The role of copper is evolving from a cyclical industrial metal to a strategic resource, driven by AI-driven demand for computing power and energy transition, while global supply remains constrained due to resource concentration and long development cycles. In the short term, over ten central banks globally have initiated interest rate hikes, with marginal liquidity tightening likely to cap significant upward movement in copper prices. However, looking ahead three to five years, if the global economy enters a new Kondratieff wave cycle around 2029-2030, a rise in the long-term price trend for copper remains a plausible expectation.
Key Insights
Copper's Evolving Significance
Copper is transitioning from a cyclical industrial metal to a strategically vital mineral resource.
Its cyclical and leading nature is evident as copper price growth correlates strongly with global GDP growth and manufacturing PMI. Refined copper demand growth typically leads global capital expenditure by approximately nine months.
On the demand side, the shift is from industrial metal to strategic resource. AI-led technological expansion is significantly boosting copper usage in computing infrastructure and power systems. Geopolitics further reinforce copper's strategic importance, with defense applications holding particular significance.
On the supply side, a tight market persists under rigid constraints. Firstly, copper resources are highly concentrated, with major reserves in Chile, Australia, Peru, the Democratic Republic of Congo, and Russia. Secondly, development cycles are long, and past capital expenditure cuts have limited the rapid release of new capacity. Finally, declining ore grades and resource degradation are elevating long-term costs. Current copper production growth has turned negative, indicating sustained supply tightness.
Structure of the Industry Chain
The global copper supply chain exhibits a cross-regional mismatch of "resources, processing, and consumption."
Supply resources are in South America, while smelting is concentrated in China, which accounts for nearly half of global refined copper production.
Demand is largely centered in China for existing consumption, but recent growth is shifting to the US and major European nations. The driving force for demand is transitioning from past reliance on emerging economies like China to a pattern jointly supported by China, the US, and Europe.
The supply chain is highly concentrated, reinforcing its strategic nature. Taking the US and China as examples, both are major consumers. The US has relatively limited domestic mining and smelting capacity, leading to high import reliance, while China holds a strong position in smelting and processing, acting as a hub. Consumer nations are now emphasizing supply chain security, while resource-rich nations focus on resource control.
Drivers of Copper Prices
Prices are driven by a combination of fundamental, liquidity, and trading factors. The commodity's intrinsic value sets the price trend, liquidity influences the price level, and trading activity amplifies volatility.
Commodity factors reflect copper's fundamental market dynamics. Demand-side indicators include copper consumption, China's industrial value-added growth, and the US Economic Policy Uncertainty Index, which gauge industrial activity and demand expectations. Liquidity factors measure the global funding environment and risk appetite, using the US Dollar Index, US Treasury yields, and geopolitical risk indices to reflect capital flows, financing costs, and resource mobility. Trading factors capture market sentiment and capital flows, with non-commercial net long positions and the VIX index reflecting risk appetite, while inventory levels indicate market expectations for future supply and demand.
Future Price Trajectory
Global monetary policy, US-Iran tensions, and supply-demand fundamentals are the three main themes influencing the outlook.
Global monetary policy, reminiscent of 2021, is seeing marginal tightening, with over ten central banks having raised rates since May. With rate hikes already implemented by the European Central Bank and the Bank of Japan, the Federal Reserve is unlikely to cut rates, opting instead to withdraw accommodative policy expectations. This marginal tightening of global policy is expected to suppress the financial attributes of commodities like copper, making a significant near-term rise in the price trend unlikely.
The risk premium from US-Iran conflict has temporarily weakened but remains uncertain. Initial price volatility during geopolitical shocks typically reflects a rapid reassessment of risk premiums, not a change in fundamental expectations. Post-conflict, prices often see a recovery driven by a rebound in economic activity and reconstruction demand. The current situation differs; the initial market reaction to the conflict was muted for copper compared to oil. The oil-to-copper price ratio increased only moderately, far less than during the Russia-Ukraine conflict, indicating a weaker transmission of this geopolitical shock to copper. It is believed that former US President Trump's tactical changes regarding Iran are related to the mid-term election landscape, and the potential for escalation post-election remains uncertain.
