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Copper is the third most-consumed industrial metal after iron ore and aluminium. It is possibly the most important in terms of widespread applications across numerous industries and product offerings – household appliances, machinery, solar panels, wind turbines and EVs, to name a few. It is deemed of strategic importance within the global energy transition. It is also highly recyclable to the tune of 100%.

Supply and Demand 

In commodities, there are two kinds of bull markets: good ones, driven by strong demand, and terrible ones, powered by supply shocks. The former are typically more durable, requiring higher-for-longer prices to encourage investment in new supply; the latter often prove short-lived.

The copper market has witnessed both kinds over the last 25 years, with prices rising to a record high of $11,104 per metric ton last year from $2,000 in 2000. Often, the factors were so intertwined that it was difficult to discern which was more important. Right now, however, it’s very clear: It’s a supply issue.

Supply Shortage – Major Disruptions

This year’s list of supply upsets is long. There was the flooding of the Kamoa-Kakula mine in the Democratic Republic of Congo in May, followed by an accident hitting the El Teniente mine in Chile in July. Earlier this month, social unrest disrupted the operations at the Constancia mine in Peru. But the worst came on Sept 8, when hundreds of thousands of tons of mud rushed into the underground tunnels of the Grasberg mine in Indonesia, killing several workers.

Grasberg isn’t just any copper mine, but the world’s second largest, contributing about 4% of global production. For now, output has halted and is unlikely to return to its pre-accident level until 2027 at the earliest. In scale and duration, this is a very large shock, well beyond the annual disruption that analysts anticipate.

Other Major Issues

Beyond acute disruptions, copper producers face ongoing operational challenges that limit production expansion:

• Ageing infrastructure at established mines requires more frequent maintenance.
• Water scarcity in key mining regions restricts processing capabilities.
• Labour disputes and community conflicts interrupt production schedules
• Rising production costs diminish the economic viability of lower-grade deposits.

To extend its rally, the metal needs more than supply disruptions: It needs strong demand growth in China. The Asian giant purchases about half of the world’s copper consumption and needs to consume more to sustain a bull market. But right now, China isn’t buying, or at least not a lot. The country’s real-estate sector, a big consumer, is in the doldrums. Its export locomotive is also struggling amid the trade war with the US. China re-exports about 20% of the copper it buys in finished goods — electrical appliances, computers, mobile phones, and the like.

The copper sector has experienced a prolonged period of underinvestment in new mining projects, creating a pipeline gap that cannot be quickly addressed. Several factors have contributed to this situation:

• Project development timelines typically span 7-10 years from discovery to production.
• Capital intensity of new copper projects has increased substantially.
• Environmental permitting processes have grown more complex and time-consuming.
• Investor caution following previous commodity downturns has limited funding availability.

Geographical Production Concentration 

Global copper production remains heavily concentrated in a relatively small number of countries and regions, creating supply vulnerability. Chile and Peru together account for a substantial portion of world copper production, while Indonesia, Australia, and the Democratic Republic of Congo represent other significant sources.

This concentration exposes the global market to regional risks, including:

• Political instability and regulatory changes in producing countries.
• Environmental challenges specific to mining regions.
• Infrastructure limitations in developing economies.
• Geopolitical tensions are affecting international trade.

Key drivers of demand 

The global push toward decarbonization has created unprecedented demand for copper across multiple sectors, with electrification serving as the common thread driving consumption growth.

The EV Production Phenomenon

One would have been correct in thinking that Tesla was the only name associated with EV development from its first launch in 2008 until the Model 3 in 2017. BYD really started to compete in 2019 and has now surpassed Tesla in terms of EV sales globally, which includes hybrids.

The transportation sector's transformation has emerged as a major driver of copper demand growth. Electric vehicles require significantly more copper than internal combustion engine vehicles, primarily for:

• Battery systems and power electronics
• Electric motors and associated components
• Charging infrastructure and connectivity
• Wiring harnesses and electrical systems

Each electric vehicle requires approximately 2-3 times more copper than conventional vehicles, creating substantial incremental demand as global EV adoption accelerates. This multiplier effect means even modest EV market penetration creates significant copper demand growth.

Data Centre and AI Infrastructure Growth 

The digital economy's expansion has created a new source of copper demand that shows no signs of slowing:

• Modern data centres require extensive copper for power distribution systems.
• Cooling infrastructure utilises copper in heat exchangers and thermal management.
• Server farms and computing clusters use copper in components and connectivity.
• Backup power systems depend on copper for reliability and performance.

As artificial intelligence applications grow more widespread, the associated computational infrastructure demands even more intensive power delivery systems, further increasing copper requirements.

Industrial Automation and Smart Manufacturing 

Advanced manufacturing technologies represent another growth vector for copper consumption:

• Automated production systems utilise copper in motors, actuators, and control systems.
• Robotics applications require copper for precision movement and reliability.
• Industrial IoT networks depend on copper for power and data transmission.
• Smart factory systems integrate copper throughout monitoring and control functions.

These applications typically demand high-performance copper with specific metallurgical properties, creating competition for premium material.

In summary

The largest copper mining companies, BHP, Rio Tinto, Freeport-McMoRan, Codelco, Zijin Mining and Glencore will continue to dominate the global supply side and demand will broaden as the impact of the energy transition and AI will simply add to existing requirements. Longer term, the outlook for copper looks positive due to a lack of new mines, declining ore grades, and regulatory complexity to name a few. High copper prices should support investment in new projects. 

Next week – Base or Industrial Metals – The good, The Bad and The Ugly

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