Owing to a lack of significant new copper mining projects, constant illegal exports of copper scrap and import reductions from key copper producing economies, South Africa could struggle to meet local demand for copper in the next five years, says regional copper commodity body Copper Development Association Africa executive chairperson Evert Swanepoel.
Local copper production is currently insufficient to meet the country’s production requirements, he adds.
Current copper raw material production is about 40 000 t/y, excluding recycled copper which could be as much as 160 000 t/y. The current need for copper in South Africa is estimated at 400 000 t/y.
“We have to import, at great cost, copper cathodes from Germany, Russia and other countries to be able to maintain the copper industry in South Africa,” says Swanepoel.
Even with developments in the Northern Cape – with Australian minerals miner Orion Minerals having announced a new zinc/copper resource discovery near its Prieska project in January this year – he does not believe that this will be sufficient to meet local copper demand.
Moreover, increased demand from certain emerging markets, particularly the electric vehicles (EVs) market, will place increased strain on copper demand in South Africa in future, as the EVs require rotation motors produced from the base metal.
Swanepoel states that the presence and manufacture of EVs could be about five years away in South Africa. Many of the materials to make the motors used in EVs are made from copper and could place immense strain on the supply of copper if EVs are eventually manufactured in South Africa.
Swanepoel suggests that, by this time, South Africa’s supply from mining production will be under strain.
Supply from Zambia
Increasing supply pressures will prompt South Africa to import more copper from key copper mining countries, such as Zambia and the Democratic Republic of Congo (DRC).
“Currently, these countries have contracts with, for example, China and India, from which they receive top dollar, so there’s no real appetite for them to export to South Africa,” says Swanepoel.
Zambia and the DRC, meanwhile, have a lack of downstream copper development, resulting in a large majority of the copper production being exported.
This has resulted in the Zambian government considering the introduction of incentives for companies to manufacture products in the country using locally produced copper. Incentives include reducing the corporate income tax rate from the current 35% to 20% for new companies that add value to copper cathodes.
This would contribute to improving employment in Zambia, particularly in the mining industry.
Swanepoel also claims that the country’s government is considering a new law, which requires that 10% of mine production be used locally; this could become problematic without downstream development of copper products. There are also rumours that an additional royalty will be levied on the export of copper cathode if the copper price increases beyond certain levels.
He believes that the high revenue collected from copper exports will, however, continue: “I don’t think the mines are keen on downstream development – it doesn’t benefit them. Unless government forces it, it will not happen.”
Illegal Scrap Exports
The illegal trade of scrap copper is also contributing to the strain on copper supply in South Africa.
“Illegal traders don’t classify the contents of the container as copper, they classify it as something for which a different tariff code is subsequently used. The receiver recognises the container and number, which might say cotton wool, for example, and he knows his supplier has put copper in it. They bypass South Africa’s system and imports on the other side,” highlights Swanepoel.
South African government body the South African Revenue Service (Sars) plans to introduce a tax on copper exports in June. Swanepoel suggests that this will not affect illegal copper exports, owing to container inspections that would have to be increased.
“Sars have insufficient inspectors, and the inspectors they do employ don’t know the different types of copper scrap. There are about 20 different types; it would be easy if it were just copper,” he argues.
“As the Copper Development Association Africa, we have appointed a private contractor who teaches inspectors on site at Sars borders about different products such as cigarettes and tyres.”
A lack of manpower for inspections also remains a challenge in reducing illegal scrap copper exports.
“Moreover, if you want to tax copper scrap exports, you’ll tax 5% of what’s going out, as most of it is listed as something else entirely. Unless you increase the container inspections, you’re wasting your time,” he concludes.