China’s copper industry cushioned from power crunch

Wood Mackenzie’s latest report shows that compared to other base metals, China’s copper market appears to be better cushioned from the country’s power crunch.

Since mid-2021, the Chinese government has been rationing power across many provinces with greater focus on energy-intensive industries such as steel, cement, chemicals and non-ferrous metals. Despite the measures, China’s copper industry has been relatively cushioned from the power rationing exercises as it is a relatively low energy-intensive and low emissions industry.

Wood Mackenzie managing consultant Yong Cheng Zhao said: “To date, we have identified around 60 kilo tonnes (kt) of refined production impacted by power cutbacks at smelters and refineries. This is equivalent to less than 1% of the country’s total production capability.”

In contrast, power constraints have been a bane to China’s aluminium industry. Compared to copper, the aluminium industry is more energy and carbon intensive. It consumes around 13.6 megawatt-hour per tonne (MWh/t) of power compared to 1.6 MWh/t in copper for smelting and refining combined. The recent electricity supply shortages have escalated the scale of production cutbacks in aluminium smelting and refining.

Electrolytic zinc smelting is also more energy-intensive than copper smelting and refining. The production of one tonne of refined zinc typically consumes 3.4 MWh/t of power in the tank house, with power consumption elsewhere in the plant taking the total to 4.1MWh/t.

Nickel pig-iron (NPI) production has also been affected, along with its key end-use, stainless steel. Due to China’s recent measures, NPI production lost almost a third of output in September. A rotary kiln-electric furnace (RKEF) consumes over 40 MWh/t on a recovered nickel basis – nearly 3.5 times more than aluminium per tonne of metal, albeit in a much smaller market.

Senior consultant Zhifei Liu said that the power restrictions in China are affecting semis production of some copper wire rod and tube, and downstream wire and cable makers such as magnet (enamelled) wire manufacturers within these regions. According to the National Bureau of Statistics, copper semis production declined by 0.3% month-on-month and fell by 5.2% year-on-year in September.

The announcement that several Chinese smelters will now begin to export surplus cathodes to LME warehouses to ease shortages around the world and contain backwardation, suggests that Chinese refined demand has been meaningfully impacted by the power rationing as well as by higher imports of copper scrap and copper ingots. Wood Mackenzie, a Verisk business (Nasdaq:VRSK), maintains its base case forecast for demand this year, with total Chinese copper consumption expected to increase by 1.5% in 2021.

Although the power shortages have continued through Q4 2021, broadly, the cuts are not as severe as seen in September. Zhao said: “We expect the winter months to see continued, occasional power rationing, and this could last until Q2 2022. Should power rationing become more extreme, or more extensive over many provinces, consumption would likely be impacted in H1 2022, but this is not our base case assumption.”