Aurubis is a leading global provider of non-ferrous metals and one of the largest copper recyclers in the world. The company is headquartered in Hamburg, Germany, and operates production sites in the EU and the US. The following is an excerpt from an interview conducted on the 3rd of February 2023, featuring Ferdinand von Oertzen and Elke Brinkmann from Aurubis, and Marvin Mane from Rize ETF.
The demand for metals such as copper, lithium, or gold will likely increase as these are essential to accelerate the green transition.
There is a huge potential in urban mining, as primary extraction of raw materials and metals is unsustainable and not able to meet increasing demand.
Reliable and affordable energy is needed in order for companies like Aurubis to excel.
The energy trilemma
Marvin (Rize ETF): Over the past year, energy has become one of the most widely discussed topics, largely due to the ongoing energy crisis, particularly in Germany. I’ve come across the concept of the energy trilemma, which has been highlighted in a recent interview with the CEO of BP. The Energy Trilemma is defined as the need to find balance between energy reliability, affordability, and sustainability. As your business model seems to be closely aligned with sustainable values, how do you address this trilemma? Is it crucial for you to use sustainable energy in the production of your metals?
Ferdinand (Aurubis): Let’s discuss these three pillars of energy within the Aurubis. Our production processes run around the clock and, despite being very energy efficient and well electrified, our production relies on a stable and reliable energy supply of electricity and other energy sources for our metallurgical production processes. So yes, we do need reliable and also affordable energy prices because we participate in a global sourcing market, where we compete with Chinese smelters, with European smelters, but also with the American smelters. Looking at the different global energy markets you find very different pricing for energy, whilst the global metal markets are very efficient. So additional costs that you have in Europe because of higher energy costs, can only partially be passed on to your customers. Nevertheless, we are very much focused on getting our electricity supply greener and more sustainable. How do we do that? We have different examples. It much depends on the local energy market. I want to mention here two examples within our group: In Bulgaria we have started investing into our own PV production and electricity production plants. Here we have the first solar park already in production with two additional PV parks announced in December. So, we will increase the capacity of our electricity production there with a target of 20% of our own produced green electricity. For our production site in Olen, Belgium, we signed a so-called power purchase agreement, or in short PPA, with Eneco which delivers green electricity to our production site in Belgium. From this PPA we will now cover 90% of the externally sourced electricity from 2023 onwards with green electricity. Our target is to balance these three pillars of energy: Sourcing reliable and affordable energy whilst pushing towards a greener electricity mix and becoming carbon neutral.
The impact of the IRA and GDIP on Aurubis
Marvin (Rize ETF): You mentioned the competition among smelters in the US, China, and Europe. On a larger scale, there has been increased competition between different parts of the world, especially with regard to the green transition between the United States and Europe. In the past few months, the Inflation Reduction Act and the Green Deal Industrial Plan have been passed, providing a significant boost to the wider theme of clean technology and the environment. As you know, our Rize Environmental Impact 100 theme invests not only in clean energy but also in companies upstream and downstream of clean energy production, such as Aurubis, which supplies the necessary raw materials. Do you have any comments on the effects or anticipated effects of these two pieces of legislation?
Elke (Aurubis): Certainly! The European Green Deal and the green transition have a significant impact on our business, as we find ourselves at the intersection of several megatrends, such as wind energy, mobility, and digitalization. For example, an offshore wind park requires around 30 tonnes of copper for each windmill, including all the connections and wires. Mobility is another significant aspect of our business, and we’re already seeing an increase in demand for copper products. This year, we’ll need additional shifts to fulfill this demand, and last year we sold out of our copper products entirely, which is a positive sign. Additionally, Ferdinand has shared pictures of our new production site in Georgia, which is the first plant in the US focused on processing complex secondary materials.
Future revenue drivers
Marvin (Rize ETF): Could you explain which markets might be drivers for your revenue in the future?
