In February 2021, copper prices rose to USD 9,187 a metric ton on the London Metal Exchange – an all-time high since September 2011. As governments across the world orient their fiscal policies towards achieving a low-carbon future, this boom in the commodity market is indicative of a bullish future demand narrative for copper, which is an essential component of clean energy technologies. India, with a poor copper reserve and resource base, has ambitious targets for the green energy transition. This constitutes an accelerated deployment of renewable energy, incentivisation of electric mobility and its supporting infrastructure as well as a push for the expansion of clean energy manufacturing capacity, as exemplified in the Make in India initiative. It is imperative that countries like India safeguard themselves against supply chain vulnerabilities. There is a need for investments and innovations across the copper value chain: from exploring international mining sector tie-ups and climate-smart mining initiatives to enhancing exploration and R&D capabilities.

India’s copper profile

In 2017, the per capita consumption of copper in India was estimated at 0.6 kg. While the average per capita copper consumption in a developed country was estimated at 10 kg, the world average was 2.7 kg. Although India has many strides to cover in comparison to global standards, there is a huge growth potential for copper consumption in India. In light of the increasing industrial and infrastructural demand, defence production, greater push for urbanisation, and advancing mobility, copper consumption in India has been growing at a compound annual growth rate of 10% and the per capita copper consumption is expected to increase to 1 kg by 2025.

In terms of mineral endowment, India’s copper ore reserves are limited: they constitute around 2% of the world copper reserves. India’s mining production, too, accounts for 0.2% of the world’s production. The largest copper ore reserves and resources are concentrated in the states of Rajasthan, followed by Jharkhand and Madhya Pradesh.

Hindustan Copper Limited (HCL), a Public Sector Undertaking, is the only integrated company in India that is involved in mining, smelting, refining and casting of refined copper. While HCL produces copper metal from the ore produced at their captive mines, Hindalco Industries Limited and Vedanta Limited – the major producers in the private sector – mainly rely on imported copper concentrates.

In FY18, domestic refined copper production grew by 6% year-on-year, and India ranked fifth in global refined copper production. However, production fell by 46.1% in the next financial year as its largest smelter – the Thoothukudi copper smelter of Sterlite Industries owned by Vedanta Limited – accounting for nearly 40% of India’s capacity was shut down in May 2018 by Tamil Nadu government over allegations of damage to environment. Consequently, India became a net importer of copper for the first time in 18 years.

Global copper supply chain vulnerabilities

At the global level, the copper supply chain is dominated by countries like Chile, Peru, China, Australia and the United States.

As per the data obtained from the International Copper Study Group, Chile accounted for almost a third of the world copper mine production in 2019. Similarly, Peru accounted for 12% of world’s mine production. Home to 11 of the 20 largest copper mines in terms of capacity, both Chile and Peru were the largest exporters of copper ore and concentrates in 2019, followed by Australia.

While the prominence of South American countries like Chile and Peru is attributable to their sizable geological endowments, the significance of China vis-a-vis the value chain lies in its centrality as both the producer and consumer of copper. In 2019, China was the third largest copper producer – followed by the United States. Owing to a robust internal industrial demand, China was also the world’s largest importer of copper ore and concentrates in the same year. Additionally, China accounted for almost 50% and 41% of world copper smelter production and world copper refined production, respectively. Further, in order to supplement its domestic production and safeguard against potential supply constraints, China has made strategic outbound investments. Data obtained from the American Enterprise Institute (AEI) indicates that Chinese companies invested more than USD 56 billion in overseas copper assets between 2005 and 2020, with Africa accounting for over 50% of China’s overseas copper mining investment.

Despite some apprehensions regarding copper’s long-term availability, findings from the United States Geological Survey indicate that not only are current global copper reserves sufficient to meet the growing demand, global copper resources, too, are sizable – estimated to exceed 5,000 million tonnes. However, analysts forecast a growing copper market deficit due to operational and financial constraints such as mine closures, declining ore grades and project financing issues arising from the rising cost of capital, among others. Moreover, a high degree of monopoly makes the copper supply chain susceptible to political risks such as domestic political unrest within the mining countries and issues related to security and transport accessibility. According to a report by Wood Mackenzie, a 15-day closure of mines in Peru and Chile would wipe out 1.5% from global annual copper supply. Additionally, there are geopolitical risks of trade such as trade wars between major producer and consumer nations, the rising threat of resource nationalism and shifting international political alignments – aimed at attaining resource security.

