Due to the fact that many varieties directly correspond to the "periodic table", investors in many commodity markets will vividly compare the market situation of non-ferrous metals to that of the "periodic table". At present, in addition to gold and silver, which are currently competing high in the precious metal industry, copper, as an industrial metal, is also receiving increasing attention from market professionals.
On Monday of this week, LME copper prices hit a peak of $9484.50, breaking a 14 month high, mainly due to buying from momentum funds tracking market trends, strong German industrial data, and collective rebound in other commodity prices.
The more eye-catching market trend actually belongs to the domestic futures market.
After the end of the Qingming Festival holiday, the main contracts of Shanghai copper futures on the Shanghai Futures Exchange opened high on Monday and reached a historic high of 76850 yuan/ton on Tuesday morning. A futures trader said that the Shanghai metal market quickly caught up with last week's rise in the London market after the end of the Qingming holiday.
From the comparison of price trends in the global commodity market, it can be seen that in this round of rising commodity prices this year, although LME copper's increase is weaker than that of crude oil, gold, and silver, its increase so far has also reached double digits.
Undoubtedly, the signs of recovery shown by the global manufacturing industry have strengthened industry expectations for a tightening supply and demand in the copper market.
In the databases of many experienced macro traders, there is often a comparison chart between the copper/gold ratio and US bond yields, which has long been positively correlated. Nowadays, the continuous rise in US Treasury yields seems to indicate that copper may have more room for growth compared to gold.
The logic behind it is very simple: the copper to gold ratio is the result of dividing the price of copper by the price of gold. Gold is a typical safe haven and anti inflation asset, while copper, known as the "copper doctor", is a cyclical commodity and a risk asset that is greatly affected by the macroeconomic cycle on the demand side. The ratio of the two is very sensitive to macroeconomic trends. When the market recovers or heats up, copper will outperform gold in price performance due to increased demand. When the economy is in a downturn or even facing the threat of recession, copper often performs even worse than gold.
Of course, even if we set aside this historical correlation and observe the fundamental situation of copper alone, it is not difficult for people to come up with a series of reasons to support the rise of copper prices.
Is there copper at the end of the AI?
Due to the global shortage of copper supply and increasing concerns about a possible decrease in copper production from Chinese smelters, many industry insiders have recently been quite optimistic about the outlook for copper prices. The supply interruption of the main mines is forcing smelters to pay the highest prices in history to obtain the extracted ore.
Meanwhile, the expectation of joint production reduction by Chinese smelters continues to rise. It should be noted that China's refined copper production accounts for more than half of the world's total.
Compared to many other commodities, copper may still hold a key "trump card" at the moment, which is AI
In fact, although people have often said that the end of AI is electricity recently, there is another type of resource that is exceptionally crucial behind this, which is copper - even electricity itself (renewable energy) contains copper.
In AI data centers, copper is mainly used for power distribution equipment as well as grounding and interconnection. Specifically, copper is mainly used in power transmission (such as cables, connectors, busbars), as well as heat exchangers and sinks, grounding and interconnection, as well as pipelines and HVAC systems. With the gradual elimination of carbon emissions globally, energy transformation, including electric vehicles and renewable energy technologies, is expected to drive a surge in copper consumption in the coming years.
Commodity trader Tok has stated that by 2030, copper demand related to artificial intelligence (AI) and data centers may reach 1 million tons, which will further exacerbate supply shortages. "If you look at the demand brought about by data centers and related artificial intelligence, this growth has suddenly exploded," said Saad Rahim, Chief Economist of Tok, at the Financial Times Global Commodity Summit held in Lausanne, Switzerland
Rahim pointed out that these 1 million tons are additional to what we believe will be a shortage of 4-5 million tons in the copper market by 2030, no matter what. Not everyone actually considers this when evaluating supply and demand balance.
According to a recent report by the QYResearch research team, it is expected that the global high-speed direct connected copper (DAC) cable market will reach $1.7 billion in 2029, with a compound annual growth rate (CAGR) of 12.3% in the coming years. Nvidia previously unveiled the GB200 chip architecture and a new NVL72 network architecture with GB200 as the core at the GTC conference. The architecture uses approximately 5000 copper cables (totaling 2 miles) for connecting switches and GPUs. High speed copper cables are gradually providing more and better solutions for more diverse high-speed transmission scenarios.
Morgan Stanley also stated in its previous report that with the rapid development of AI technology, copper demand will significantly increase, with AI data centers becoming a new growth point for copper demand. Morgan Stanley expects copper prices to rise to $10500 per ton by the fourth quarter of 2024. The institution predicts that the demand for electricity in global AI data centers will grow at a compound annual growth rate of 18% from 2024 to 2027.
According to a previous industry survey, global copper demand is expected to be around 26 million tons this year, and it is expected that the supply gap in the copper market will increase from 35000 tons this year to over 100000 tons in 2025.
It is worth mentioning that Goldman Sachs has long been one of the dead bulls in copper among Wall Street investment banks. Goldman Sachs analysts predicted in a research report last month that there will be a supply gap of 250000 tons of copper in the second quarter, and a supply gap of 450000 tons of copper in the second half of 2024. It is expected that copper will rise to $10000 per ton by the end of this year.