November, 2011

Adding Value to Copper

By Tom Azzopardi
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Chile produces more than a third of the world’s copper but only a fraction of the 5.4 million tons it mines each year is turned into finished products. Now Chilean companies are hoping new applications for the metal could bring new opportunities to the country’s manufacturing base.

The importance of copper in the Chilean economy is hard to overemphasize. Last year, the country exported US$39 billion worth of the red metal, the equivalent to 56% of its exports. The mining industry, for which copper is by far the most important product, generated almost 20% of gross domestic product. The industry also accounts for about a quarter of public revenues through taxes, royalties and profits earned by state mining company Codelco.

Despite this, since the beginning of the last century Chileans have wondered whether they could extract more value from their country’s huge reserves of the metal, equivalent to around a third of the global total.

After all, copper, which Chile sends across the Pacific Ocean as ore, comes back in the shape of sophisticated goods such as cars, computers and smartphones. No wonder many have the feeling that while Chile does the hard work of getting copper out of the ground, others are exploiting the properties which make it a vital resource for so many high-tech products.

Yet most of the copper the country exports is already refined into high purity metal ready to be manufactured into tubes, wires and other components required by a range industries, says Vicente Pérez, head of research at the Chilean Copper Commission (Cochilco).                  

Out of 5.4 million tons of copper produced by Chilean mines last year, 2.1 million tons was turned into copper cathodes through a process called solvent extraction and electrowinning, a technology pioneered in Chile during the 1990s mining boom.

Of the remaining 3.3 million tons, just under half is smelted in Chile. Of this, 1.2 million tons is refined into cathodes while the remaining 300,000 tons is exported in intermediate forms like blister and anode. But that still leaves 1.8 million tons exported in the form of concentrates. So why doesn’t Chile build smelters to process the metal domestically, thus creating additional investment, jobs and business opportunities?

To smelt or not to smelt

There are historic and economic reasons why Chile continues to export a third of its copper as ore. Many of the large copper mines built in Chile in the 1990s, such as Candelaria, Collahuasi, Escondida and Los Pelambres, were financed by Japanese companies looking for a guaranteed supply of concentrates for their smelters on the other side of the Pacific and thus had no interest in building new capacity in Chile.

Meanwhile, huge investment in new smelters in rapidly developing Asian nations, particularly China, has created an excess of smelting capacity globally and a relative dearth of concentrate. The tariffs charged by smelting companies have collapsed, making smelting a marginal business while mining copper, thanks to years of high prices, can be extremely lucrative. During the first six months of 2011, Codelco’s Ventanas smelting and refining complex in central Chile barely broke even while the company’s mines earned it more than US$3.9 billion.

Moreover, smelting is an environmentally tricky affair, creating huge emissions of pollutants like sulfur dioxide and arsenic while consuming large amounts of energy. Last March, Codelco was forced to halt operations at its Ventanas site after a cloud of emissions left teachers and pupils from a nearby school in hospital. The company is already considering refits worth US$1 billion to bring its four smelters into line with tighter regulations on emissions from metallurgical plants, which the government plans to publish later this year.

Given the meager margins and environmental hazards, some mining companies are looking to exit smelting: Xstrata has announced plans to close or sell smelters in Australia and Canada, although it has yet to make a decision on its Altonorte smelter near Antofagasta.

In these circumstances, few companies outside Asia, in Chile or anywhere else, are planning significant investments in copper smelting. Chile’s mining industry is expected to invest US$70 billion over the next decade, largely in copper projects that will lift production to over seven million tons by the end of the decade. But there are no plans to expand smelting capacity even though much of the additional output will be in the form of concentrates.

Still, market conditions could change, warns Cochilco’s Pérez. A large increase in Chilean production of concentrates could make the country beholden to terms dictated by smelters in China, which already accounts for 40% of global copper demand. To avoid that happening, Codelco may invest in a major expansion of Ventanas to handle additional output from its Andina division which is expected to triple production over the next decade. But so far no decision has been taken.

