined copper from nations like Chile, which is also the world’s largest producer of copper ore (27% share), compared to China, which holds only about 8% of global copper reserves.

So, around 2018, the Government resolved to change the dynamics. It pushed the industry to import ore instead of as much refined copper and pushed the domestic industries to refine more of that in China itself.

And there began a massive movement.

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Impact?

This shift is causing a reevaluation of the global copper market dynamics, with a potential oversupply of refined copper impacting prices on the London Metal Exchange .

• Tongling Nonferrous, is on track to boost its capacity to 2 million tons by 2025, eyeing the title of the world's top copper maker- 4x the size of what is today India's largest copper refinery.
• Nanfang Nonferrous, the largest private copper refiner in China, is set to more than double its capacity to 0.7 million tons a year with a new smelter..
• In fact, 8 out of the world's Top-10 copper refining companies are already Chinese. And all of this expansion underway is only going to widen the gap of dominance.

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Compare That to India:

• India's largest plants today are Aditya Birla Group's 0.5 million tons copper refinery in Gujarat's Dahej and Vedanta Group's 0.4 million tons Sterlite Copper in Tamil Nadu's Tuticorin (not operational).
• Even if we include Adani Group’s upcoming copper refinery in Gujarat’s Kutch, well, post the completion of its Phase-2 expansion around 2028, that will be a capacity of 1 million tons.
• Thus, India's largest copper refinery in 2028 will also be smaller than what is China's largest copper refiner with 1.1 million tons capacity in the present day- Jiangxi Copper.

And, as we just studied above, there are players in China, already on the path to get to 2 million tons capacity by 2025 itself. By 2028, there will be many more.

That should give you an idea of how Chinese players are elevating the Chinese grip on the copper market.

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Change of Dynamics

Powered by this massive expansion, China is set to turn into a net exporter of refined copper by 2025 or 2026 max.

These expansions are not just about meeting domestic needs. China's global footprint in the copper industry is expanding through outbound investments, increasing the global supply and securing raw materials for its markets.

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But, There is One Problem.

How would China feed those refineries, given it only accounts for 8% of the global copper ore production?

• To address that, China’s Jiangxi Copper and Chinalco have been aggressively acquiring copper mines across the world. Think of them like a Kraken of copper,?its tentacles squeezing the market to China's advantage.
• These are prodded by the Chinese Government, which views it as a strategic and national security imperative to secure enough copper ore for its economy.
• Why is that so? Because it accounts for more than half of the global copper consumption driven by its status as the world's electronics, renewables and EV powerhouse- That leaves it gravely dependent on external suppliers of the ore, which are vulnerable to global geopolitics.

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The Story is More Nuanced.

• Despite the real estate market being under a state of collapse and global economic challenges, China's copper consumption remained robust with a projected 5% growth in demand in 2023.
• This growth is primarily driven by the nation's push towards green energy, which has made copper, used in everything from electric vehicles (EVs) to wind turbines, an essential commodity.
• And as it advances its green energy and EV manufacturing build-up further, the demand for copper will only go higher.

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The Global Context: India and the US

• To put China's copper ore mining into perspective, let's compare it with India and the US.
• China accounts for just 8% of global copper ore production, but its miners account for almost 41%, way ahead of the US with about 6%. India is far behind.
• Though, India is also expanding, though not at the same scale as China. In fact, in all fairness, India's scale looks more like what's exploratory for China.

The differences in policy approaches, market dynamics, and industrial strategies between these nations highlight the unique position China holds in the global copper narrative.

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The Road Ahead: Opportunities and Challenges

As we look towards the future, China's copper industry stands at a crossroads.

While the nation is poised to potentially become a net exporter of refined copper by 2025 or 2026, there are a few challenges on the way.

• Environmental Concerns:?China's mining boom has a dark side – pollution,?resource depletion,?and ecological strains.?Think smog-choked skies and mountains turned into moonscapes – the cost of progress demands a responsible approach.
• Geopolitical Tensions:?Trade wars and global uncertainties cast a shadow on China's copper throne.?Imagine chess games played with metal pawns,?each move influencing the flow of resources and the power dynamics across the globe.
• Domestic Challenges:?Even giants stumble.?Labour shortages,?infrastructure bottlenecks,?and market fluctuations threaten to slow China's copper juggernaut.

Conclusion

In conclusion, China's growing domination in the global copper industry is not just about numbers and production capacities.

It is set to leave imprints on the resource-driven geopolitical shifts, economic strategies, and the global race towards a greener future.

As we witness this transformation, we must understand its implications for global markets, industries, and the balance of economic power.

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Subscribe and stay tuned for more updates in this fascinating saga of studying China’s rise!

See you tomorrow morning 7.30 am with another edition.

Best,

Jayant Mundhra