Recommendations to mitigate supply-side risks

In order to achieve mineral resource security and deliver on its ambitious energy transition goals, it is imperative that India mitigates supply-side vulnerabilities and pushes for innovations and investments across the copper value chain.

Reducing import dependency

In 2019, a joint venture company named Khanij Bidesh India Limited (KABIL) was formed by three Public Sector Undertakings namely, National Aluminium Company Limited (NALCO), HCL and Mineral Exploration Company Limited (MECL) with equity participation of 40:30:30, respectively. KABIL was established with the primary objective of securing availability of critical and strategic minerals from overseas through mineral acquisition. According to the Ministry of Mines’ Annual Report for 2020-21, KABIL has signed non-binding Memorandums of Understanding (MoUs) with three state-owned organisations in Argentina and with the Far East Investment & Export Agency of Russia. While KABIL is currently mandated to ensure a consistent supply of 12 critical and strategic minerals, this scope should be further expanded to include critical non-fuel minerals such as copper.

During the India Australia Leaders’ Virtual Summit hosted in June 2020, governments of the two countries signed an MoU on cooperation in the field of mining and processing of critical and strategic minerals for an initial period of five years. There is a need for enhanced resource diplomacy along similar lines, for increased access to overseas copper mining projects. Moreover, bilateral cooperation in copper processing ventures and knowledge-sharing avenues through the signing of diplomatic and trade agreements needs to be augmented.

Incorporating sustainability in midstream and downstream sectors

During FY19, the demand for copper refined products was 7 lakh tonnes. Given the growth prospects for India, it is expected to increase to almost 15 lakh tonnes a year, along with a sizable increase in the market for downstream value-added copper products. These combined with India’s plans to expand its clean energy manufacturing capacity presents an opportunity before the government to attract inward FDI in the country’s copper sector.

Moreover, there is increased awareness and concerted efforts towards ensuring that such market expansion is supplemented with incorporation of sustainable strategies in the midstream and downstream sectors. To boost recycling of copper in India, the government announced reduction of import duty on copper scrap from 5% to 2.5% in the Union Budget 2021. Furthermore, the closure of Sterlite’s copper smelter in Thoothukudi reinvigorated the debate concerning the triple bottom line measuring a business’ success: profit, people and planet. There is a pertinent need to harmonise the environment, economic growth and individual rights.

Internationally, there is a recognition that the green energy transition poses a paradoxical danger: negative impacts from mining to build clean-energy technologies could increase and potentially hinder progress on climate change. In 2019, the World Bank launched the Climate-Smart Mining Facility, a multi-donor trust fund to implement sustainable strategies to secure supply for clean energy technologies while minimizing the climate and material footprint throughout the value chain of critical minerals including copper. Launched in partnership with the German government and private sector mining companies – Rio Tinto PLC and Anglo American PLC – the facility aims at scaling technical assistance and deploying USD 50 million in investment over a five-year timeframe. The Government of India should actively explore opportunities for collaborations with inter-governmental organizations on such initiatives.

Investing in R&D initiatives and alternative interventions

Strategic planning for resource security requires credible baseline data providing a clear understanding of the domestic mineral endowment. According to a study by the Department of Science and Technology and the Council on Energy, Environment, and Water published in 2016, less than 10% of India’s total landmass had been geo-scientifically surveyed for an assessment of the underlying mineral resources. The study recommends enhanced exploration in mining through the formation of National Centre for Mineral Targeting – a not-for-profit autonomous body – as outlined in the National Mineral Exploration Policy, 2016. For minerals with limited reserves in India such as copper, R&D in mineral processing technologies, and alternative interventions such as advancement in recycling processes are critical. 

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Bhumika Sharma is an analyst at a global consulting firm, with experience in serving clients in the natural resources and energy industry. (LinkedIn)