AI development will increase copper demand by 1 million tons per annum by the end of 2030, according to Trafigura
The demand-supply deficit will also increase to 4-5 million tons by 2030
China controls most of the world’s copper reserves, which can slow economic growth amid increasing geopolitical tensions
The AI boom can bring about around one million metric tons per annum increase in copper demand by the end of 2030, says Trafigura, the world’s third-largest physical commodities trading group. However, this increased demand also brings in more copper deficit throughout the decade.
As per Reuters, the copper demand can be around 26 million tons in the current year, with a deficit of 35,000 tons. This deficit is expected to swell to 100,000 tons in 2025.
As per Saad Rahim, chief economist at Switzerland-based Trafigura, this deficit will further increase to four to five million tons by the end of 2030. And this figure doesn’t take into account the fresh demand due to AI needs.
This deficit reflects the gap between demand and supply. With low supply levels, copper prices will rise sharply, which can halt the shift towards renewable energy and electric vehicles.
If you look at the demand that is coming from data centers and related to that from AI, that growth has suddenly exploded. Saad Rahim
Various tech giants are investing heavily in data centers to support the growth of AI.
Every 1MW of data center capacity requires 20 to 40 tonnes of copper.
Microsoft’s Chicago data center was built with around 2,177 tons of copper in 2020. The capacity of this data center is expected to double by the end of 2030, which will need even more copper.
Furthermore, Microsoft, after committing to invest $2.1 billion in AI and cloud-based projects in Spain over the next two years, is all set to pour in another $2.9 billion to expand AI, cloud infra in Japan.
In January of this year, Google announced a $1 billion investment in a new Google UK data center.
The China problem in global copper supply
China was the fourth largest producer of copper in 2023 with a production of 1.7 million metric tons. Apart from this, China also owns 70% of all Rare Earths production and 85% of Rare Earths processing.
Rare Earths are a group of 17 metals, found in low concentrations, which are used in electric vehicle magnets and other renewable sources of energy.
With a rival of the West controlling a major chunk of the raw material market, growth can be hindered amid increasing geopolitical tensions.
Relations between China and the USA have been strained for quite some time now, with punches being thrown from both sides. For example, China very recently announced its plan to ban AMD and Intel chips in government devices. From the other corner, Biden administration ordered an investigation into Chinese smart cars over security concerns.
Should the situation escalate, China may decide to halt the export of Rare Earths, as it did to Japan in 2010. The same goes for copper as well.
Although Chile is the largest exporter of copper in the world, hardly 0.079% of it is exported to the USA. In fact, most of Chile’s copper (68.3%) is exported to China, followed by Japan (17.4%).
So, not only is China producing a large amount of copper, but it is also importing most of the production from the world’s largest producer. This means China has supreme control over global supply.
Should You Invest in Copper Now?
Increasing demand is always a good sign for investors. The higher the deficit, the higher will the prices go. Lyn Alden, a popular independent financial analyst, in her interview in July 2023, said that she viewed copper as the cleanest risk-reward trade. However, it is crucial to wait for the right cyclical timing before investing.
I think copper is going to continue to be probably range-bound. But then once you do start to get that upturn, I think much like energy, copper is like a multi-year story. Lyn Alden
The above statement seems to be aging pretty well for Adlen. At the time of the interview, copper prices stayed between $3.5-$4.1 per pound, with both the 50 EMA and 200 EMA flattening out. This was the case from February 2023 up until March 2024.
However, the first week of April saw copper breach the year-long resistance of $4.1 and is currently trading at $4.29 per pound. Furthermore, the 50 EMA that came to just about hugging the 200 EMA is now looking ripe for a bounce, which is a good technical-analysis-driven sign that confirms the upward sentiment.
Disclaimer: this is not financial advice, just a personal opinion of a technical analysis enthusiast.
The Bottom Line
The next two decades are set to change how we interact with technology. With AI already re-shaping our daily lives at breakneck pace, whether that’s OpenAI’s voice-cloning tech, or its text-to-video AI tool Sora, or Amazon’s AI shopping assistant, it’s also expected to increase demand in various industries such as chips and copper.
However, the concerning caveat is that this increasing demand can slow down growth due to escalating geopolitical tensions between China and the West.