In the medium to long term, copper prices will revert to supply-demand fundamentals. Over a three-to-five-year horizon, a rising price trend remains anticipated. According to S&P Global forecasts, the refined copper market is expected to maintain a tight balance around 2030, with the supply deficit potentially widening thereafter. Furthermore, as discussed in previous reports, if a global economic and asset clearance occurs around 2027-2028, the world might enter a new Kondratieff wave cycle around 2029-2030. Overall, while short-term prices face headwinds from liquidity tightening and geopolitical factors, the medium-to-long-term supply-demand picture remains tight, providing clear fundamental support.
US tariff policies will continue to influence copper prices but are no longer the central issue.
Detailed Analysis
The Importance of Copper
Once dubbed "Dr. Copper" for its correlation with the global economic cycle, copper's role is shifting towards a strategic mineral resource due to AI-driven digital infrastructure and global electrification.
Dr. Copper: A Barometer of the Global Economy
The copper industry chain is long, with extensive applications. It encompasses mining, smelting/refining, processing/manufacturing, and recycling. Upstream activities yield copper concentrate, which is processed into refined copper via smelting. Downstream, refined copper is used to produce wires, plates, tubes, rods, and foil for power, transportation, electronics, appliances, machinery, and communications. Scrap copper recycling is also a significant supply source.
Copper price trends are highly correlated with the global economic cycle. Its widespread use in power grids, construction, and manufacturing links demand to fixed asset investment and industrial activity. During global economic expansion, copper demand and prices typically rise. Copper price growth correlates with global GDP and manufacturing PMI, while refined copper demand growth leads global capital expenditure by about nine months, offering a forward-looking indicator.
Demand Side: From Industrial Metal to Strategic Resource
Copper demand is transitioning from traditional construction and manufacturing drivers to structural growth centered on power system and digital infrastructure upgrades driven by technological progress.
Power remains the core support for copper consumption. Copper is fundamentally an industrial metal, with power being the largest consumption sector globally, followed by transportation and electronics. Applications include building electrical systems, power transmission and distribution networks, electric vehicles, appliances, and consumer electronics.
AI-driven data center investment is becoming a significant new demand source. From a capital expenditure perspective, the industry structure of copper demand is changing, with investment growth in technology sectors like IT outpacing traditional industries. Demand is no longer solely driven by traditional manufacturing and infrastructure but is shifting towards digital infrastructure. AI expansion is boosting copper needs for computing power infrastructure and power systems, evolving copper's role from a traditional industrial metal to one with "digital infrastructure + strategic resource" attributes.
Data center investment will substantially boost copper demand. Compared to traditional commercial buildings, data centers are copper-intensive, with demand coming from internal power transmission, distribution equipment, and cooling systems. AI training data centers can use about 40 tons of copper per megawatt. With the rapid adoption of generative AI, global tech firms are increasing investment in computing infrastructure, driving data center capacity growth. S&P Global forecasts global new data center capacity could reach around 26 gigawatts by 2030, continuously pulling copper demand. Additionally, the proliferation of AI to end devices may bring incremental demand, though its scale remains limited in the near term.
AI-driven grid expansion forms a secondary demand pull. AI investment is inherently power-intensive. As computing scale grows, data centers are becoming a major source of global electricity demand growth. S&P Global projects data center electricity consumption could reach 10% of total US usage by 2030, exceeding 20% in dense regions like Ireland. This is expected to spur a global power infrastructure investment cycle, further cementing copper's strategic role in energy infrastructure.
Energy transition remains a key growth driver. As the global energy system shifts towards low-carbon electrification, electricity's share of final energy consumption is rising. S&P Global forecasts global electricity demand to grow at an average annual rate of about 2.7% from 2025 to 2040, significantly higher than overall energy demand growth. Compared to traditional fossil fuel systems, new energy systems like wind, solar, and electric vehicles have higher copper intensity per unit, meaning renewable capacity additions, grid expansion, and electric transport will continue to drive copper consumption.
Geopolitics reinforces copper's strategic attributes. Copper is essential in both traditional and modern military applications, being the second-most consumed metal by the US Department of Defense. Equipment and infrastructure account for 30% of NATO expenditures. With ongoing conflicts and global rearmament, demand for drones, missiles, air defense systems, and communication equipment may further drive copper consumption. S&P Global projects defense-related copper demand could triple by 2040. Although defense currently represents a small portion of global copper consumption, its demand is inelastic and strategically significant.
