Copper is a highly valued industrial metal that has been used for centuries, and its importance expends beyond its mere physical properties. Copper prices are often used as a barometer for the health of the global economy.
Today is no exception since the price of copper is linked to its use in artificial intelligence, particularly in data centres. Copper structured cabling is flexible, energy-efficient, cost-effective, has an integrated foundation and can deliver reliable high-speed performance in data centres.
Yet, it has fallen back sharply from its all-time high in May. While the fundamentals remain unchanged, the financial flows around AI/data centres have experienced a slowdown, perhaps also due to the scarcity of short positions.
The net positioning is close to record highs, which mean the next move should stem from physical market dynamics.
Supply remains scarce in the physical market. Chilean production in April slumped due to the accident at Codelco’s Radomiro Tomic mine, while Antamina’s lower grades reduced Peruvian output. Although production in Panama is the wildcard that could balance the market by 2025, the reality is that supply shortages are still projected for the next two years.
On the demand side, apparent demand in China (refined production + net imports – inventory changes) is slowing down, as inventories remain high. Beyond China, network investment is gaining momentum, while the data centre narrative continues.
Therefore, copper appears poised to continue with a bullish bias. Despite occasional setbacks like those in recent weeks, the medium-term dynamics are expected to persist, potentially establishing a higher floor for copper prices. This is because mining companies require a minimum return and below a certain copper price, they lack incentive to invest. And that threshold is ever rising.
Date of report: July 10th 2024