The price of copper has been hitting new highs this year with an intraday record of US$6.71 a pound on May 13 on the CME-Group owned COMEX exchange in New York. Mine disruptions, geo-political tensions and tariff uncertainty leading to inventory builds are all working to drive the price of copper higher. Where do we see the price heading?
Coppers current role
Copper has both superior conductivity and durability and its role in high-performance electronics makes it essential for new AI-driven technologies. The new drivers for copper are:
AI data centers: Some estimates foresee as many as 10,000 data centers in the United States by 2030. Data centers use copper for wiring, power distribution, and cooling systems. A Microsoft data center construction required 27 metric tons of copper per megawatt of power. Average data center power consumption is in the five to ten megawatt range with larger centers requiring over 20 megawatts. On top of that data centers require investment in the power grids that supply them.
EVs and charging infrastructure: EVs already use 60-80 kg of copper per vehicle and new technologies will add to that number. Smart transportation infrastructure (traffic management and smart grids) will also contribute to copper demand.
AI-driven automation in manufacturing and logistics will increase the deployment of industrial robots, requiring copper for motors, wiring, actuators, and control systems. There are now over four million industrial robots globally with 500,000 new installs each year requiring 12 million pounds of copper.
As AI models become more complex, the demand for high-performance chips will continue to grow, increasing copper consumption.
The message is, we are seeing a change in demand from more economically sensitive sectors into a broader electrification mandate in technology. S&P Global sees copper demand rising from 28 million tonnes currently to 42 million tonnes by 2040. Current supply and demand for this metal are close to being in balance but any supply disruptions will cause price increases.
Supply Disruptions
The Grasberg mine in Central Papua, Indonesia, experienced a severe mudflow in September which resulted in the deaths of seven workers and reduced production by an estimated 500,000 metric tons of copper due to a delayed mine restart. Grasberg accounted for about 3 per cent of the world’s copper supply prior to the mudslide. The Kamoa-Kakula complex in the Democratic Republic of Congo experienced flooding in May which could keep the underground operation curtailed until at least the fourth quarter. On top of this, output from Chile, the world’s largest copper producer fell ten per cent year over year in March. Chile produces over 20 per cent of global annual copper output at 5.5 million tonnes each year.
Based on the current project pipeline, the IEA anticipates that the copper market could face a supply deficit of 30 per cent by 2035. Increasing capital costs along with mine and regulatory complexity coupled with declining grades are making it more difficult to find and open new deposits.
Interestingly there has been a surge in smelter capacity especially with additions from China, outstripping growth in copper concentrate production. The excess capacity has driven down smelter processing fees (called treatment and refining charges) to $0 in some cases, forcing smelter’s to survive off revenues from by-products such as gold and silver.
Tariffs
The Commerce Department is set to provide new guidance to the White House by June 30, as to whether a tariff on refined copper is needed. Commerce also could update its prior view that a 25 per cent tariff should start in 2027 on copper input materials. Copper is the second most-used material by the U.S. Department of Defense and the government identified that an over-reliance on foreign supply chains threaten critical defense systems and advanced technology sectors. The U.S. Section 232 investigation is currently assessing refined copper which was excluded from previous tariffs.
Price Outlook
Major financial institutions have been increasing their price targets for copper. Goldman Sachs now sees year end pricing at $13,735 per metric ton, up more than 10 per cent from its previous target. Citigroup also raised its target price, saying prices could reach $15,000 within a year (note there are 2,204 lbs per metric ton). Revisions are being driven by reduced mine production estimates coupled with new AI demand.
Conclusion
The supply/demand factors driving the price of copper higher are very much in play. We will soon learn more about U.S. tariffs on refined copper and the push for copper demand from new technologies will keep increasing for the foreseeable future against a backdrop of tighter supply.
More about the author
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.