Copper Prices Climb on Supply Squeeze and Fed Rate Cut Hopes
Mining stocks gain as structural deficits meet surging demand from green energy and AI, pushing the industrial metal near record levels.
Copper prices advanced on Tuesday, supported by a potent combination of tightening physical supply and growing investor expectations that the Federal Reserve will continue its monetary easing cycle, a move that could significantly boost industrial demand.
The market dynamics have created a bullish tailwind for major producers, with shares of Freeport-McMoRan (NYSE: FCX) rising 2.3% in afternoon trading, while Southern Copper Corporation (NYSE: SCCO) saw a 2.5% gain.
Benchmark copper on the London Metal Exchange (LME) settled near $10,795 per metric ton, hovering close to the record highs seen in October. The gains are underpinned by a deepening structural deficit, where demand is consistently outstripping supply. LME-monitored warehouse inventories stood at just 155,750 tonnes on Monday, representing only a few days of global consumption and signaling a razor-thin buffer for the global economy.
"The market is contending with a clear structural supply problem that has been years in the making," said a commodities strategist at a major investment bank. "Decades of underinvestment in new mines, coupled with declining ore grades at existing projects and geopolitical instability in key producing regions, have created a supply bottleneck."
That supply squeeze is colliding with a powerful wave of new demand. The global transition to green energy—which includes electric vehicles, wind turbines, and solar panels—is exceptionally copper-intensive. An average electric vehicle, for example, uses nearly four times as much copper as a traditional internal combustion engine car.
More recently, the explosive growth of artificial intelligence has added another significant demand catalyst. AI data centers require vast amounts of copper for power distribution and cooling systems. According to analysis from BloombergNEF, the AI sector is forecast to add hundreds of thousands of tonnes to annual copper demand over the next decade.
Fueling the bullish sentiment is a favorable macroeconomic outlook. After cutting its benchmark rate in both September and October, the Federal Reserve has signaled a continued easing cycle into 2026. Lower interest rates tend to weaken the U.S. dollar, making dollar-priced commodities like copper more affordable for holders of other currencies. Furthermore, looser financial conditions are expected to stimulate broader economic and industrial activity, directly benefiting base metals.
This outlook has led several major banks to upgrade their price forecasts for the red metal. Analysts at UBS recently raised their outlook, projecting prices could reach $11,500 per tonne by early 2026 due to deepening supply deficits. Similarly, Goldman Sachs has lifted its December 2025 price target to $10,610 per ton, citing the tight supply-demand fundamentals.
While the long-term outlook appears robust, potential headwinds remain, including any unexpected hawkish shift from the Federal Reserve or a significant slowdown in China's industrial sector, which remains the world's largest consumer of copper. For now, however, the convergence of constrained supply and accelerating demand has placed copper miners in a strategic sweet spot.