Supply Side: Tight Market Under Rigid Constraints
Copper resources are highly concentrated. Deposits are unevenly distributed globally, concentrated in a few resource-rich nations. The top five countries by reserves are Chile, Australia, Peru, DR Congo, and Russia, accounting for about 54% combined. This high concentration means global supply is heavily dependent on the resource endowment and policies of a few countries.
Development cycles are long, limiting supply expansion. Looking at mining capital expenditure, major global copper miners' capex declined significantly after 2013, only beginning to recover post-2020. However, the timeline from exploration to production is nearly a decade. Due to the lag from past capex cuts, new capacity remains difficult to bring online quickly despite recent investment recovery.
Declining ore grades and resource degradation are raising long-term costs. On one hand, discovering new high-grade deposits has become increasingly difficult, especially post-2015. On the other, the global average copper ore grade has been declining since 2001, indicating a trend of resource degradation. Lower grades mean more ore must be processed for the same output, increasing energy, water, and chemical consumption, thereby pushing up unit production costs.
Production growth has turned negative, indicating sustained tightness. Global copper mine production growth has been declining since May 2025 and turned negative in recent months, signaling a further weakening of supply expansion momentum. Under structural constraints like the lagged effect of past capex cuts, long development cycles, and persistent grade decline, global copper supply is trending towards continued tightness.
Structure of the Industry Chain
The global copper industry chain shows a cross-regional mismatch: upstream resources are mainly in South America, midstream smelting is highly concentrated in China, and downstream demand is dispersed among major economies like China, the US, and Europe. This pattern heightens supply chain sensitivity and strategic importance.
Resources in South America, Smelting in China
Global copper mine supply shows high regional concentration. Mining is concentrated in South America and other resource-rich countries, with Chile, DR Congo, and Peru as the top three producers, contributing nearly half of global mine output, followed by China, the US, and Russia. In terms of trade flows, Chile and Peru are the largest copper ore exporters, with a combined export share exceeding 50%, giving them significant influence in the global supply system.
Copper smelting is highly concentrated in China, which accounts for nearly half of global refined copper production, making it the world's primary smelting and processing center. China not only hosts significant smelting capacity but also acts as a core hub for resource processing and redistribution.
China is also the largest global importer of copper ore. Its import share rose from 46% to about 70% between 2015 and 2025, matching domestic smelting capacity expansion and reflecting high raw material dependency and processing concentration.
The smelting segment has relatively weak pricing power. Resource scarcity concentrates value upstream, while the smelting segment, with ample capacity and high competition, has limited ability to pass on costs. Treatment and refining charges (TC/RC) reflect copper concentrate supply-demand dynamics; they are high when concentrate supply is loose and under pressure when it is tight. Currently, global TC/RC are at historically low levels, sometimes negative, indicating a persistently tight concentrate market. Despite China's significant scale advantage in smelting, industry profit margins remain compressed.
Existing Demand in China, Growth in the US and Europe
Demand is also highly concentrated, but the growth structure is changing. In terms of existing demand, China accounts for nearly 60%, making it the largest consumer market; major European countries combined account for over 10%, the US about 6%, with the rest dispersed. Looking at marginal growth, over the past five years, incremental demand was mainly from China and India. However, in the past year, growth has shifted more towards the US and major European nations, with developed economies contributing more to demand growth.
A recovery in the capital expenditure cycle could support copper demand in developed economies. As noted earlier, copper demand correlates strongly with the global capex cycle. Current improving capex intentions in the US and Europe suggest demand could recover as the investment cycle expands. Key investment areas include digital infrastructure, power system upgrades, and advanced manufacturing. The drivers of global copper demand growth are shifting from past reliance on emerging economies like China to a pattern jointly supported by China, the US, and Europe.
High Supply Chain Concentration Reinforces Strategic Nature
Key segments of the copper supply chain are highly concentrated, elevating the importance of supply chain security. In the global division of labor, resources are concentrated in a few countries like Chile, Peru, and DR Congo; smelting is highly concentrated in China; and demand is mainly in China, Europe, and the US. This "resource concentration, processing concentration, consumption concentration" pattern makes the supply chain vulnerable to geopolitics, trade policies, and supply disruptions, raising concerns about security.
Taking the US and China as examples, both will remain major consumers, but their supply chain positions differ. The US has limited domestic mining and smelting capacity, relying heavily on imports. China, through expanding smelting capacity, has strengthened its hub position in the global chain and enhanced raw material security via overseas resource investments.
