Copper is on the verge of a reign similar to oil’s historic dominance, but fueled by entirely new forces. A leading commodities analyst predicts a surge in copper demand driven by the rise of artificial intelligence (AI), the explosion of data centers, and the green energy revolution. Military spending also adds to the demand picture, creating a perfect storm for a potential price boom.
Jeff Currie, chief strategist at Energy Pathways at Carlyle, is bullish on copper. He compares its potential to oil’s past success, calling copper “the new industrial kingpin” in a recent Bloomberg TV interview.
His confidence is high, stating it’s “the strongest conviction I’ve ever had” regarding a commodity.
Copper’s bullish outlook
Copper’s historical role as an industrial bellwether is well established. Its diverse applications in manufacturing, construction, electronics, and high-tech products make it a vital economic indicator. Currie, however, emphasizes the significant impact of recent investments in AI and renewable energy on copper’s future. While he acknowledges a similar prediction made in 2021 as a Goldman Sachs analyst, he sees key differences this time around.
“This feels like a true launchpad for copper,” says Currie. “The presence of three distinct demand sources – AI, green energy, and the military – is a game-changer compared to just green energy a few years ago.”
The challenge lies on the supply side. Bringing new copper mines online is a slow process, taking a minimum of 12 and potentially up to 26 years according to Currie. This limited supply, coupled with the anticipated surge in demand, could push prices to a staggering $15,000 per ton, he predicts.
AI’s growing hunger
The field of artificial intelligence (AI) is experiencing explosive growth, and with it comes a growing demand for copper. Complex algorithms and neural networks that power AI require immense processing power, translating to a need for powerful computer chips. These chips rely heavily on copper for two crucial functions: efficient heat dissipation and exceptional electrical conductivity.
As AI continues to permeate various industries – from healthcare and finance to transportation and manufacturing – the demand for copper in AI hardware is expected to soar. This significant increase could put a strain on current copper supplies, potentially driving prices upwards.
The conductor for a greener future
The transition towards renewable energy sources like wind and solar power presents a significant opportunity for copper. Unlike fossil fuels, these clean energy solutions require extensive electrical infrastructure for capturing, transmitting, and storing energy. From wind turbine generators to solar panel wiring and the vast network of power grids, copper is an essential component at every stage.
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As countries around the globe accelerate their green initiatives, the demand for copper in renewable energy projects is poised for a substantial increase. This surge, coupled with the limited readily available copper reserves, could create a supply-demand imbalance that pushes prices significantly higher.
Military needs and the demand for copper
Geopolitical tensions and the ever-changing nature of warfare also contribute to the rising demand for copper. Modern militaries rely heavily on advanced weaponry, communication systems, and electronic warfare capabilities – all of which require substantial amounts of copper for their functionality.
Increased military spending, particularly in countries with ambitions for technological advancement in their defense systems, could create an additional layer of pressure on the global copper market. This, in turn, could lead to price hikes as suppliers struggle to meet the combined demands of civilian and military sectors.
Off the charts
Copper prices have already reached record highs, with benchmark prices in London exceeding $10,000 per ton. This is more than double the lows seen during the pandemic in early 2020.
A potential downside exists – excessively high prices. There’s a point where demand gets crushed by the cost, leading to “demand destruction”. However, the exact price threshold at which this occurs remains unclear for Currie.
“Looking back, my bullish outlook on oil in the 2000s mirrors my position on copper today,” he said, referencing the dramatic rise in crude oil prices from $20 to $140 per barrel. “The potential upside for copper is undeniable”.
The significance of copper was further underscored by BHP’s proposed $40 billion takeover of Anglo American. This merger would have created the world’s largest copper producer.
