Since many varieties directly correspond to the “periodic table”, many commodity market investors will figuratively compare the non-ferrous metals market to the “periodic table of elements” market. Currently, in addition to gold and silver, which are “testing higher” in the precious metals sector, copper as an industrial metal is also receiving more and more attention from market participants.

On Monday, the LME copper price hit a high of 9484.50 US dollars, breaking the highest level in 14 months, mainly due to purchases from momentum funds that track market trends, strong German industrial data, and a collective rebound in other commodity prices.

However, the market that has received more attention is actually still in the domestic futures market.

After the Qingming holiday, the main contract for Shanghai Copper futures in the previous period went high this Monday, hitting a high of 7,6850 yuan/ton on Tuesday morning, reaching a record high. A futures trader said that after ending the Qingming holiday closure, the Shanghai metal market quickly caught up with weekly gains in the London market.

Looking at price trends in the global commodity market, in this wave of commodity increases during the year, although the increase in LME copper weakly followed that of crude oil, gold, and silver, it has also reached double digits so far.

Undoubtedly, the signs of recovery shown by the global manufacturing industry have strengthened the industry's expectations for tighter supply and demand in the copper market.

In the databases of many senior macro traders, there is often a comparison chart between the copper/gold ratio and US bond yields. The two have usually been positively correlated over a long period of time. Today, the continued rise in US bond yields also seems to indicate that copper may have more room to rise compared to gold.

The logic behind it is very simple: the copper/gold ratio is the result of dividing the price of copper by the price of gold. Gold is a typical safe-haven and anti-inflationary asset, while copper, known as “Doctor Copper,” is a cyclical commodity and a risky asset. On the demand side, it is greatly affected by macroeconomic cycles. The ratio of the two is very sensitive to macroeconomic trends. When market sentiment recovers or heats up, copper's price performance will surpass gold due to increased demand. However, when the economy is sluggish or is threatened with recession, copper's performance is often lower than that of gold.

Of course, even leaving aside this historical rule and looking at the current fundamental situation of copper alone, it is actually not difficult for people to come up with a series of reasons to support the rise in copper prices.

Is there copper at the end of AI?

Due to the shortage of global copper ore supply and growing concerns that copper production from Chinese smelters may decrease, many industry insiders have recently actually been quite optimistic about the prospects for copper prices. Supply disruptions at major mines are forcing smelters to pay the highest prices in history to obtain the mined ore.

At the same time, expectations that China's smelters will implement joint production cuts also continue to heat up. You need to know that China accounts for more than half of the world's refined copper production.

Compared to many other commodities, the key “trump card” that Copper is probably still holding right now is AI...

In fact, although people recently often say that the end of AI is electricity, behind this, there is another type of resource that is extremely critical, and that is copper — even electricity itself (renewable energy) contains copper.

In AI data centers, copper is mainly used for power distribution equipment and grounding and interconnection. Specifically, copper is mainly used for power transmission (such as cables, connectors, busbars), as well as heat exchangers and sinks, grounding and interconnection, and piping and HVAC systems. As the world gradually removes carbon emissions, the energy transition, including electric vehicles and renewable energy technologies, is also expected to drive a surge in copper consumption over the next few years.

Commodity trader Tork said that by 2030, demand for copper associated with artificial intelligence (AI) and data centers may reach 1 million tons, which will further exacerbate supply shortages. Saad Rahim, chief economist at the Financial Times Global Commodities Summit in Lausanne, Switzerland, said, “If you look at the demand brought about by data centers and the artificial intelligence associated with them, this growth has suddenly exploded.”

Rahim pointed out that this 1 million tonnes was added “to what we think the copper market will be short of 4 to 5 million tons by 2030 no matter what”. “Not everyone actually takes this into account when evaluating the balance between supply and demand”.

According to a recent report by the QYResearch research team, the global high-speed direct-connect copper (DAC) cable market is expected to reach 1.7 billion US dollars in 2029, with a CAGR compound annual growth rate of 12.3% in the next few years. Nvidia previously unveiled the GB200 chip architecture and the new NVL72 network architecture with GB200 as the core at the GTC conference. The architecture uses about 5,000 copper cables (2 miles in total) to connect the switch and GPU. High-speed copper cables are gradually providing more and better solutions for more diverse high-speed transmission scenarios.

Morgan Stanley also stated in a previous report that with the rapid development of AI technology, copper demand will increase significantly, and AI data centers will become a new growth point for copper demand. Morgan Stanley expects copper prices to rise to 10,500 US dollars/ton by the fourth quarter of 2024. The agency expects global AI data center electricity demand to grow at a compound annual growth rate of 18% from 2024 to 2027.

According to a previous survey in the industry, global copper demand is expected to be around 26 million tons this year, and the copper market supply gap is expected to rise from 35,000 tons this year to more than 100,000 tons in 2025.

It is worth mentioning that among Wall Street investment banks, Goldman Sachs has long been one of the biggest players in copper. Goldman Sachs analysts predicted in a research report last month that copper will have a supply gap of 250,000 tons in the second quarter, and that copper will have a supply gap of 450,000 tons in the second half of 2024. It is expected that by the end of this year, copper will rise to 10,000 US dollars per ton.

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