Consumer nations are strengthening supply chain security, while resource nations safeguard control. On the consumer side, the US has designated copper as a critical mineral, promoting domestic mining to reduce import reliance and enhance security, using tariffs to reinforce supply chain constraints. The EU also includes copper in its Critical Raw Materials Act, aiming to boost domestic extraction, processing, and recycling for resilience. On the resource side, countries like Chile are increasing resource taxes and local processing requirements, reflecting a trend towards resource nationalism.
Drivers of Copper Prices
Copper prices are driven by a combination of commodity, liquidity, and trading factors. The commodity's intrinsic value sets the trend, liquidity influences the price level and cyclical position, and trading activity amplifies short-term volatility. The pricing mechanism is evolving from a supply-demand dominated framework to a multi-factor resonance system.
Copper prices are not driven by a single factor but result from the interplay of the global economic cycle, industrial structure evolution, and financial conditions. Reviewing past decades, phases include post-war reconstruction, oil crises, economic recovery, the IT revolution, China's demand rise, and turbulent adjustment. Periods of demand expansion like post-war rebuilding, industrialization, and economic recovery often correspond with accelerating copper consumption and rising price trends. Conversely, shocks like conflicts, oil crises, financial crises, and recent trade friction and resource nationalism suppress economic activity, trigger liquidity tightening, or increase uncertainty, leading to price corrections or heightened volatility.
Overall, long-term copper price trends correlate strongly with global economic expansion cycles, while short-term fluctuations are more influenced by geopolitical conflicts, financial market risk events, and supply disruptions.
Commodity, liquidity, and trading factors jointly drive copper prices. Based on long-term price analysis and fundamental supply-demand, a three-factor framework ("commodity, liquidity, trading") is used to depict long-term trends and short-term volatility sources. Commodity factors reflect fundamentals: demand-side indicators include global copper consumption, China's industrial value-added growth, and the US Economic Policy Uncertainty Index to gauge industrial activity and demand expectations; the supply side uses aluminum price as a supplementary indicator for non-ferrous metals sector sentiment and potential substitution. Liquidity factors measure the global funding environment and risk appetite, using the US Dollar Index, US Treasury yields, and a geopolitical risk index to reflect capital flows, financing costs, and safe-haven sentiment. Trading factors capture market sentiment and capital behavior: non-commercial net long positions and the VIX index reflect risk appetite, while inventory levels indicate market expectations for future supply-demand changes.
Regarding commodity attributes, demand is the core factor determining the long-term price trend. Macroeconomically, as a key industrial metal, copper demand correlates highly with economic activity. Specifically, copper price growth shows strong synchronicity with China's industrial value-added growth; during economic expansion, active industrial production boosts copper consumption and prices. During slowdowns or recessions, industrial demand weakens, pressuring prices.
Regarding liquidity factors, the global monetary environment and resource constraints are important variables. Monetary liquidity is reflected in the US dollar cycle and global financial conditions: firstly, as copper is priced in US dollars, a stronger dollar directly increases purchasing costs for non-dollar economies, dampening demand; secondly, dollar strength often coincides with global liquidity tightening. For emerging economies, maintaining currency stability may require monetary tightening, suppressing growth and industrial demand; failing to do so risks capital outflows and worsening financial conditions, ultimately negatively impacting copper demand and prices.
Resource liquidity reflects copper ore availability and cross-border flow constraints, with geopolitical risk indices serving as effective quantifiers of resource nationalism risk. Since 2022, geopolitical risk indices have remained high and volatile, increasing the likelihood of export restrictions or quotas by resource-rich nations, thereby tightening resource mobility, which is another driver of copper prices.
Regarding trading attributes, capital behavior and market risk appetite are primary channels. From a capital flow perspective, futures non-commercial positions mainly come from trend-following funds like investment funds, better reflecting speculative sentiment and capital flow changes. Historical experience shows a high positive correlation between COMEX non-commercial net long positions and copper prices, indicating that inflows from trend-following funds tend to reinforce price trends.
From a market risk appetite perspective, the VIX index, a key proxy for global financial market risk sentiment, typically shows a significant negative correlation with copper prices. When market volatility rises and risk aversion increases, capital tends to flee risk assets, pressuring commodities broadly. In low-volatility, risk-on environments, copper prices often perform better.
Statistical regression based on this three-factor framework shows good model fit since 2006, with fitted prices aligning well with actual price movements.
