Copper market faces AI demand reality check as tariff risks distort prices

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Copper market and AI demand

Highlights

Copper prices are being driven by AI infrastructure expectations, but current demand growth is sluggish, with data centres estimated to add just 350,000 tonnes in 2024 to a 28 million tonne market.
Mining companies like BHP and Freeport-McMoRan have shifted strategy toward copper, with BHP reporting copper has overtaken iron ore as its primary profit driver as of August.
U.S. tariff threats have concentrated 90 percent of LME and Comex copper warehouse stocks in the U.S., distorting global prices and potentially risking a rapid sell-off if tariffs are lifted.

AI demand outlook and pricing debate

As reported by the Financial Times, investors, traders and mining executives at last week's London Metal Exchange gathering in London are questioning whether the expected copper demand surge from AI infrastructure will fully materialise over the coming decade. That debate is emerging even as copper remains central to electrification, vehicles, construction and consumer electronics, and as ageing mines and operational disruptions continue to constrain supply.

Graeme Train, head of metals and minerals analysis for Trafigura, said data centres contribute almost nothing to copper demand growth in 2023, but are estimated to add about 350,000 tonnes this year. With annual global copper demand at roughly 28 million tonnes, he said high prices have already squeezed demand in non-AI sectors, leaving total consumption struggling to grow.

Some analysts and investors are warning that current prices may be reflecting AI enthusiasm more than near-term supply and demand conditions. Macquarie analyst Alice Fox said at an LME Week briefing that prices are running ahead of supply levels, while the bank said in a note that stronger technology investment should support demand but that downside risks are growing around the scale of planned AI data centre construction and related infrastructure.

Several market participants in London also warn that copper could retreat in the near term if the AI growth story weakens. Executives cited rising interest rates, inflation and expanding U.S. government debt as broader risks, while some said the metals market has become overly dependent on AI expectations and vulnerable to a sharp correction if sentiment deteriorates.

Mining strategy and market impact

Mining groups have already shifted strategy toward copper as boards and investors push for greater exposure to the metal. That repositioning helps explain why companies such as BHP and Freeport-McMoRan have benefited in the market this year, and why copper is increasingly being treated as a strategic material tied to both technology and defence.

In August, BHP said copper overtakes iron ore as its primary profit driver for the first time, underscoring how central the metal is becoming to large miners' earnings mix. The race to secure resources has also driven dealmaking discussions across the sector over the past two years, although the text notes that only Anglo American's planned mega-merger with Canada's Teck Resources has materialised.

U.S. tariff threats are adding another layer of distortion by creating artificial tightness outside the U.S. and pushing prices higher. In the last week of October, 90 per cent of copper stocks held in the warehouse networks of the London Metal Exchange and Comex are in the U.S., up from about 20 per cent two years earlier, and Macquarie says any removal of the tariff threat could trigger rapid liquidation as those physical stocks seek new buyers elsewhere.

Even so, industry leaders still expect longer-term support for copper prices because bringing new mines online takes years and supply remains structurally difficult to expand. Freeport-McMoRan chief executive Kathleen Quirk says the path is unlikely to be linear but that the long-term demand trend remains positive, while Anglo American chief executive Duncan Wanblad says prices are likely to retain support until the supply-demand gap is closed.

In our earlier article on the US AI data center buildout, we examined how rising financing costs, construction delays and power constraints are undermining confidence in how quickly new capacity can be delivered. We also noted that only a minority of planned projects were viewed as truly credible, raising the broader question of whether developers can execute ambitious expansion plans without further cost overruns or investor pushback.

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