Metals Rally as AI and Energy Demand Collide With Tight Supply
Copper prices are surging as production cuts at major mines create a supply squeeze just as demand from data centers and green infrastructure accelerates.
A powerful rally is building in the industrial metals market, with copper at the forefront, as a potent combination of surging demand from new technologies and significant global supply disruptions creates a widening deficit.
Investors are betting on a sustained price increase, driven by what analysts see as two powerful, long-term demand drivers: the artificial intelligence revolution and the global transition to green energy. The build-out of AI is fueling a boom in the construction of power-hungry data centers, which require vast amounts of copper for wiring, power distribution, and cooling systems. One estimate suggests data center copper consumption could grow six-fold by 2050, creating a significant new pillar of demand.
Simultaneously, the green energy transition continues to accelerate. Electric vehicles, which use up to four times more copper than traditional cars, along with solar panels, wind turbines, and the necessary grid upgrades, are all exceptionally metal-intensive. The International Energy Agency (IEA) has highlighted the critical role of copper, noting a potential 31% shortfall in the project pipeline versus 2035 mining requirements needed to meet climate goals.
This demand surge is colliding with a constrained supply landscape. The market has been rocked by a series of major production cuts and disruptions that have removed a significant volume of copper from anticipated supply. One of the largest impacts came from the closure of the Cobre Panamá mine, which accounted for roughly 1.5% of the world's copper supply before it ceased operations.
Other major producers are also facing challenges. State-owned Codelco in Chile, the world's largest copper producer, has been battling operational issues and has revised its 2025 output forecasts downward. Elsewhere, Glencore announced it will close its Australian copper mines in Mount Isa by 2025, citing aging infrastructure. These specific incidents, among others, are creating a ripple effect, tightening the market for copper concentrate and putting pressure on smelters globally.
A favorable macroeconomic environment is adding fuel to the fire. Expectations that the U.S. Federal Reserve will continue to cut interest rates into 2025 are broadly supportive for commodities. Lower rates tend to weaken the U.S. dollar, making dollar-priced commodities like copper more affordable for foreign buyers. The policy shift also reduces the cost of holding physical inventory, making commodities a more attractive asset class for investors compared to interest-bearing bonds.
The confluence of these factors—structural demand growth, acute supply shocks, and supportive monetary policy—is leading analysts to warn of a prolonged supply deficit. With demand from electrification and AI set to grow, and with major new mines taking years to bring online, the squeeze on the copper market may just be beginning.