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Behind Copper’s Record Rally

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Behind Copper’s Record Rally

Erik Norland, CME Group

At a Glance:

  • The growing need for copper in EV charging stations and AI data centers are boosting demand
  • As the demand for copper rises, its production growth continues to be slower than most other metals

Normally, copper prices follow three things: the prices of other industrial metals, the pace of growth in China and the price of oil. Recently, however, copper parted company with all three. What’s behind copper’s recent rally to record highs?

For starters, among the various industrial metals, copper is the only one trading at a record high. Aluminum and steel prices are 20% lower than they were two years ago while lithium and cobalt prices are down by anywhere from two thirds to three quarters from their records.

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Slower Growth in China

For most of the past twenty years, copper prices have closely followed on the heels of Chinese growth, hitting their peaks and valleys anywhere from two to 12 months after the Chinese economy. However, while Chinese growth has slumped to its slowest since early 2020, copper prices have broken $5 per pound for the first time ever.

Increased Demand for Copper

Finally, copper typically trades more or less in tandem with crude oil, reflecting the energy-intensive mining and refining process for the metal. Since October 2022, however, copper prices have been diverging from oil, rallying even as oil sags.

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October 2022 happens to be the month that the U.S. Congress passed the Inflation Reduction Act, which provided over $60 billion for EV recharging stations as well as many other copper-intensive improvements to the electric grid. In the meantime, the advent of generative AI has also boosted copper demand in data centers.

This new demand for copper has collided with extremely slow growth in mining output, which has trailed that of just about every other ferrous and base metal. When demand rises and supplies do not, the usual result is higher prices.