Significant shortages in the supply of copper are created by the explosion of artificial intelligence and the “demand” of the green transition, since the number of mines is constantly limited.
The above, combined with persistently high inflation in the US, EU, etc., is expected to send the price of the brown metal to a new all-time high – surpassing the previous one set in 2022.
Copper is ubiquitous in the modern world, being used in everything from telephones and computers to water pipes and cables. And while the global effort to decarbonize relies on phasing out dirty natural resources like oil and coal, an electric future will need more copper than ever.
The AI boom is fueling the need for more data centers, which will require about one million metric tons of copper by 2030. Meanwhile, this year’s shortfall of 35,000 tons is expected to soar to 100,000 tons in 2025.
On the other hand, electric car batteries and EV charging stations also depend on copper, compounding the problem, which is compounded by the lack of enough activity in existing mines.
It is noted that many forecasts depend on the economic recovery in general and the demand for copper. And apparently, due to the shortages, inflation is here to stay, as the Fed will be forced to cut interest rates at some point this year.
Even with just one rate cut in 2024 instead of the three that markets initially expected, the upward trajectory for the dollar-denominated price of copper and other commodities is assured. Out-of-control inflation will drive prices higher, even if the AI bubble bursts or we see signs of a “hard landing” in the economy.
We are probably on the verge of the biggest bull market in commodities since the 1970s. They are cutting interest rates because they have to avoid a financial crisis – a banking crisis.
Inventories
Chile, which has the largest copper reserves, is struggling with rising costs and aging mines. China is the world’s largest consumer and producer, so an economic crisis that hampers production would also push prices higher.
Meanwhile, already planned production cuts in China will add further pressure. In this context, combined with their Chinese dominance in the production and processing of rare earths, devotees of green technology are already in a panic.
The “green energy revolution” of the West is being called into question. Also, the current state of copper could hurt the meteoric rise of artificial intelligence.
Meanwhile, to avoid tariffs and sanctions imposed after the Russian invasion of Ukraine, China imports Russian copper it calls scrap, muddying the waters of global supply.
This revelation came as a result of differences between Chinese and Russian customs data, with China reporting a hockey stick-shaped increase in scrap trade between the two countries, but this is not confirmed by the Russian reports:
As the price of copper rises, so will theft, which could be a further destabilizing factor in the operation of basic infrastructure and the wider economy.
And with supply already dwindling, the increased attractiveness of this low-hanging fruit to petty thieves (and unscrupulous copper mining insiders) will exacerbate the problem.
While some still believe that copper’s current rally is due to pure speculation, the majority of analysts now see the supply and demand graph on the wall.
As Goldman Sachs said at the recent Cesco Week symposium, the price of copper is currently: “(at) the foot of what will be its Everest in the next three to five years.”
