With the AI boom and green energy push fueling fresh copper demand, and with copper mines aging and not enough projects to match demand with supply, the forecasted copper shortage has finally arrived in earnest.
Coupled with persistently high inflation in the US, EU, and elsewhere, I predict the industrial metal will surpass its 2022 top to reach a new all-time high this year:
Copper (in USD), 5-Year Graph:
Source: Bloomberg
The AI boom is stoking the need for more data centers, which will require around a million metric tons of copper by 2030. Meanwhile, this year’s deficit of 35,000 tons is expected to rocket up to a staggering 100,000 tons in 2025.
Electric car batteries and EV charging stations also depend on copper, adding to the problem of there not being enough activity at existing mines, or the development of new ones, to satisfy the industrial need. Says Bank of America analyst Michael Widmer:
“The much-discussed lack of mine projects is becoming an increasing issue for copper.”
While many mainstream forecasts depend on a solid economic rebound to keep demand for copper up, inflation is here to stay, especially as the Fed is likely going to be forced to cut interest rates at some point this year. Even with just one 2024 rate cut instead of the three that markets originally expected, higher USD prices for copper and other commodities like gold are on the way. Out-of-control inflation will drive prices higher even if the oomph gets sucked out of the AI bubble, or we see other signs of an economic “hard landing.” As Peter Schiff said last month,
“I think we’re on the verge of the biggest bull market in commodities since the 1970s…They’re cutting rates because they have to avoid a financial crisis — a banking crisis.”
Chile, which has the most copper reserves, is struggling with rising costs and aging mines. China is the world’s largest consumer and producer, so an economic crisis hampering production there would push prices higher as well. Meanwhile, China’s already-planned production cuts provide further upward pressure. Combined with their dominance in rare earth production and processing, green tech devotees are panicking that the regime could put a dent in the meteoric rise of AI as well as the West’s “green energy revolution.” But whether due to a continued AI boom or production cuts, copper’s price will rise.
Meanwhile, to avoid tariffs and sanctions imposed after Russia’s invasion of Ukraine, China is importing Russian copper disguised as scrap, muddying the waters on global supply and cutting out Western and US dollar influence. This particular revelation arose as a result of discrepancies between Chinese and Russian customs data, with China reporting a hockey-stick-shaped increase in scrap trading between the two countries that isn’t corroborated by Russian reporting:
Russia and China trade new copper disguised as scrap to skirt taxes, sanctions
Russian Copper Company (RCC) and Chinese firms have avoided taxes and skirted the impact of Western sanctions by trading in new copper wire rod disguised as scrap, three sources familiar with the… pic.twitter.com/6EthZadEpS
— Tracy (𝒞𝒽𝒾 ) (@chigrl) April 15, 2024
As copper rises, so will copper theft, adding a further destabilizing element to the functioning of essential infrastructure and the broader economy. With supply already pushed thin, the increased attractiveness of this low-hanging fruit for petty thieves (and unscrupulous insiders at copper producers) will only make the problem worse.
While some still believe the current rise in copper is mostly due to pure speculation, the majority of analysts now see the writing on the wall with copper supply and demand. As Goldman Sachs said at the recent Cesco Week symposium, an annual meeting of minds in the copper industry, the price of copper is currently: “(in the) foothills of what will be its Everest over the next three to five years.”
Tyler Durden
Mon, 04/22/2024 – 09:05
