from Bloomberg
October 14, 2022
In the US, there have been a number of announcements about onshoring electric vehicle manufacturing, including by Toyota and Ford, while Volkswagen and Mercedes said they’ll turn to Canada for metals.
The impact of the pandemic and the war in Ukraine has disrupted supply chains significantly. This has prompted global companies to revise their supply chain strategies and prioritize having their manufacturing closer to their end-users. In the US, there have been a number of announcements about onshoring electric vehicle manufacturing, including by Toyota and Ford, while Volkswagen and Mercedes said they’ll turn to Canada for metals. Consequently, US foreign direct investment has been steadily increasing. According to data from the US Bureau of Economic Analysis, manufacturing and transportation-related FDI rose from $137 billion in 2018 to $180 billion in 2021. This is likely to increase in 2022, as the war in Ukraine has revealed the vulnerability of relying on one supplier.Bringing manufacturing back
With the recent passing of the US Inflation Reduction Act, the US is making a strong policy push to reclaim its raw material supply chain from China to meet its energy transition targets. IRA adds to the existing USMCA, a free trade agreement with the US, Canada, and Mexico. Under the USMCA, steel and aluminum production will qualify under the agreement if the input materials are melted and poured in member countries. In addition, the Defense Production Act is meant to increase critical minerals. The US is currently 100% import reliant for 17 mineral commodities and at least 50% import reliant for an additional 30. As part of the IRA, the US added $500 million to the DPA to bolster critical mineral production in the region. This strong policy push will provide incentives for new investments in the raw-material supply chains needed to support the energy transition in countries with friendly trade relations with the US.
What it means for copper demand
We expect this regional supply chain development trend to continue and boost manufacturing in unexpected places like the US, Canada, and Europe. Demand for copper, a metal key to the energy transition, will increase in regions such as the US, where it’s expected to rise 61% by 2040 compared to 2021. This increase will result in a decline in China’s dominance in copper demand to 45% by 2040 from 53% last year. In addition, copper supply will rise in regions such as Australia, Canada, and the US at an accelerated pace due to favorable policy stances. These three countries currently have a combined reserve of 151 million metric tons of copper.