Behind the Insatiable Global Demand for Copper
Follow @jbrezlowJuly 24, 2012, 9:35 pm ET
To get a good sense of the potential value of the copper buried below Alaska’s Bristol Bay region, consider an unlikely economic indicator: copper thefts.
As the value of the metal has leapt from less than $1 per pound in 2001 to around $3.35 per pound today, law enforcement officials have witnessed a parallel surge in the number of looters looking to cash in on copper prices. In 2009, for instance, the industry group Electrical Safety Foundation International estimated that more than 50,000 cases of copper theft occur at utilities sites across the United States each year. Thieves have disabled 130 cell tower sites in North Carolina and Virginia alone, while in Jackson, Miss. they stripped the copper wiring from five of the city’s storm sirens, causing them to fail ahead of a subsequent tornado.
Fueling the run-up in prices has been rapid growth in developing nations, China in particular. The metal has become a basic component of the modern world, serving as an essential ingredient in everything from power lines and piping systems, to automobiles and consumer electronics. With China in the midst of an historic urbanization and industrialization boom, the country now consumes roughly 40 percent of the roughly 16 million tons of copper mined every year.
“They’re right on a steep slope going up,” says Donald Singer, a former senior research geologist for the U.S. Geological Survey (USGS). “They’re just going to eat up all the consumption pretty soon.”
While copper prices have dropped off in recent weeks, in part due to concerns about Europe’s debt crisis, demand is expected to continue to grow in the long term: By 2020, global copper consumption is predicted to nearly double to 27 million tons. USGS researchers have estimated that firms would need to bring 35 new copper deposits online by next decade to meet that demand.
That could prove tricky. Over the last several years, firms have struggled to discover major new deposits in any of the four leading copper-producing nations: Chile, Peru, China and the U.S. In most cases, that has left firms digging for much smaller deposits deeper underground where the quality of the ore is typically not as high. Here in the U.S., despite growing demand, domestic copper production dropped off in 2010 to its lowest level since 1985, according to USGS data (PDF).
Further driving up costs is the lack of a strong enough alternative. Aluminum can be a substitute for electric cables, but in addition to being less efficient, it can also be more dangerous. As The Economist points out, “A drive to wire 2 million American homes with aluminum in the 1970s led to several burning down because of sparking from poor connections—building codes now ban aluminum from most domestic wiring.”
The shortage helps explain why projects such as the proposed Pebble Mine in Bristol Bay – a joint venture between Britain’s Anglo American Plc and Canada’s Northern Dynasty Minerals Ltd. — could prove so lucrative. With an estimated 80 billion pounds of copper, Bristol Bay would represent the largest copper mine in North America. The two mining giants have so far spent about $450 million on exploratory drilling, permit preparations and a public relations campaign to win over the local population. If the project is approved, the companies expect to spend an additional $7 billion to develop a mine valued as high as one half trillion dollars.
Of course, the major tradeoff is the potential environmental damage that Pebble Mine could mean for Bristol Bay, home to the world’s largest sockeye salmon fishery. What’s more, says Singer, while mines such as Pebble can help ease future demand shortages, it will never solve it.
“Nothing will solve it,” he says. “No single deposit can solve it, but if that capacity is to be met it’s going to be from large deposits like Pebble. The alternative is if it isn’t met, then the prices simply go up to the point where we stop using as much or start stealing more phone lines.”
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