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With a major bump in demand for battery metals and copper coming from the clean energy transition, replacing China’s huge capacity would be massively challenging

China is the world’s clean energy manufacturing superpower and replacing just its copper smelting and refining capacity to match emerging demand would require close to $85 billion.

That’s according to a report by Wood Mackenzie, which estimates that demand for copper will grow 75% to 56 million tonnes (Mt) by 2050.

Their analysis notes that just the demand being generated outside China, a much lower 8.6 Mt, is equivalent to 70% of existing smelter capability and 55% of fabricator capacity in the rest of the world, which is dwarfed by China’s output.

Wood Mackenzie estimates that China is responsible for 97% of current global smelting and refining capacity.

“While copper supply risks can be mitigated and some rebalancing has begun in various countries, the scale of China’s dominance in the supply chain means complete replacement is unfeasible,” said Nick Pickens, research director, global mining at Wood Mackenzie. “The introduction of new processing and fabrication facilities may result in higher costs and delays in the energy transition.”

Wider clean energy supply chain dominance

Copper demand is expected to boom as modern economies become much more reliant on electricity and less so on fossil fuels, requiring a wide variety of critical minerals to be mined and refined in larger quantities.

China is similarly dominant in these areas as well, controlling a vast share of the refining capacity for a variety of metals and rare earths, alongside near dominance of the lithium-ion battery supply chain and solar panel manufacturing sectors.

For example, 87% of the rare earths extracted are refined into viable materials within China.

The situation is even more extreme with graphite, where China is responsible for 90% of output.

China flexes its muscles in electronics supply chains

This is a weakness that China is aware of. It has used threats of restrictions to remind buyers of its importance and influence over mineral critical to electronics supply chains.

For example, in 2010 and 2023 China restricted exports of critical rare earths. However, in the former case, the impact was limited and Japanese companies saw little reduction to supplies. The latter intervention was much more muscular, with China exporting no wrought gallium products in August and September 2023, largely via delaying export licences, leading to exports falling 61.9% in the first nine months of that year and halving over the year. While the impact on prices was limited and exports relatively quickly returned to normal, there was an overhang into 2024.

Subsequently, the Chinese government introduced new measures that put rare earths firmly under official purview. From October 2024 the Chinese government will operate a database tracking rare earth extraction and movements and declared that rare earths are the property of the state.

In August China also put export restrictions on antimony, used in solar panels and lead-acid batteries, and there seems little sign that tit-for-tat trade restrictions and tariffs are slowing down between China and Western countries.

Diversification is happening, slowly

As a result, governments in many regions are looking at boosting capacity in extraction, refining and manufacturing in numerous strategic sectors.

Wood Mackenzie noted that additional capacity for copper refining is being built in India, Indonesia and the Democratic Republic of the Congo, which will add 1.6 Mt to global smelting capacity, the largest increase outside China in decades.

However, developing these mines and creating serving infrastructure will take years, as will refinery capacity. In 2022, the EU announced the first large-scale rare earth refinery outside China, but the facility in Estonia is scheduled to be operational in 2025 even with an extremely expedited planning and construction process. Similarly, the smelter in the Democratic Republic of Congo will not be operational before 2025.

Japan, which undertook a multipronged strategy to reduce dependency on Chinese rare earth exports post-2010, made progress but could only reduce the level of imports down to 60% of its total industrial requirements.

Therefore, it seems that when it comes to clean energy transition technology, China will remain in the supply chain driving seat for the foreseeable future.