Third of chip production could face copper supply disruptions by 2035, PwC report says

PwC projects 32% of global semiconductor production faces copper supply disruptions by 2035, a quadrupling from current levels, driven by climate change-induced water shortages in major copper-producing regions like Chile. This escalating risk to a critical raw material, essential for chip manufacturing with no immediate alternative, poses a significant long-term threat to the semiconductor industry and global economic stability, echoing the GDP impact of prior chip shortages and potentially jeopardizing half of the world's copper supply by 2050 without adequate mitigation.

Analysis

A PwC report flags a significant and escalating long-term risk to the global semiconductor supply chain, projecting that 32% of production could face copper supply disruptions by 2035, a fourfold increase from today. This threat is primarily driven by climate change-induced water shortages in key copper-producing nations like Chile, the world's largest producer, where disruption risk is forecast to rise from 25% today to 75% within a decade. The report underscores the systemic nature of the vulnerability, stating that most of the 17 countries supplying copper to the chip industry will be at risk of drought, impacting all global chipmaking regions. The potential economic consequences are severe, referencing the last chip shortage that erased a full percentage point from U.S. GDP growth. Compounding the risk, copper remains an essential material for chip circuitry with no current, viable alternative matching its price and performance, and the report warns that by 2050, roughly half of every country's copper supply will be at risk regardless of emission reduction efforts.

Key Decisions for Investors

• Investors with long-term exposure to the semiconductor industry should re-evaluate supply chain vulnerabilities, factoring in potential raw material cost inflation and production disruptions as a significant structural risk.
• Consider strategic, long-term positions in copper or in mining companies with demonstrably superior water management strategies and operations in less water-stressed regions, as they may be positioned to outperform amidst tightening supply.
• Incorporate physical climate and water scarcity risks as a critical due diligence metric when assessing companies in both the mining and technology manufacturing sectors, as these ESG factors are shown to have direct, quantifiable economic consequences.