Copper Prices Hit Record High Amid Supply Shocks and Surging AI Demand
Copper has reached an all-time high of $14,617 per ton on the London Metal Exchange, driven primarily by supply-side issues rather than demand. Two major copper mines, one in Chile and another in Indonesia, have experienced catastrophic accidents, significantly reducing global output precisely when demand for the metal is increasing.
The El Teniente mine in Chile, operated by the state-owned Codelco, suffered a fatal tunnel collapse. Its production is now expected to remain around 300,000 tons annually until the end of the decade, down from approximately 356,000 tons in 2024. Codelco officially abandoned its growth targets for the mine in August, a rare admission from the world's largest copper producer that it cannot increase output. This situation is exacerbated by deeper and lower-grade copper reserves in Chile, making extraction more costly and increasing safety expenses.
Simultaneously, the Grasberg mine in Indonesia, one of the world's largest, was hit by a deadly mudslide. This event has led to a 35% cut in its projected production for 2026, with a return to normal operations anticipated in 2027. The combined impact of these two incidents removes hundreds of thousands of tons from the market at a time when there are no immediate replacements.
Forecasting a copper deficit for 2026 varies widely among financial institutions, with predictions ranging from 150,000 to 600,000 tons. This significant discrepancy, up to four times the difference between the lowest and highest estimates, highlights the uncertainty surrounding the market's future. The range is attributed to difficulties in quantifying how quickly the affected mines will recover and how much recycled copper will enter the market in response to high prices.
Meanwhile, demand for copper is surging, partly fueled by the artificial intelligence revolution. Data centers, essential for AI, require substantial amounts of copper for cabling, transformers, and cooling systems, placing additional strain on power grids that also need copper infrastructure. China's $574 billion plan to upgrade its power grid and Israel's significant demand for server farm connections further contribute to this rising need for copper.
