Copper prices extended gains as traders assessed the potential for peace negotiations between the United States and Iran, erasing losses incurred during the Middle East conflict that lasted over six weeks. On Wednesday, LME copper futures rose by up to 0.8%, surpassing the closing price of $13,343.50 per ton recorded on February 27. As of the latest update, LME copper futures were trading at $13,286.35 per ton.
Most base metals experienced significant volatility following the outbreak of the Middle East conflict. Initially, copper prices declined due to market concerns over supply chain disruptions and the resulting slowdown in economic growth. However, market risk appetite improved after the U.S. and Iran reached a temporary ceasefire agreement last week. Further boosting sentiment were reports that the two nations are planning a second round of talks in the coming days, coupled with signs of recovering demand from China.
Recent impacts of the Middle East conflict caused domestic copper prices in China to fall below 100,000 yuan per ton, prompting Chinese processors to increase purchases and leading to a noticeable decline in domestic copper inventories. Analysts noted, "Copper prices are rebounding. First, there's restocking in China, and then, as peace talks progress, inflation concerns have eased. The worst phase is behind us."
Copper is widely used in various sectors, including electric vehicle batteries and data centers. Amid the global surge in artificial intelligence computing infrastructure, data centers are becoming a significant new source of copper demand. Due to its irreplaceable conductive and thermal properties, this traditional industrial metal has become a core material supporting the development of the AI industry.
A Morgan Stanley report forecasts that global copper consumption by data centers will increase to 740,000 tons by 2026, contributing 0.6 percentage points to global copper demand growth. By 2027, data center copper consumption is expected to reach 1 million tons, accounting for 2.8% of total demand, and further rise to 1.3 million tons by 2028, representing 3.3% of total demand, with a compound annual growth rate of 40%.
As governments worldwide grow increasingly concerned about the supply of critical metals, copper is receiving heightened attention. Essential for the energy transition, copper has long been flagged by miners and traders as facing a shortfall in new mine investments relative to rising demand. Henry Fan, an analyst at Trafigura, stated at an industry conference in Santiago that despite short-term economic impacts from the energy crisis, the shift toward electrification could benefit long-term metal demand growth. He added, "All the major trends driving copper prices are now accelerating. There is greater motivation than ever to advance electrification and shield energy consumption from geopolitical shocks."
Notably, one factor previously driving strong copper price gains was the threat of import tariffs on metals such as copper by former U.S. President Donald Trump, which triggered a surge in shipments to the United States. This week, the premium for New York copper over LME copper reached $283 per ton, the highest since December. Investors still expect the U.S. Department of Commerce to decide on refined copper tariffs by the end of June when it updates its assessment of the U.S. copper market.
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