Bulls Jump Deeper in Copper Amid AI-Powered Supply and Demand Challenges

SANTIAGO (Reuters) – Copper’s rally is likely to continue for at least the next three years, fueled by global supply challenges and strong demand for the metal to drive the energy transition and artificial intelligence technologies, industry analysts say.

The outlook bodes optimistically for Freeport-McMoRan, BHP and other producers as decarbonization and technological changes fuel the latest wave of copper demand, after the rise of China fueled a similar wave two decades ago.

But with question marks hanging over a number of key projects, some estimate that production will struggle to meet that demand.

These themes are expected to dominate conversations in the Chilean capital, Santiago, at the World CRU Copper Conference, April 15-17, the industry’s largest annual gathering of executives, investors and analysts. Chile is the world’s largest copper producer, but its production has declined in recent years.

Copper, one of the best electrically conductive metals, is already used around the world in motors, batteries and wiring, and is nicknamed “Dr. Copper” because demand for it is widely seen as a barometer for global economic health.

Data centers to power AI servers will likely require an additional 1 million metric tons of copper by 2030, commodities trader Trafigura said this week. New demand is also expected to come from electric vehicles, which are built with four times more copper than vehicles with internal combustion engines.

“The second secular bull market in copper this century is taking hold,” said Citi analyst Maximilian Layton, who expects demand to outstrip supply by 1 million metric tons over the next three years. “An explosive rise in prices is possible in the next two to three years.”

In a report published earlier this week, Layton and Citi said they expect copper prices to reach $12,000 per metric ton by December 2026, a prediction echoed in a similar report from Bank of America. Prices traded near $9,378 per ton on Wednesday, near a 14-month high.

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Citi encouraged automakers and others to hedge their copper purchases, warning that rising prices could cost non-covered manufacturers a total of $320 billion, equivalent to about 0.4% of global GDP. .

Influencing the rising price forecast are recent production difficulties at First Quantum, Ivanhoe Mines, Anglo American Codelco and others. Electricity supply challenges in Zambia, Africa’s second largest copper producer, also loom.

As a result of these setbacks, Citi lowered its forecast for global copper supply this year to an increase of just 0.7% from its previous forecast of a 2.3% increase.

“The much-discussed lack of mine projects is becoming a growing problem for copper,” said Bank of America analyst Lawson Winder.

SUPPLY CHALLENGES

One of the biggest recent shocks to the copper market came late last year, when Panama ordered First Quantum to close its Cobre Panama mine, which supplied about 1% of the world’s copper. The Canadian mining company has begun arbitration with the Panamanian government, but analysts do not expect the mine to reopen – if at all – until 2029.

“That was a big catalyst for a market squeeze,” said Jonathan Beigle of Ridgeline Royalties, which buys royalties from producers of copper, lithium and other critical minerals. Beigle expects copper prices to eclipse $12,000 per metric ton within a few years.

In Arizona, Rio Tinto’s plan to open one of the largest copper mines in North America is mired in complex litigation. The project received a favorable court ruling last month that is expected to be appealed to the US Supreme Court.

Chile’s own copper production will likely be the main focus during the conference. State-controlled Codelco, responsible for a quarter of Chile’s copper production, has been plagued by operational problems that have pushed its production to the lowest level in 25 years.

Regulatory uncertainty from the administration of President Gabriel Boric, a leftist who has had a tense relationship with the mining industry since taking office in 2022, initially affected investment, but Boric has worked to mend fences.

“The investment climate has improved a lot in Chile,” said Kathleen Quirk, the new CEO of Freeport-McMoRan, which has halted expansion of a mine project in the South American country. “It’s been great for a long time. Then, in 2022 and 2023, there were some obstacles, but now it is much more positive.”

(Reporting by Ernest Scheyder, Julian Luk, Daina Beth Solomon, Fabian Cambero, Alexander Villegas and Divya Rajagopal; writing by Ernest Scheyder; editing by Veronica Brown and Rosalba O’Brien)