How unrest in the DRC is affecting commodity supply chains

In late February, M23 rebels seized the town of Rubaya in the North Kivu province of the Democratic Republic of Congo (DRC). The town is a major coltan mining centre and its seizure is just the latest in a series of attacks by rebel groups on mining operations in the DRC, which has some of the world’s largest reserves of minerals including cobalt, copper, and coltan. In the same month, M23 captured the key towns of Mushaki and Mweso, bringing them ever closer to the regional capital Goma.

The M23 rebellion first emerged in 2012 and was initially defeated by Congolese and United Nations (UN) forces in 2013 but the group has continued to carry out sporadic attacks in the region since then. The latest seizure of Rubaya highlights the continued instability in the area and the challenges faced by the DRC government in maintaining control over its mineral wealth. The coltan supply coming from North Kivu will likely decrease because of this, which will lead to prices increasing in an already expensive market. Coltan contains niobium and tantalum, critical components in many electronic devices, as well as being important in the aerospace, healthcare, and energy industry. The international community may have to shift their attention away from the ongoing crisis in Ukraine if the situation continues to spiral.

The mining of these minerals often involves dangerous and exploitative working conditions, and profits from the industry have been linked to armed groups in the region. The situation is further complicated by the involvement of neighbouring countries such as Rwanda. Despite the DRC government alleging that M23 are receiving support in arms and men from Rwanda, this accusation was not levelled against Rwanda at the Community of Central African States nor the East African Community’s (EAC) at recent gatherings. With the DRC already struggling to contain the issue from spreading to other provinces, it is unsurprising that they would not want to throw more oil onto the fire and risk inciting harsher retaliation from Rwanda.

While it is unclear yet what this means for the future of the DRC, the loss of Goma would represent a major challenge to the authority of the government. Other dormant rebel groups may try their luck against a weakened central government. In addition to this, the DRC will likely pay close attention to the actions of Rwanda if M23 marches on Goma. With Lake Kivu preventing any attack from the south on Goma, the rebels will have to attack in two prongs from the north and west of the city. If reports emerge of fighters attacking Goma from its eastern border with Rwanda, Rwanda’s claims to not be supporting the group will become even more dubious. 

The scale of the humanitarian crisis caused by such an attack, whether with help from Rwanda or not, would lead to a catastrophic loss of life. In the case of a capture of the city, thousands of people would be displaced or trapped within the zone of conflict with few options of escape. Both the UN and EAC have recognised the scale of this upcoming problem, with the UN calling for more than half a billion dollars in aid and the EAC calling for all rebel groups to withdraw from Eastern Congo. 

With war in eastern Europe still ongoing, EU nations and the US are focused on Ukraine. This means material assistance to the DRC will most likely come from the EAC. In the best case scenario, this may not even be needed as M23 have previously caved to international diplomatic pressure and retreated from recent gains in December and January. But it is doubtful that they will take the same actions again given how close to a major objective they are and after already retreating from it.

As mentioned, the DRC is a vital source of other commodities whose supply and price would be adversely affected by the breakdown of the central DRC government. Cobalt and Copper, for example, have a wide range of applications, such as electronics and construction. While companies in these industries look for alternative sources for these minerals, they would be forced to pay higher prices thereby increasing prices for consumers as well. With inflation reaching record highs across parts of the world coupled with the reliance many industries have on technology,  rising commodity prices could lead to decreased spending from consumers. 

Copper Shortages and the Transition to Green Energy

Copper, as a chemical element, is one of the most important because it is especially good at conducting heat and electricity, relative to other metals. It has multiple functions, including its use in industrial machinery and electronic equipment or as a raw material in the development and evolution of clean energies. Copper deficit for 2023 has already been announced, and it also symbolizes a period of crisis for plenty of projects and industries. The cause is an evident increase in demand and a severe supply constraint.

Supply-side factors

Most of the world’s suppliers are concentrated in Latin America, where the 10 most important mines are located: Chile (3), Peru (3) and Mexico (1). Unfortunately, a series of recent events have led to a shortage in the supply of copper. In fact, problematical political situations in some of these countries have exacerbated the current deficit. Some of them are:

• PERU: It represents 10% of the world's copper supply.  

As a consequence of the dismissal of Pedro Castillo for declaring the dissolution of the congress and the state of emergency, some unrest occurred in the last few months, affecting about 30% of copper production.

These are the main mines located in Peru:

- Antamina: It is the largest copper deposit in Peru and represents almost 20% of national production. In 2021, an indefinite suspension of operations was declared due to unrest caused by peasant communities blocking access to the facilities.

- Glencore's Antapaccay: This copper mine has been attacked several times in the first month of 2023 and protesters are demanding the cessation of the mine's operations. As a result, the mine temporarily halted its operations.

- MMG's Las Bambas: The mining company has halted and slowed down copper production due to transportation blockages, as in previous occasions what has been generated is an accumulation of production without being able to dispose of it.

• CHILE: The major supplier. It represents 27% of the world copper supply.

Increasing environmental regulation has raised production costs in the mining industry and raised barriers to expansion, as happened with the Dominga mining megaproject due to its environmental impact.

Indeed, companies such as BHP Group, Antofagasta PLC y Freeport-McMoRan Inc. have postponed major investments in this business.

• MEXICO: The same stance was adopted. Strict environmental mining regulations have stalled up to 25 major projects by freezing new mining concessions and taking a tougher line on the processing of environmental permits.

