The Copper Economist: Interview with Carlos Risopatron, Part I

One highly-anticipated plenary session at COM Hosting Copper 2019 involves Mr. Carlos Risopatron, a veteran of copper economics currently serving the International Copper Study Group as Director of Economics and Environment. Mr. Risopatron has a vast knowledge not just of copper markets, but of the socio-political context that ties this essential metal to every facet of modern life in a rapidly changing world.

Don't miss his presentation "Global Copper Value Chain Challenges 2020-2025" at the Conference of Metallurgists Hosting Copper 2019 in Vancouver on Tuesday, August 20 at 9:00am.

Look out for Part II of this interview next week.

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Tell us a bit about yourself, your career, and how you became so passionate about economics and the copper industry.

If you are born and raised in the Andes mountains in Chile, almost everything you see in the news is copper-related, from the currency to next year's national budget and your chances for an overseas holiday. As someone who is interested in economic development, it was not difficult to connect both subjects. After a few years crunching the numbers for the UN Economic Commission for Latin America in 1982, I joined the Chilean Ministry of Mines in 1990.

We were creating the Ministry's environmental unit at this time, so I was one of the Ministry guys in the field when the Escondida mine was starting, when the Alto Norte smelter furnace was imported and started to process high arsenic concentrates, and when the Chilean media was allowed to discuss sensitive subjects such as emissions control of the State-owned and private copper smelters in Chile.

After this highly techno-political experience, I worked with development banks and served the UN and many other agencies and corporations as a consultant in different countries on natural resource-related jobs between 1997 and 2007. Maybe it was while working in the poorest countries of the world with low electrification rates that I started to appreciate the value of operational copper wire, cables and power plants.

In 2007 I left the UN to join ICSG and became deeply involved in the analysis of the global copper value chain, a really addictive experience as we are at the forefront of new copper supply, demand, and trade data every day.

What's the main thing that people should realize about copper and the overall direction of the industry?

There is something very mystic about copper. It's everywhere in your life and you encounter it every day whether you notice or not. In places where standards of living are higher, there is even more "hidden copper" in your daily life.

Starting from the post conflict countries with very low electrification rates where I had the chance to serve with the UN, to places like Vancouver, Tokyo, or Shanghai, copper makes the difference.

Maybe people should also realize that copper has been a form of money in many Asian countries for millennia.

Think for a moment about how your daily life would be without electric distribution networks, electric cables in cars, electronic devices, or air conditioners... that should be enough to get you interested!

This industry is facing strong demand even when it's not being reflected in the metal exchanges. What's more, the copper supply takes a long time to become available, and when it hits the market it's in response to copper prices and expectations from 5 to 10 years ago. In recent years, the new copper mine capacity was an outcome of the boom prices in 2010-2011, and if there is a copper shortage ahead it is because of the lack of interest in capital investment in copper mines in recent years, except Chinese money that remains active on CAPEX. If the world faces higher cost of capital in the future I don't see many opportunities to build more large scale, high CAPEX copper mines.

Recycled copper (smelted and refined) responds very quickly to higher prices, but the capacity of the smelters to treat scrap is limited, and when prices are low, copper scrap vanishes anywhere outside of metal scrap yards.

When prices are high or recovering as in 2017, you see a lot of scrap competing against refined copper at the gates of fabricators, but when refined prices go down manufacturers will take the refined copper instead of the scrap.  

The current main copper industry challenges are related to increasing volumes of hazardous waste in copper concentrates such as arsenic, cadmium, mercury and others that are affecting smelting operations in Asia, Germany, and South America. Blending these concentrates with cleaner ones is a smart trader's solution, but in the future these wastes will be extracted and, I hope, disposed of safely close to the copper mines.

The current boom in copper demand is driven by new Chinese copper smelters, refineries and fabricators, and as smelters start competing harder for the same concentrate supply in the next decade, the market will become very interesting.

Just look how the smelters' treatment costs collapsed from 2016-2019 due to the new Chinese smelting capacity and the increase in less-clean copper concentrate supply. It will be more difficult and more competitive for smelters to get their feed in 2030.

How will the move to clean energy affect the copper market, if at all?

There are 3 direct ways in which the energy sector is impacting the copper industry:

1. The need for cleaner energy feeding copper mines, smelters, refineries, wire rod plants, copper tube and flat rolled products and brass mills, even to wire and cable makers.
2. The emerging need for de-carbonized copper mines, smelters and refineries, wire rod and other electric copper and alloy products and applications to bring the global energy transition to a happy end and not to more coal, oil, and nuclear plants.
3. The impact of climate-related emissions directly caused by the copper industry and indirectly by the electric and thermal uses of copper-intensive products ranging from electric transport to air conditioners.  

The first impact is related to copper miners and processing plants, whose energy use and costs are increasing as copper ore grades are falling, water for concentration plants is more scarce, and copper concentrates becomes more complex.

So the response from many copper mining companies is to rely on renewable energy, as solar and wind power drive the “green energy” demand-side boom. Copper miners in South America are using more electricity than fossil fuels, and this mirrors the trend in global energy demand: in 2018, global electric use increased almost 2 times faster than the global energy use growth in coal, oil, gas, nuclear and renewable energy.

This is the energy transition we have been hearing about, and copper miners are playing an increasingly larger role in it, but still there is a lot of fossil fuel being used in copper mines, smelters and refineries.

The second energy impact is from the global copper demand side: copper's main uses worldwide are in electric distribution networks and also in power utilities transmission. In the last 6 years, the fastest end-use of copper worldwide was in power utilities energy distribution and transmission (40% growth in the last 6 years). The second group of fast growing global end-uses of copper was in vehicles, electronics and air conditioners (growing almost 30% each in the last 6 years).

These are all essential to modern life and will only increase in the next decades as billions of poor and extremely poor people in Africa, Asia, and South/Central America start to move to the middle class.

They will pay for copper-intensive electricity and then for thermic uses as air conditioners, electric consumer products, electric copper intensive railroad networks, e-cars, sea and air cargo.

And last but not least, the third impact relates to greenhouse gas emissions, clean energy, and copper uses: global power utilities emissions are higher than global transport emissions, so electric vehicles using more copper are part of the solution, but they can be part of the problem if the copper mining, smelting and refining industry becomes unable to de-carbonize itself in the next decade.

There is a chance that the energy transition ends producing more GHG emissions with zero transport sector emissions: in this case in 2030-2050 we might end up with a lot more nuclear, coal, oil and gas power plant capacity to drive all these fleets of copper-intensive and environmentally-friendly electric vehicles, green end-use technologies, and sustainable new copper mines in the pipeline. So the clean energy policies to be implemented in 2020-2030 will impact the copper industry supply and demand well beyond 2030…and the availability of copper (or lack thereof) will be essential to allow or delay the global energy transition!

More insights from Mr. Risopatron coming next week.

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