Regarding the price trend, over the past two decades, the price level has been primarily driven by commodity factors, reflecting the decisive role of physical supply and demand on the long-term trend. In recent years, as copper's financial attributes have strengthened, the influence of liquidity and trading factors has increased. Regarding volatility structure, trading factors' explanatory power for short-term price fluctuations has notably increased, becoming a key source of marginal price changes in recent years, indicating that market capital behavior and risk appetite are having a growing impact on prices.
Future Price Trajectory
Current copper prices remain near historical highs, with major exchanges up nearly 10% year-to-date. Looking ahead, global liquidity, US-Iran tensions, and supply-demand fundamentals are seen as the three core themes: short-term focus on liquidity tightening and geopolitical risks, medium-to-long-term focus on supply-demand dynamics.
Marginal Liquidity Tightening Likely to Suppress Commodity Attributes
Global monetary policy is similar to 2021. Since May, over ten central banks have raised rates. With the ECB and BOJ having already hiked, and the Fed needing to prevent capital outflows and demonstrate economic resilience during a key election period, it is likely to withdraw accommodative policy expectations rather than cut rates, mirroring 2021.
Marginal tightening of global policy is expected to curb the financial attributes of commodities like copper. In the short term, a significant rise in the copper price trend is considered unlikely.
Risk Premium from US-Iran Conflict Weakens but Uncertainty Remains
Historically, initial price volatility during geopolitical shocks reflects a rapid reassessment of risk premiums, not a change in fundamental expectations. Post-conflict, copper prices often see a recovery driven by resumed economic activity and reconstruction demand.
The current situation differs. Initially, oil prices surged while copper fell only slightly, showing a limited reaction. Subsequent oil price declines provided little support to copper. The oil-to-copper price ratio increased only moderately, far less than during the Russia-Ukraine conflict, indicating weaker transmission of this shock to copper. It is believed that former President Trump's tactical changes regarding Iran are related to the mid-term elections, and the potential for escalation post-election remains uncertain.
Tariff Policies Have Some Impact but Are Not the Core Issue
In late July 2025, the US announced 50% tariffs on copper products, but refined copper tariffs remain under exemption and review. The US Department of Commerce must submit an updated recommendation by June 30 this year on whether to extend tariffs to refined copper. A preliminary plan suggested possible 15% tariffs on imported refined copper starting in 2027, gradually increasing to 30%. The market has priced this in through two main channels:
First, cross-market inventory migration: COMEX copper inventories remain high. Since 2025, anticipating potential tariffs, arbitrage trades have driven copper from LME and SHFE to COMEX, leading to inventory accumulation. As this migration largely completes, the arbitrage space has narrowed, reducing its marginal price impact.
Second, cross-market price spreads: The COMEX-LME spread has widened again. As the tariff decision deadline approaches, the spread turned positive in late March and continued to expand, but remains significantly below the extreme level of around $3,000/ton seen in July 2025 when the market feared comprehensive 50% tariffs. This indicates the market is pricing in a "phased, reasonable tariff" expectation path.
It is believed that the current spread between the two major exchanges partially reflects future refined copper tariff expectations. Tariff policies will continue to influence prices but are no longer the central issue.
Medium-to-Long Term Prices to Revert to Fundamentals, Trend Rise Anticipated
The copper price trend still has fundamental support. While influenced by tariffs and geopolitics, the core determinant remains physical supply-demand. On the demand side, AI-driven data center construction, grid upgrades, energy transition, and defense investments are expected to sustain global demand growth. On the supply side, constraints like resource concentration, long development cycles, and declining ore grades will limit new supply. S&P Global forecasts the refined copper market will maintain a tight balance around 2030, with the supply deficit potentially widening thereafter.
Finally, as discussed in reports on Kondratieff cycles, the global economy is still in a Kondratieff winter. Historically, exiting this phase requires systemic clearance, potentially through war or asset bubble bursts. Currently, geopolitical risks are intensifying, suggesting effective clearance may still be needed. If a global economic and asset clearance occurs around 2027-2028, the world might enter a new Kondratieff wave cycle around 2029-2030, potentially ushering in an era of "returning to the real economy" with liquidity flowing back to the real sector.
Overall, while short-term prices face headwinds from liquidity tightening and geopolitical factors, over a three-to-five-year horizon, a rising price trend for copper remains anticipated.
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