Renewable energy, electric cars and artificial intelligence (AI) are strengthening the demand outlook for copper, causing the price of the industrial metal to rally towards a new all-time high.
Copper prices have skyrocketed since the beginning of the year, with a rise of 29% so far this year. Copper futures in COMEX They were trading at $5 per pound as of May 15, which is the highest level since March 2022, when the price of the base metal reached an all-time high.
BHP’s takeover offer to Anglo American has drawn attention to the booming copper mining sector. The transition towards green energy, the rise of electric cars and the rise of artificial intelligence have contributed to skyrocketing the demand for copper. However, the lack of investment in base metals mining could aggravate the problem of supply shortages in the coming years.
China plays key role in copper supply chain
The immediate catalyst for the price rise could be attributed to theChina’s recent measures to stimulate the economy. The Chinese Ministry of Finance announced plans to issue 1 trillion yuan in ultra-long bonds to invest in infrastructure. This news sparked a rally in copper prices on Tuesday, given China’s status as the largest importer of copper.
China, which is both a important supplier and consumer of copper, occupies a central position in shaping critical metal market trends. In March, Chinese copper smelters reached a deal to reduce production by 5% to 10% in response to a sharp decline in copper treatment prices. This drove copper prices to their highest level in a year, initially exceeding $4 per pound.
Subsequently, a significant decline in the value of the US dollar pushed copper prices above a 14-month high, reaching above $4.2 per pound in early April.
The weakening of the dollar was attributed to uncertainty surrounding the path of the Federal Reserve’s interest rates. However, the rally in copper prices was mainly due to fund purchases, driven by speculation that central banks would apply interest rate cuts throughout the year.
Prospects for imbalance in supply and demand
Fundamentally, the global industrial change towards renewable energy, electric vehicles and the burgeoning artificial intelligence sector have collectively bolstered the copper demand outlook.
According to S&P Global: “Copper prices are expected to rise in the long term as a result of the transition towards clean energy, despite the apprehensions that prevail in the short term.” The organization predicts that copper demand will doublereaching 50 million metric tons in 2035. The largest demand is expected to come from the US, China, Europe and India.
According to Statista, the total production of copper mines will amount to about 22 million metric tons in 2023, up from 16 million metric tons in 2010. Projected growth suggests that global production will reach 30 million metric tons in 2036, assuming production continues at the same pace. However, this expected increase is much lower than the expected increase in demand.
AI will further boost copper demand
In addition to the energy transition, the rise of AI is accelerating the demand for copper, especially in the construction of data centers. According to ‘Reuters’, citing Trafigura, AI can make copper demand increases by one million metric tons by 2030.
Bank of America predicts that a combination of tight supply and rising demand will drive copper prices up $5.44 per pound in 2026, which represents an additional rebound of 11% compared to the current price.
Meanwhile, the copper mining industry is bracing for a slowdown in the coming year. A report of Goldman Sachs indicates that investment in mining companies in 2022 was almost 50% lower than spending in 2010. Disruptions in copper mines, which often occur in Latin America, could lead to an increase in the deficit in copper supply from 2024.
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