Elke (Aurubis): Absolutely! Our new production site in the US will process approximately 180,000 tonnes of complex recycling material. It’s worth noting that this is the first plant in the US to process complex recycling material, as there are currently no other outlets for recycling material in the country. Previously, the US mainly exported this type of material to Asia or partially to Europe, or it ended up in landfills. We quickly decided to build a second module to double the capacity because we received positive feedback from our suppliers and are confident about the market potential. We’ll be investing approximately EUR 640 million in this project in Georgia. Generally, the US market is very favourable for us, as there are about 6 million tonnes of recycling material available with an estimated annual growth rate of 5-6%.
Marvin (Rize ETF): How does that compare to Europe?
Ferdinand (Aurubis): The European market for recycling material is even larger, with roughly 7.5 million tonnes available. Within its European operations, Aurubis processes approximately 1 million tonnes of various recycling materials annually. Aurubis competes with European smelters such as Umicore, Boliden, and KGHM on the recycling sourcing markets. The lack of mining capacity in Europe paired with the technological know-how among Aurubis and European smelters has increased the usage of recycling materials to meet the metal demand within the European Union.
In contrast to Europe, the US has more mining activity in proximity (Canada, Mexico, or South America) and only one recycling processor/smelter in Canada. As a result, the US recycling industry exports these materials to Europe or Asia since there were no processors in the US. However, with the passing of the IRA and the increasing demand for metals due to decarbonization efforts, we expect an increase in urban mining, which refers to using recycling material as an input source to extract the metals required for the green transition.
Marvin (Rize ETF): Does Aurubis see potential in urban mining and is that the driving force behind the construction of the new factory in the US?
Ferdinand (Aurubis): Yes, definitely. As Elke mentioned earlier, when we first announced this project, there was no other company in the US that was involved in complex recycling smelting. This means that there are around 6 million tonnes of potential input materials that are not being processed by anyone else in the country. The vast majority of these materials were and still are being exported, only to be re-imported in the form of finished metal products.
Marvin (Rize ETF): Could you clarify if there have been any new competitors that have entered the market for recyclable assets in the US since you started the project? Or is Aurubis still the sole player targeting this market with the potential of 6 million tonnes of recyclable materials?
Ferdinand (Aurubis): There have been other companies that have announced their intention to enter the market, but the US market has sufficient capacity for recycling materials. It’s worth noting that our project in Georgia will process 180,000 tonnes in a market of 6 million tonnes. Furthermore, Aurubis already operates five recycling smelters in the European Union, so we have a wealth of experience in processing recycling materials. Now we are expanding our expertise and technology to the US market.
Increasing demand for copper
Marvin (Rize ETF): It is fascinating to know that renewable energy plants require 8 to 12 times more copper than fossil-fuel power generation, while electric vehicles require three to four times more copper than internal combustion engines. With this in mind, what do you believe will be the most significant market for copper in the next five to ten years?
Elke (Aurubis): The previously discussed mega trends that are aligned with the green transition like renewable energy, infrastructure requirements, e-mobility, and digitalization, will increase demand for a variety of metals and in particular copper in the future years. Over the past decade we have seen strong demand increases for refined copper globally and the demand projections forward show a continued growth rate of around 2% CAGR (compound annual growth rate) in the EU and 1.8% CAGR globally. In fact, Europe as such is an undersupplied market. The chart shows the demand for refined copper in Asia as well in Europe and South America (below). We see that the European demand of refined copper in 2022 was at around 3.7 million tonnes of which Aurubis delivers roughly 1.1 million tonnes with our European copper production. We deliver close to 1/3 of the European copper demand. As Europe´s production capacities do not meet its demand, it must import about 700,000 tonnes of copper to meet demand requirements. If you look to Asia with 17.2 million tonnes of demand, they are as well in an undersupplied market and this demand will increase further with an increasing need for a green transition. And that’s only copper. When it comes to all the other metals that we need in Europe for the green transition like nickel, gold, silver, lead or tin we will expect a strong additional demand in our metal portfolio. With current demand expectations arising from the green transition the production capacities will not be enough and there will be additional demand for recycling metals in Europe and the US. Now with our current strategic projects we are increasing our recycling activities with a new facility in the US, whilst adding incremental steps in our existing European smelters to strengthen and securing our core business.