Copper Hits Record Highs Amid a “Supply Crunch”: AI Is Only Part of the Story

Copper prices are approaching unprecedented levels as the market faces an increasingly apparent paradox: global supply may not yet be in outright deficit on paper, but the metal is not necessarily located where the market needs it. At the same time, AI, data centers, power grids and electrification are creating a new layer of demand that the mining industry cannot respond to quickly.

Copper is once again moving to the center of the global commodities market. On Comex, September copper futures briefly rose 1.8% to $6.727 per pound, surpassing the previous record of $6.714 set on August 12. The contract later settled 1.6% higher at $6.7125 per pound. On the London Metal Exchange (LME), three-month copper rose to $14,343 per metric ton during the session, just 1.3% below the all-time high of $14,527.50 per ton reached in January.

But behind these record-breaking numbers lies a much more complicated story than a conventional commodity upcycle. Copper is not rising simply because the global economy is recovering, nor solely because of booming AI demand. The market is being squeezed by several forces at once: mine supply is difficult to expand, major mines are facing declining ore grades, production disruptions are occurring in several regions, while physical metal is being drawn increasingly toward the United States ahead of the possibility that Washington could impose additional tariffs on refined copper. That shift is creating a paradox: the world may not yet be short of copper overall, but some markets are increasingly short of immediately available metal.

Copper Is Being Pulled Toward the United States

One of the most important drivers of the current rally is U.S. trade policy. In the first half of 2026, the United States imported around 885,000 tons of refined copper, up 3% from the same period a year earlier. That puts the country on track to approach the record 1.64 million tons imported in 2025.

Comex copper inventories have risen for 46 consecutive days, reaching around 675,185 tons. While that is a very large inventory level when viewed in isolation, it also reflects a significant geographical shift in the location of physical metal rather than a corresponding increase in global supply. Reuters reported that the flow of copper into the United States has significantly altered the balance between Comex and LME markets, as traders take advantage of price differentials to move metal into the U.S. ahead of potential tariffs.

Robert Edwards, a senior copper analyst at CRU, warned that if U.S. imports continue at their current pace, the market could effectively appear to be in shortage even though global supply-and-demand balances do not yet show a major gap.

This is precisely what makes the current copper market different from a conventional price cycle. CRU had previously forecast a global copper surplus of around 639,000 tons in 2026. However, the organization has since revised its view as metal continues to be drawn toward the United States, suggesting that the market is more likely to move toward balance rather than the large surplus initially expected.

The International Copper Association Australia has also noted that the price differential between Comex and LME is increasingly being interpreted by the market as an indicator of tariff risk, rather than simply a reflection of underlying supply and demand.

In other words, Washington is unintentionally creating a “copper vacuum” that is drawing metal away from the rest of the world.

New Supply Cannot Appear Overnight

If tariffs are the short-term catalyst, the difficulty of developing new mine supply is the structural issue. Copper is one of the metals with one of the longest lead times for bringing new supply to market. A major mine can require roughly 10 to 15 years from exploration, permitting and financing to meaningful commercial production.

That means higher prices do not automatically translate into a rapid increase in supply.

Michael Widmer, head of metals research at Bank of America, believes the current rally is primarily reflecting constraints on the supply side rather than a sudden surge in demand. New mines are adding production only slowly, while disruptions at existing operations continue to leave the market vulnerable.

Chile, the world’s largest copper producer, is a clear example. Many of the country’s mines are mature, ore grades are declining and maintaining production is becoming increasingly expensive. Adverse weather conditions, including heavy rain, deep snow and strong winds, can also disrupt mining operations.

Global supply is facing additional pressure from China and the Democratic Republic of Congo. China’s tighter supply of copper scrap and the DRC’s restrictions on exports of copper and cobalt concentrates are reducing flexibility across the supply chain.

William Osnato, director of commodities research and data analysis at Barchart, believes supply disruptions are forcing consumers to withdraw copper from LME warehouses while also pushing up treatment and refining costs.

More importantly, the copper concentrate market is becoming increasingly tight. Sprott has noted that treatment and refining charges have fallen to extremely low levels, in some cases approaching or even moving below zero, indicating that smelters are competing aggressively for sufficient feedstock.