Therefore, the main causes of the supply constraints are regulatory concerns about their environmental impact and logistic problems related to the capacity to transport supplies (road blockades and protests) and the chaos generated by the protests, which has forced the suspension or interruption of mining companies’ activities.

In addition, during the first week of February, the operations of First Quantum Minerals, which operated in Panama and is considered one of the largest mines in Latin America, were suspended. The inconveniences this time were caused by disagreements with the Panamanian government in the payment of royalties and taxes.

Demand-side factors

The lack of balance between supply and demand is also due to the simultaneous increase in copper consumption in China, driven by a growth in its economic expansion, and its reopening of the market after the pandemic period. China is the world's largest copper consumer and has increased its demand due to the large investments and infrastructure projects that are on the way. 

Along the same lines is the global project to move towards a green energy transition. In accordance with the 2030 Agenda for Sustainable Development (SGD), adopted by the member states of the United Nations and the goals set for 2050, a series of projects have been launched to achieve an efficient energy transition. In light of this planned transiation, copper has become an essential resource as it is essential for the replacement of fossil fuel-based power systems with renewable energy sources.

Therefore, the energy transition has led to a huge demand for copper. Indeed, annual demand will double to 50 million tons by 2035, raising the concern that shortages could result in a reversal of the course of the energy transition. This been seen already in industries such as  as construction, manufacturing, architecture. Additionally, the automotive sector’s ability to produce electric vehicles on a large scale will be especially hindered by such shortages. 

Summary 

The halt in production in the world's main copper-producing regions has exacerbated the impact of increasing demand for copper. Cash-settlement prices for copper listed on the London Metal Exchange (LME) show a rapid increase in copper prices from $5,965 to $8,387 in the period between end of year 2018 to end of year 2022.So far this quarter the LME’s copper cash-settlements peaked at  $9.436 on January 18. Experts predict that the price will remain above US$8,500 per tonne for the next few years, with the risk of even exceeding US$10,000.

Unfortunately, a similar situation may occur with other relevant minerals such as lithium and cobalt. In fact, copper experience will be a clear reference for other raw materials in order to find an effective solution.

In the end, it is all about balancing the dilemma between the environmental, social and governance (ESG) practices that are the main challenges of mining and increasing copper production to supply key sectors of the green transition and the economy.

All in all, the supply of copper will be substantially impaired by the following factors: 

• Copper is a necessary element in many manufacturing and construction industries, added to the growing demand in renewable energy projects that use this element as part of the transition.

• The demand for copper from high consuming countries such as China will cause the supply and demand balance to become more unbalanced if a controlled supply solution is not found.

• The lack of consensus between the private sector, the public sector and communities around mining will maintain the constant blockades and protests in the main copper-supplying cities in Latin America.

• Environmental regulation is increasingly relevant for the development of the mining activity but has become a barrier to its operation.

• The cessation of activities of the main mining companies abruptly generates a deficit in the copper supply, which has a direct impact on the price of copper, given the scarcity situation, expanding the damage caused by the initial problem.

Red metals reach the red: Peruvian protests impact the global copper supply

As the world gears up to mitigate the far-reaching effects of climate change—many of which are already being felt—investment into zero-emission technologies is growing to complement more than 70 countries’ mid-century net-zero emission targets. Copper will be a key component to energy-efficient technologies, including electric vehicles, charging infrastructure, solar PV, wind, and batteries. For this reason, copper demand is projected to double over the next 10 years and more than triple by 2050; but this may have detrimental social, political, and economic impacts on the surrounding contexts of copper mines, which may, in turn, have repercussions on the global supply and cost of copper.

Peru, for instance, holds the world’s second largest reserve of copper, which contributes to 4% of Peru’s entire GDP; however, local communities that live around the Apurímac-Cusco-Arequipa Road mining corridor continue to be the poorest in Peru. The mining industry has foregone environmental and health restrictions, while increasing inequality in mining districts, thus contributing to existing socioeconomic tensions among local Peruvian communities, for instance against the Antapaccay mine in Espinar, the Las Bambas mine in Cotabambas, and the Cuajone mine in Moquegua. Such enmities have been exacerbated in the ongoing political crisis in Peru that began in December 2022.

The past five decades in Peru were foundational to the country’s current political crisis. Insurgency during the 1970s, multiple dictatorships, and resulting economic instability generated political and social strife, which collectively exploded upon President Castillo’s impeachment after he attempted to install an emergency government and rule by decree in December 2022.

Castillo is highly supported by Peru’s rural populations, many of whom live in the surrounding areas of copper mines, as he denounced foreign mining corporations and their negligence of environmental regulations, promised higher taxes and wealth redistribution policies, safer working conditions for miners, and nationalisation of the entire mining industry. 

After Castillo’s removal, political tensions among local miner communities—as well as much of Peru’s left-wing population—rose, leading to worker strikes, protests against mines, and disruption of mining operations. This includes ceasing operations at the Las Bambas mine, which alone supplies 2% the world’s copper. The Antapaccay mine stopped production in mid-January, but has since resumed.  Continued nationwide protests threaten to cut access to $4 billion worth of red metal, including copper. In 2022, growth potential of mining GDP from 2.9% to 0.3%, due to social unrest.

To re-establish the export of copper from Peru, mining companies such as Glencore, MMG Limited, and Freeport-McMoRan must enter into agreements with local communities, in conjunction with the newly formed government led by Dina Boluarte. The mining industry should address grievances in a manner that reduces poverty, prevents environmental and health impacts, and allows for inclusive employment of the surrounding communities.