AuAg Critical Insights | Part 4: Copper: An essential metal in an electrified world

These events do not, however, tell the whole story of what is driving the copper market.

Running in parallel is an increasingly powerful set of long-term, structural forces. As global electrification accelerates, the IEA estimates that worldwide copper demand could grow by as much as 48 percent by 2040. The expansion of electricity grids, industry's shift toward electrified processes, the rapid growth of electric vehicles, and an increasingly copper-intensive digital infrastructure are all contributing to demand pressures of a historically unprecedented scale. Similar patterns have previously emerged in the wake of major industrial transitions, among them postwar reconstruction in Europe and China's urbanisation drive in the 2000s. 

Compounding this demand trajectory is a supply side that is structurally sluggish and difficult to scale at the same pace. Long lead times, declining ore grades, and geographically concentrated supply flows mean that even relatively contained disruptions can have an outsized impact on market balance. 

Demand — Electrification and AI 

Unlike many other metals, copper functions as a fundamental building block of the electrified economy. Its physical properties (high electrical conductivity, malleability, and durability) make it difficult to substitute in large-scale applications, particularly in power grids, transformers, and charging infrastructure. This means copper is in demand at virtually every stage of the energy transition: the generation, transmission, storage, and end use of electricity.

Electrification as the primary driver of the copper market 

IEA sector forecasts suggest that the electrified economy is approaching roughly 50 percent of total copper demand in the more ambitious scenarios by 2040, with power grids and electrified transport as the two dominant drivers. An electric vehicle, for instance, uses on average three to four times as much copper as a conventional combustion engine car. At the same time, many power grids in the Western world are in poor repair and require extensive modernisation to handle higher load demands, the connection of new power generation capacity, and charging infrastructure. 

On top of this, a new and rapidly growing source of demand has emerged: AI data centers, where fiber rollout and high-capacity servers are pushing up copper demand in two ways simultaneously—the facilities themselves require large quantities of copper in cabling and equipment, while also increasing the load on power grids that are already in need of expansion. According to J.P. Morgan, copper demand from data centers could reach around 475,000 tons in new installations in 2026 alone. 

Macroeconomic uncertainties and regional differences 

Copper has historically served as a barometer of industrial activity (often referred to as "Doctor Copper"), given that demand and price movements have largely tracked global industrial output and construction activity. This relationship endures, but there are reasons to believe it is gradually being tested. A growing share of demand is now driven by structural and politically prioritised investment.

China, which accounts for around half of global copper consumption, remains the single most important cyclical driver in the near term. Shifts in Chinese industrial activity, the construction sector, and inventory cycles therefore continue to have an outsized impact on price dynamics. Historically, China's property sector has been the dominant domestic force behind copper demand, but the sector has been mired in a prolonged slump since 2021 and shows few signs of recovery. By now, China's property crisis is well understood by the market and largely priced in, while electrification is gradually offsetting the weakness in construction-sector demand. 

Demand is increasingly being driven by structural factors. The energy transition, AI data centers, European rearmament, and government industrial policy programs (such as the U.S. IRA and the EU Critical Raw Materials Act) are creating a more predictable and long-term demand base compared with traditional cyclical industries. The combination of urbanisation, large-scale grid expansion, investment in renewable energy, and a low baseline of per-capita copper use in regions such as India, Africa, and parts of Southeast Asia is therefore creating sustained long-term demand pressure. The pace and scale at which this materialises will depend heavily on political priorities, access to financing, and the capacity to execute planned investments. 

Moreover, recent geopolitical tensions have added another layer of copper demand that is easy to overlook: defense spending. As the international security environment grows more uncertain, governments across the board are modernising and expanding their defense capabilities—and defense hardware is copper-heavy. Air defense systems, radar, telecommunications infrastructure, electrified military vehicles, naval platforms, and advanced electronics all draw heavily on copper. Meanwhile, elevated oil prices are sharpening the economic case for electrification in both transport and industry, as countries increasingly look to reduce their exposure to energy imports. 

Supply: Structural constraints 

The growing and increasingly durable demand for copper runs up against a supply system defined by long investment cycles and limited flexibility. Unlike the demand side (where growth is being driven by sweeping systemic transitions) supply is shaped by geology, capital-intensive project development, and permitting processes that operate on far longer time horizons. The result is a supply side that adjusts slowly, even when prices are rising.