This is an important signal. If smelters cannot secure enough concentrate at economically viable treatment charges, refined copper production could be curtailed even while end-user demand remains strong.

Is AI Really the “Culprit” Behind the Copper Rally?

AI is increasingly being cited as one of the biggest drivers of copper demand. But analysts are increasingly arguing that the issue needs to be viewed more broadly.

An AI data center does not require only chips and servers. It requires electricity systems, substations, cables, wiring, cooling equipment, transmission infrastructure and new power generation capacity to operate the entire ecosystem.

A study published in August 2026 in Resources Policy found that the mineral demand associated with AI infrastructure development comes primarily from electricity infrastructure, rather than from the chips themselves. In the study’s model through 2035, copper accounted for around 83% of the total mineral volume modeled, while transmission and distribution systems represented as much as 64% of copper demand.

This changes the way “AI demand” should be understood. AI itself does not directly consume millions of tons of copper. But building an economy powered by AI requires more data centers, power plants, transmission lines and electricity networks. It is this infrastructure layer behind AI that creates enormous copper demand.

William Osnato likewise argues that the underlying driver of copper prices is the construction of data centers and expansion of electricity grids to support the AI industry. This is not entirely the same type of demand that depends on the traditional economic cycle.

Jacob White, director of ETF product management at Sprott Asset Management, goes even further, arguing that AI is adding to copper demand at precisely the moment when supply is already constrained. As a result, some copper demand is becoming increasingly strategic and less sensitive to price.

Sprott has also offered a notable observation: AI may not be the primary cause of the latest copper rally, but it is exposing bottlenecks in the global electricity system. Data centers can be built faster than the power generation capacity, substations and transmission infrastructure needed to support them.

That may ultimately be the most important long-term story for copper.

China Is Also Accelerating Grid Investment

Beyond the United States and AI, China remains a major source of demand. Investment in China’s power grid rose 13% year over year in the first half of 2026, while Beijing is also advancing large-scale plans to upgrade the electricity system.

This matters because electrification is taking place simultaneously across multiple sectors: electric vehicles, renewable energy, energy storage, smart grids, power generation and industrial infrastructure.

Copper is present throughout almost every link in that process. As a result, part of future copper demand may become less dependent on global GDP growth.

That is why the traditional concept of “Dr. Copper” is becoming less complete.

In the past, copper was often viewed as a barometer of the global economy because demand for construction, automobiles, housing and industrial activity rose when economic growth accelerated. Today, however, copper is also being driven by strategic investment in electricity, AI, defense and the energy transition.

Goldman Sachs has similarly argued that demand from power grids and electricity infrastructure, along with strategic investments such as AI and defense, could provide long-term support for copper prices.

But Not Every Analyst Believes Prices Will Keep Rising Forever

One notable feature of the current market is that analysts are far from unanimous about the outlook.

On one side, some believe the market is entering a period of structural copper shortages. UBS recently set a target of around $14,000 per ton for September 2026 and $15,500 per ton for June 2027. Citi is also among the more bullish institutions, with a 12-month forecast range of $14,500–$15,000 per ton. Morgan Stanley has constructed a bullish scenario based on the possibility of a roughly 600,000-ton market deficit in 2026.

On the other hand, Goldman Sachs continues to warn that copper prices may have moved beyond levels justified by fundamentals.

Goldman Sachs’ view is particularly important because the bank argues that much of the current market heat is linked to stockpiling in the United States ahead of potential tariffs. Once policy becomes clearer, that trading flow could reverse and the market could return its focus to underlying supply and demand.

This is a warning that cannot be ignored.

If the United States ultimately does not impose tariffs at the levels currently anticipated by the market, some of the incentive to stockpile could disappear quickly. Conversely, if Washington imposes additional tariffs on refined copper, the divergence between the U.S. market and the rest of the world could persist.

Morgan Stanley has described the U.S. tariff decision as one of the most important risk events for the copper market. If tariffs are imposed, the bank expects Comex prices could maintain a significant premium over LME prices, continuing to encourage copper flows into the United States.