Manufacturing challenges

Smelting and refining are just two stages in the copper production chain. Before refined copper can be turned into consumer products, it must be molded, cut and bent into fabricated and semi-fabricated shapes, like the rods, tubes and bars used by many industries.

Chile’s manufacturing industry handles around 100,000 tons of copper each year, which is just a sliver of the 3.3 million tons of refined metal produced by the mining industry but significantly more than one would expect for a country of Chile’s size, says Pérez.

Reflecting Chile’s small domestic market, the industry is largely focused on overseas markets. Madeco, Chile’s largest copper manufacturer, exports up to 70% of the 2,000 tons of copper it processes each month, not just to neighboring Peru and Argentina but as far afield as North America and Europe, says commercial manager Juan Enrique Aguirre.

It helps that the Madeco brand is well-known in these markets. In 2008, it sold its wires and cables division to cables giant Nexans in exchange for shares and is today the French company’s largest shareholder.

But Chile’s copper manufacturers face the same difficulties as the rest of the country’s manufacturing base: a strong peso, relatively high wages and soaring energy prices. Madeco would like to produce around the clock but peak energy prices make this prohibitively expensive while Chile’s metalworkers are amongst the best paid on the continent.

Nor does the industry derive any benefit from being on the doorstep of some of the world’s largest copper mines, says Aguirre. Madeco is controlled by the Luksic family, which also owns Antofagasta Minerals, but the company is treated as any other manufacturer, he says.

In fact, rather than benefitting from high copper prices, Madeco is seeing demand undermined as consumers switch to cheaper alternatives such as plastic and aluminum. The International Copper Association, the marketing arm of the global copper industry, estimates that high prices have reduced demand for the metal by as much as 8% in recent years.

Meanwhile, the appreciation of the peso has made Madeco’s output less competitive abroad. Last December, the company announced the closure of its copper sheet line to concentrate on larger volume markets like tubes and bars.

“The rise in the copper price has harmed our business,” admits Aguirre.

Antimicrobial properties

Despite the limitations facing downstream copper-based businesses, several companies in Chile are pursuing opportunities related to new applications using some of the metal’s lesser known properties.

A main player is Codelco, the world’s largest copper producer, through its subsidiary INCuBA. The aim, according to Víctor Pérez, Codelco’s vice-president for market development and the general manager of INCuBA, is not only to increase demand for copper but to produce value-added products and improve the industry’s image through association with sectors like agriculture and health.

“We want to identify and consolidate business models in Chile and then export them to the world,” explains the executive.            

One of the most exciting areas of development is in healthcare. Although copper’s health properties have been known for millennia - the Ancient Egyptians used the metal to purify water – this property has been mostly forgotten. New scientific research has highlighted just how effective the metal is in eliminating harmful bacteria.

While bacteria can survive on stainless steel or plastic for hours, placed on a copper surface they die off within minutes. Tests show 99.9% of bacteria die within two hours of coming into contact with the metal, even if it is tarnished. Scientists believe that copper’s high conductivity short-circuits the thin-skinned microbes’ outer membrane.

A major breakthrough came in 2008 when, after months of intensive testing, the US Environmental Protection Agency registered 275 copper alloys as antimicrobial products.

The possibilities and benefits are enormous, says Dr. Michael Schmidt, a professor of microbiology at the Medical University of South Carolina who has conducted trials funded by the US Department of Defense.

Infections acquired by hospitalized patients are an increasing burden on healthcare systems around the world. In the United States alone, more people die from hospital-acquired infections each year than from AIDS and breast cancer. Even if the infection is not fatal, it could mean months longer spent in hospital with huge costs for the system.

But the trials have shown that replacing frequently-touched surfaces in intensive care units such as bedrails, intravenous drip poles and overbed tables with copper alloys can cut the rate of infection by almost 50%. The challenge now is to convince the healthcare industry and copper manufacturers: most items used in the trials had to be handmade by craftsmen.

