Copper hits new peak of $14,533/metric ton. Can its reddish glow brighten even further?

Copper prices hit a fresh record high on Monday, with the prospect of shortages outside the US driving buying interest, while a weaker dollar added to the bullish momentum. Benchmark copper on the London Metal Exchange climbed to an all-time high of $14,533 a metric ton, edging past its previous record of $14,527.50 set in January.

The red metal has been on a record-breaking run over the past year, driven largely by tariff-related trade flows. Bullish investors are now betting that stagnant mine supply could provide further fuel for the rally.

That supply outlook has also turned more cautious. Morgan Stanley, which started the year expecting mine supply to expand, now sees production remaining broadly unchanged or edging lower. If that plays out, the market could see its first annual decline in copper mine supply since 2017, adding to expectations of tighter availability.

Decoding copper’s super surge

Copper demand has accelerated sharply, driven by structural trends such as electrification, artificial intelligence, defence spending and urbanisation across emerging markets. At the same time, supply remains constrained, creating a combination of rigid long-term demand and limited supply that could push baseline market-clearing prices higher. According to the report, current market conditions resemble the early stages of previous multi-year commodity cycles.

The Iran conflict has added further pressure to an already tight supply picture. A less-discussed factor behind the recent copper rally is the growing shortage of sulfuric acid, a key input in copper extraction and refining, particularly in heap leaching operations. Nearly half of the world’s seaborne sulfur supply comes from the Middle East, while disruptions around the Strait of Hormuz have significantly tightened availability.

Chile, the world’s top copper producer, has been at the centre of the disappointing supply performance, reporting its weakest second-quarter output in at least 19 years. The country has cut its full-year production forecast for a second consecutive quarter and now expects output to decline 2.6%. Meanwhile, the International Copper Study Group expects global mine supply to grow 1.6% this year.

Jefferies analysts said the latest industry production results reinforce their view that mine output remains tightly constrained. They added that risks to overall supply remain firmly skewed to the downside, even as some major operations ramp up production.

Does this copper rally have more legs?

Last week, benchmark LME prices were headed for a 10th consecutive weekly gain, the longest such stretch since 1994. Citigroup Inc. analyst Tom Mulqueen forecasts copper at $15,000 a ton by year-end, with the potential to reach about $17,000 if manufacturing recovers or demand from the energy transition, data centres, or strategic stockpiling proves stronger than expected, a Bloomberg report said.

He plays down the threat from the vast US inventory buildup, arguing that even without tariffs, those stockpiles are likely to unwind gradually rather than flood back onto the global market.

With demand set to outpace supply growth in the coming years, prices are likely to remain elevated, according to Anglo American Plc Chief Operating Officer Ruben Fernandes.

“Everyone is investing in copper, everyone likes copper,” he said in an interview last week. “Supply will come, but the question is how quickly.”

Copper is rapidly evolving from a conventional industrial commodity into one of the world’s most strategically important resources. It now sits at the centre of the next technological and energy transition cycle.

According to an HDFC Securities report, the commodity bear market between 2011 and 2020 severely damaged the supply pipeline across the resource sector. Mining capex fell more than 40% from peak levels, oil and gas exploration spending stagnated, and ESG-related pressures further restricted new project development. Discoveries of new tier-1 copper, oil and gas deposits have effectively flatlined since 2015.

What makes the current setup particularly powerful is supply’s inability to respond quickly. Copper mining projects typically require more than 15 years to move from discovery to production, potentially hinting that the rally may have more steam if demand trends continue.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)