[Viewpoint] Effective Raw Material Supply Chains Are Urgently Needed

Copper is a raw material whose price fluctuates sensitively with the economy. That is why it is called the "barometer of industry." It is widely used in construction, automobiles, electrical wires, and batteries. Recently, supply shortage issues have emerged as a major factor influencing copper prices. The copper inventory at the London Metal Exchange (LME) has been continuously decreasing except for the year 2013.

The decrease in inventory is due to electric vehicles. While internal combustion engine vehicles use about 20 kg of copper per vehicle, electric vehicles use 83 kg, and plug-in hybrid vehicles use about 60 kg. This change is due to the engine being replaced by a motor and fuel by a battery. The raw material for copper foil, a key material in batteries, is copper. Copper is a core material used not only in batteries but also in large secondary batteries such as energy storage systems (ESS).

Global copper demand is also expected to increase from 25.02 million tons in 2021 to 32.88 million tons in 2030. The problem is that supply cannot keep up with demand. Since 2019, there have been four new mines with an annual production capacity of over 100,000 tons, producing a total of 1.43 million tons. It takes more than 10 years to develop and bring a new mine into production. Due to increasingly strict environmental regulations, it can actually take more than 20 years. Even if all the mines currently under development worldwide are completed after trial and error, only about 300,000 tons will be additionally supplied by 2030. This is far below the expected demand increase of about 7.8 million tons. For Korea, which relies on manufacturing, a stable supply of mineral resources can be secured by acquiring mining companies or investing in shares that have a high correlation with mineral prices.

During the Lee Myung-bak administration, Korea Mineral Resources Corporation (now Korea Mining and Resources Corporation) was mobilized to acquire the Santo Domingo copper mine in Chile, which accounts for 40% of the world's copper production. At that time, a copper mine belt consisting of seven mines stretching from the United States to Chile was completed (Rosemont in the U.S., Boleo in Mexico, Capstone in Canada, Marcona in Peru, Shakespeare in Canada, Cobre Panama in Panama, and Santo Domingo in Chile). Securing overseas copper mines of this scale was an enormous achievement. It provided an opportunity to raise the copper self-development rate, which had remained at 6%, to 32% in one fell swoop.

However, under the Moon Jae-in administration, orders to sell overseas resource assets left only two mines remaining. In particular, the sale of the entire 30% stake in the Chilean Santo Domingo copper mine to Canadian Capstone Mining in May 2020 for $152 million remains a source of disappointment. The Korea Mineral Resources Corporation had invested about $240 million but sold the stake at about 60% of the invested principal. Capstone Mining, which acquired the stake, hit the jackpot.

Korean industry is currently suffering from profitability deterioration due to rising production costs. According to the Korea Economic Research Institute, last year the import price of raw materials rose 42.3% compared to the previous year, marking the highest increase in 13 years since the financial crisis in 2008 (54.6%). For Korea, which has a high economic dependence on manufacturing, the import dependency rate for key resources used in manufacturing reaches an average of 90%, causing significant impact. The intensification of resource uncertainties due to COVID-19 and the Ukraine crisis, nationalism, acceleration of carbon neutrality due to the climate crisis, and shortages of key materials needed for electric vehicle batteries and wind power are sounding alarm bells for resource-poor Korea. Simply increasing import sources is not the solution to reduce raw material risks. The problem is that there is not a single alternative supply country to replace China. This is why effective raw material supply chain measures must be implemented as soon as possible.

Kang Cheon-gu, Adjunct Professor, Department of Energy Resources Engineering, Inha University