Copper’s AI-fuelled boom gets a reality check

{"text":[[{"start":6.809,"text":"For the thousands of metals investors and executives in London last week for the annual London Metal Exchange industry get-together, there was only one story: copper and the promise that the AI revolution would continue to send the red metal to record heights."}],[{"start":21.12,"text":"But among the traders betting on rising copper prices and miners seeking new sources of the metal, there was another question being asked in the bars of Mayfair."}],[{"start":30.57,"text":"What if signs of a fading AI boom mean that the great demand surge expected over the next decade does not materialise?"}],[{"start":36.48,"text":"“It’s better than even odds that AI is a bubble,” said one top metals investor. A pullback in the AI growth story “will have an impact on metals prices”, they admitted. “Some time in 2027 something’s going to hit the fan.”"}],[{"start":null,"text":"

"}],[{"start":46.16,"text":"Even the growth in copper needed for remilitarisation and electric vehicles and related infrastructure would not entirely replace demand estimates “if AI comes off a cliff” in the near term, the investor added."}],[{"start":61.92,"text":"Copper is highly conductive and used in everything from cables and wiring to vehicles, consumer electronics and major construction. Huge amounts are forecast to be needed for AI infrastructure and for electrification, while mines are ageing and becoming less productive — with several also disrupted this year due to extreme weather or strike action."}],[{"start":82.8,"text":"“Data centres have been the story of the past year. They contributed essentially nothing to copper demand growth in 2023, and we estimate they’ll add around 350,000 tonnes this year,” said Graeme Train, head of metals and minerals analysis for Trafigura. Annual global demand for copper is about 28mn tonnes, with the large majority provided by mines."}],[{"start":102.56,"text":"Expectations of a looming shortage drove the copper price to near-record highs this year, levels that the metal has hovered close to again in recent weeks. Train said the prices had “squeezed out demand” from non-AI sectors, meaning “total consumption has struggled to grow”."}],[{"start":118.055,"text":"A global race for copper resources has driven deal talks between mining majors over the past two years, though only Anglo American’s planned mega-merger with Canada’s Teck Resources has materialised."}],[{"start":128.758,"text":"Big mining companies’ exposure to copper has grown as boards and investors have pushed to grow production of the red metal, shifting the emphasis from broader growth strategies across several metals."}],[{"start":140.96,"text":"Markets have rewarded this, with shares in copper-exposed miners such as BHP and Freeport-McMoRan up by between quarter and a third this year."}],[{"start":147.926,"text":"In August, BHP, the world’s largest mining company, said copper overtook iron ore as its primary profit driver for the first time, although finance chief Vandita Pant noted the company was still very committed to its iron ore, steelmaking coal and fertiliser operations as well at the FT mining summit earlier this month."}],[{"start":165.92,"text":"The emergence of copper as a strategic asset for technology and defence has also led to a new, close relationship developing between the metals industry and governments."}],[{"start":175.52,"text":"According to many executives, it is copper, not chips or capital, that might restrain AI growth given the years it takes to bring new mines online."}],[{"start":184.178,"text":"The market is factoring in record demand coming on tap in the next few years, according to several senior traders, and the question now is whether reality is as rosy as the hopes as AI-exposed shares come under pressure."}],[{"start":196.89,"text":"Already some analysts were questioning whether elevated copper prices truly reflect the fundamentals of supply and demand or have been driven up by AI hype and the consequences of US policymaking."}],[{"start":206.88,"text":"Macquarie analyst Alice Fox said at an LME Week briefing that prices were running ahead of supply levels: “We had a large surplus last year and we think there will be surpluses for the next few years on a global basis.”"}],[{"start":218.963,"text":"In a note Macquarie said while higher tech investment would boost overall copper demand, there were “growing downside risks around the sheer scale of the planned AI data centre build-out and the infrastructure required”."}],[{"start":230.801,"text":"Some metals executives in London this week sounded an early warning that near-term copper demand might not be as high as many hoped, with one top investor suggesting he could see a fall of up to $1,000 per tonne from its peak earlier this year of close to $15,000 a tonne."}],[{"start":245.604,"text":"Pointing to rising interest rates and inflation and ballooning US government debt, another said the principal risk was that much of the buoyancy in the metals markets was “contingent on AI”. A third said the industry was suffering from a “vicious circle of groupthink” but that the contrarian view that copper would experience a “sharp pullback” had started to emerge."}],[{"start":266.453,"text":"The potential for new US copper tariffs has created artificial tightness in the market in the rest of the world and sent up prices. In the last week of October 90 per cent of the copper stocks stored in the global network of London Metal Exchange and Comex warehouses were in the US, compared to about 20 per cent two years ago."}],[{"start":null,"text":""}],[{"start":285.44,"text":"A removal of the tariff threat could result in “rapid liquidation as the physical stocks look for new homes”, according to Macquarie."}],[{"start":293.594,"text":"The expectation, though, that kept the champagne flowing during LME Week was that the bursting of the AI bubble would be short term at worst, given the fact that supply of copper would remain restrained by the physical difficulties in finding new sources."}],[{"start":307.497,"text":"Longer term, the industry’s top executives told the FT they expected rising demand, constrained supplies and elevated prices. “I don’t think it will be linear . . . we’ll have challenges along the way but the trend for copper demand is positive,” said Kathleen Quirk, chief executive of Freeport-McMoRan."}],[{"start":325.328,"text":"Duncan Wanblad, chief executive of Anglo American, last week told an FT conference that “until such time as you can close that supply-demand gap, you are likely to see pretty sustainable support for the pricing of where copper is today”."}],[{"start":338.72,"text":"Loic Jonchery, senior metals trader at Centalion, said the price right now was “expensive for today’s market. The question is whether it’s expensive enough to solve tomorrow’s. This is a harder question to answer.”"}],[{"start":354,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793271434_3024.mp3"}