“We’ve got the data and are begging vendors to start thinking about how to do this,” says Schmidt who has spoken at numerous industry conferences about his findings. “Whoever gets to market first will be very well-positioned,” he adds.

President Barack Obama’s recent healthcare reform bill should help get the ball rolling: it includes a clause providing incentives for US hospitals which reduce rates of intra-hospital infection.

And once copper becomes associated with clinical cleanliness, it could soon be seen in a wide variety of locations where contagions can spread, including schools, gyms, public transport systems and workplaces. The International Copper Association has even created a trademark for antimicrobial copper, Cu+, which it hopes will soon be seen on a huge number of products.

Gleaming copper surfaces are found all over Codelco’s head offices in downtown Santiago, on door handles, the reception desk and elevator panels. The company has also worked with Santiago’s Metro underground rail to install 350 meters of copper handrails throughout its new Santiago Bueras station. The Metro has committed to using copper throughout stations on its two new lines.

Put it in a sock

Copper’s rediscovered properties are also creating applications for the clothing industry. Earlier this year, Chile’s largest sock manufacturer, Monarch, launched its own SaniCopper brand of socks which has copper woven into its fibres.

After finding a way to weave copper-bearing thread into the hard-wearing textile needed for footwear, the socks underwent gruelling testing when the company provided pairs to the miners trapped underground during last year’s San José mine rescue. Several of the men were suffering from skin infections as a result of the hot, damp and dirty conditions which the socks’ antimicrobial properties helped to clear up.

“The miners were able to test that the socks really worked,” says Monarch’s products manager, Paz Macera.

That kind of global publicity helped to raise awareness about the new product, which Monarch sells through its own outlets and department stores up and down in Chile.

“Demand has exceeded expectations, it’s done very well,” says Monarch’s president, Aldo Magnasco. The company recently launched women’s and children’s socks containing copper.                                                                                                                                     

Monarch has also looked at exports but difficulties in obtaining certification and licenses in other countries have kept this project on hold for now. “We have received countless calls from abroad but it’s not easy,” admits Magnasco.

Animal health

Copper’s health benefits are not limited to humans. For example, a range of horseshoes made from a copper alloy not only helps to keep the animals hooves free of fungi and other infections but they are also able to better absorb the impact of galloping than traditional iron horseshoes.

Marketed under the Kawell brand (from the indigenous Mapuche word for horse), the horseshoes have been used by racehorses, polo ponies and Chile’s show-jumping team at the recent Pan-American Games in Guadalajara, Mexico.

An even more promising application is in fish-farming. Cages made from copper, rather than traditional nylon, are more durable and fully recyclable while copper’s antimicrobial properties prevents the build-up of fowling on the mesh. The fish enjoy cleaner, better oxygenated water and suffer less from parasites and other diseases.

A copper cage costs considerably more than its nylon equivalent, but the fish grow faster and larger, which increases the harvest, explains Codelco’s Víctor Pérez.

EcoSea, a firm set up with Codelco’s support and based in Puerto Montt city, the heart of Chile’s salmon-farming industry, has already installed 68 of its cage systems in Chile and hopes to reach 400 within four years. The company has also begun exporting to China, Turkey, Scotland and Hawaii.

According to EcoSea’s projections, the opportunities are considerable: China alone has more than one million cages. As well as improving the efficiency of existing farms, copper cages could also open up new opportunities for the industry.

Strong enough to resist attacks from marine predators and requiring only periodic maintenance, EcoSea’s systems could be installed offshore and controlled remotely, reducing the industry’s environmental impact and allowing it to experiment with new species.

Such applications may never match the scale of Chile’s gigantic mining industry, but new uses for copper should help Chileans and the world have a greater appreciation for the properties of the red metal.

Tom Azzopardi is a freelance journalist based in Santiago