Washington’s Policy Is Becoming the Biggest Variable

The United States has imposed a 50% tariff on certain semi-finished copper products and copper-intensive derivative products. Washington has also previously considered tariffs on refined copper at 15% from 2027 and 30% from 2028, depending on its assessment of domestic market conditions.

The policy creates a clear economic incentive: if traders believe imported copper will become more expensive in the future, they have a reason to move metal into the United States as early as possible.

And when hundreds of thousands of tons of copper are redirected in this way, markets outside the United States can quickly become tighter.

Gary Nagle, CEO of Glencore, offers a more cautious view. In his assessment, once the United States makes a final decision on tariffs, regardless of the direction, copper prices could cool because the uncertainty that has been driving stockpiling would be removed.

That view highlights an important reality: the copper market is currently trading not only on supply and demand, but also on policy expectations.

A Paradox Called “Surplus on Paper, Shortage in Reality”

This may be the single most important concept for understanding the current copper rally.

A market can have enough total supply and still experience a localized shortage if the metal is in the wrong place, available at the wrong time, or not readily accessible for immediate delivery.

In recent weeks, the LME market has experienced a period of significant physical tightness. The spread between spot copper and three-month futures at one point widened to around $545 per ton, the highest level since the squeeze in 2021. More than 20,000 tons of copper were subsequently delivered into LME warehouses, helping to ease the immediate pressure.

This shows that the market still has metal available when prices are sufficiently attractive.

But it also reveals another reality: once physical metal begins moving away from one region, the spot market can quickly become tight.

Amelia Fu, an analyst at Bank of China International, therefore continues to see the possibility of copper setting new record highs in the coming weeks or months. Alice Fox, a strategist at Macquarie, meanwhile notes that the large volume of copper currently sitting in Comex warehouses could take years to be fully absorbed.

These two views may appear contradictory, but they actually point to the same issue: where inventories are located can be just as important as how much inventory exists.

Could the Current Record Highs Still Have Further to Run?

With copper prices approaching or surpassing historical records in individual markets, the biggest question is no longer whether copper can rise, but rather what price level would be high enough to trigger a meaningful supply response.

At elevated prices, consumers may begin substituting aluminum for copper in certain applications. The International Copper Association Australia has reported signs that some Chinese cable and wire manufacturers are increasing their use of aluminum in selected applications as the copper-to-aluminum price ratio widens.

This is a natural market adjustment mechanism.

However, substitution remains limited in applications that require high conductivity, durability and specific technical characteristics. In particular, replacing copper is not always straightforward in power infrastructure, data centers and many industrial applications.

At the same time, developing a new copper mine still requires a decade or longer.

Therefore, if demand from AI, power grids, electrification and strategic industries continues to grow faster than new mine supply can be added, the market could continue to experience physical shortages even when global supply-and-demand models show a broadly balanced market.

That is why some analysts believe today’s record highs may not mark the end of the current price cycle.

But for the same reason, downside risks will also increase if tariff-driven stockpiling reverses, Chinese demand weakens or production from major mines recovers faster than expected.

Copper Is Entering a New Era

Perhaps the most accurate way to view the copper market today is not as a simple story of “tight supply” or “AI-driven demand.” It is a collision between a supply system that changes slowly and an increasingly electrified economy that is changing rapidly.

AI is prompting the world to build more data centers. Data centers require electricity. Electricity requires transmission grids. Power grids require wiring, transformers and electrical equipment. At the same time, electric vehicles, renewable energy and industrial infrastructure upgrades continue to expand demand.

The mining industry, however, cannot respond at the same speed.

And when U.S. trade policy simultaneously draws additional volumes of metal toward a single market, imbalances can emerge much faster than new mines can compensate.

The current rally may therefore be an early warning of a much larger problem: the world needs more copper, but producing additional copper is becoming more difficult, more expensive and more time-consuming.

The question the market will have to answer in the coming years is not simply whether copper can reach $15,000 or $16,000 per ton. The bigger question is: what price will be high enough to persuade the mining industry to create new supply before the world’s electrification demand exceeds its ability to respond?

And if the answer is that it takes an entire decade, the records being set in the copper market today may only be the beginning of a much longer supply crisis.

Source: copper.com.au and compiled from the internet.