Mineral deposits and investment 

Official global copper reserves are currently estimated at around 980 million tonnes. But it’s important to note that reserves are not the same as available copper. The term describes deposits that have been assessed as economically extractable under current conditions. It says nothing about how quickly, at what cost, or under what circumstances that copper can actually be brought to surface. 

Turning these reserves into actual production requires significant capital investment, and the process is further complicated by long lead times and geological constraints. Over the past decade, new mining projects have frequently been characterized by cost overruns and delays, limiting how quickly new supply can reach the market. According to McKinsey, investments of around USD 1 trillion in new metals and minerals production will be required through 2035 — with copper alone accounting for an investment need of up to USD 200 billion to close the growing supply gap.

The discovery of new large copper deposits has declined markedly over recent decades, despite significant improvements in exploration technology. What is found today also tends to be less concentrated deposits with lower ore grades, making them more expensive and complex to extract. According to S&P Global, the majority of reserve growth comes from the expansion of existing deposits rather than genuinely new discoveries, meaning that opportunities for rapid and large-scale production increases are more limited than the reserve figures suggest. 

Production decline and low price elasticity 

The constraints on the supply side are reinforced by a decade of underinvestment in new production capacity. Following China's commodity boom in the 2000s and early 2010s, when capital flowed into projects that subsequently proved unprofitable, the sector cut its spending sharply when prices fell. Capex on copper projects peaked in 2013 and has not recovered since. Mining companies have instead prioritised dividends and share buybacks over new capacity. This means that new supply not only needs to meet growing demand, but also compensate for the fact that existing mines are gradually declining in output.

Lead times for new mining projects also amount to 15–20 years from discovery to full production. This means that supply does not respond to price signals in the same way as in many other markets. Even if the copper price rises sharply, new capacity cannot be brought into production in the short term — decisions made today will not be reflected in supply until well into the next decade.

Concentration and bottlenecks in global supply chains 

Global copper supply is also heavily concentrated geographically. Primary production is dominated by a handful of regions — chiefly Chile, Peru, and the DRC. The risk profile differs meaningfully across these: Chile faces shifting tax regimes, tightening regulation, and lengthening permitting timelines; Peru contends with social conflict around mining projects; the DRC with active conflict, weak rule of law, and unpredictable investment conditions. What these risks share is that they rarely materialise suddenly — they tend to build gradually, through a slow erosion of the operating environment for mining companies.

Concentration is even more pronounced further down the value chain. China controls more than half of global refining capacity, meaning a substantial share of the world's copper flows through a geographically and politically narrow chokepoint. This makes refining capacity a strategic variable rather than a neutral resource — one that can be shaped by industrial policy, export restrictions, and the prioritisation of domestic demand. 

Recycling is frequently cited (not least in the EU's raw materials strategy) as a way to reduce dependence on primary production. One of copper's material advantages is that it can be recycled almost indefinitely without degrading, making it well suited to a circular economy. Today, recycled copper accounts for roughly a third of global supply, though a significant share of scrap processing and recycling capacity remains concentrated in China. There are also hard limits to how far secondary supply can expand — it is structurally capped by how much copper is already in use and how quickly it cycles back. Recycling can therefore dampen but not replace sluggish growth in primary production.

To consider as an investor

Demand for copper is increasingly driven by long-term, structural forces: the electrification of transport and industry, the build-out of power grids, AI-driven growth in digital infrastructure, and rising defense investments globally. Unlike previous upcycles, which were largely steered by the business cycle, today’s demand pressure is anchored in political priorities and systemic shifts that stretch over decades. A rising oil price only sharpens the incentive to accelerate the transition further.

On the supply side, this demand meets a market with limited flexibility. New deposits are harder to find, existing mines are gradually producing less, and a decade of underinvestment has left the sector without the buffer capacity needed to meet rapidly growing demand. Lead times of 15–20 years mean that price signals do not translate into new supply in the short term. On top of this comes a geographic concentration that runs through the entire value chain: primary production is dominated by a handful of countries, and more than half of global refining capacity is controlled by China. That makes copper flows sensitive not only to geological and economic factors, but to geopolitical ones as well.

Against this backdrop, AuAg Essential Metals invests in copper and other metals that are central to electrification and the energy transition, while AuAg Precious Core has exposure to copper as well as to companies whose business is closely tied to the build-out of energy systems, electrical infrastructure, and related transition processes. Both strategies are therefore positioned for how long-term demand drivers and structural supply-side constraints shape the market environment.