Analysts expect a significant increase in demand driven by technology

Trafigura, a multinational company and a major commodities trader, expects a significant increase in demand for the red metal due to rapid technological progress, as copper is used in the circuitry of electronic devices, and it is obvious that this trend will not stop any time soon.[1] Trafigura analyst Graeme Train predicts that consumption will increase by 10 million metric tons over the next decade. A third of this growth will be driven by the development of the electric vehicle sector, as the batteries of these vehicles use copper circuits, but the expansion of charging infrastructure also has an important role to play. A significant portion of consumption will also be covered by the production of electricity and its transition to renewable sources, automation in industrial production and, above all, the data centres needed for the operation of artificial intelligence, which is currently experiencing a huge boom.

China, the world's largest copper consumer, has already boosted demand significantly, thanks to the local rise of electric vehicles, investment in power grids and solar panels, and industrial activity that is slowly recovering from the post-pandemic period. The analyst also expects increased copper consumption in developing countries due to industrialisation and urbanisation.[2] These factors are further compounded by the prospect of low production, which is expected to deplete this year's reserves by 26 million tons.[1]

Mining in Chile was at a 25-year low

Codelco, the state-owned mining company of Chile, the world's largest copper producer, recently said it was ready to start boosting extraction of the metal again, after it hit its lowest levels in 25 years last year. Codelco, which accounts for a quarter of the country's total output, has set a target of surpassing last year's production of 1.325 million metric tons, with the figure potentially climbing to 1.390 million.[3] New projects to extend the life of mines are expected to help offset the reduced quality of copper ore. CESCO (the Centre for the Study of Copper and Mining in Chile) warned last year that Codelco could become insolvent if it fails to meet the targets it has committed to. Although copper refiners are increasingly reaching to Africa for supplies, countries like Chile or Peru present a better and more stable long-term prospect if they can rebuild their supply.[2]

AI data centres are increasing the use of copper circuits

NVIDIA, a global leader in the development of hardware for artificial intelligence, announced in late March that it will expand the use of copper circuits in its data centres for better energy efficiency. JPMorgan analysts point out that as AI computing capacity grows exponentially, so does the power capacity. The International Energy Agency estimates 15% annual growth in data centre power demand by 2026, and JPMorgan projects that this growth should boost copper consumption by 2.6 million metric tons by the end of the decade.[4] At the same time, this consumption should account for 2% of the total world copper consumption.

This increase in demand comes at a time when there is already a forecast copper supply shortage of 4 million metric tonnes by 2030, caused by the factors mentioned above.[3]

Not only precious metals will reign supreme

This year, commodities will be dominated mainly by gold, silver and copper. Despite the usual sensitivity of these metals to the US dollar and changes in interest rates, their prices are moving upwards. Citi's strategists are forecasting a 15% to 20% price increase over the next 6 to 12 months.[5] From a technical perspective, copper should follow a similar, albeit more moderate, trajectory to gold and silver.[4] The prospect of lower interest rates in the European Union and the U.S. is also favourable for both precious metals and copper.[5]

Conclusion

The price potential of copper in the coming years is interesting for investors given the expected increase in demand this decade. The red metal is an essential raw material for the development of advanced technologies, and these factors, combined with a shortage of supplies, could support price growth, which may also be aided by the easing of monetary policy by central banks.

Copper price development in USD/t over the last 5 years (Source: lme.com)*

Silver price development in USD/oz over the last 5 years (Source: tradingeconomics.com)*

Adam Austera, Chief Analyst at Ozios

* Past performance is no guarantee of future results

[1,2,3,4,5] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.investing.com/news/stock-market-news/copper-demand-to-boom-as-new-technology-drives-power-consumption-trafigura-says-3388326

[2] https://www.investing.com/news/stock-market-news/copper-output-at-chiles-codelco-set-to-rise-this-year-cesco-says-3389718

[3] https://www.investors.com/news/technology/copper-stocks-nvidia-ai-data-centers/

[4] https://www.investing.com/news/stock-market-news/gold-silver-and-copper-rally-could-add-another-1520--citi-432SI-3388727

[5] https://www.investing.com/news/stock-market-news/shortages-key-to-coppers-upward-price-trajectory-to-new-peaks-3390603