Important points
- Increased demand for artificial intelligence (AI), which harnesses power from increasingly large data centers that typically use copper wires, could push copper prices higher.
- Copper prices have already risen about 20% since the beginning of the year, and were at $4.65 per pound as of 5pm ET on Friday.
- Analysts at Bank of America have suggested that rising global demand for copper could even lead to a supply shortage by the end of this year.
- China, which has cut production due to supply constraints in its mines, may be the key to determining how serious the supply shortage will become.
Global copper prices have more than doubled due to a surge in demand for electric vehicles (EVs) in the wake of the COVID-19 pandemic. Now, demand is surging again to meet demand from another source: large-scale data centers powered by artificial intelligence (AI).
The price of the metal commonly used in electrical wiring has increased about 20% since the beginning of the year, to $4.65 per pound as of 5 p.m. ET Friday. Bank of America (BAC) predicts that prices could rise another 17% by 2026, according to a note released Thursday.
Recent copper price increases and BofA forecasts come despite slowing EV demand as the global race to add AI capabilities significantly increases the need for copper-based data centers Did.
“Demand from EVs is still increasing, albeit at a slower pace, and focus is shifting to copper in data center construction,” BofA analysts said.
AI will skyrocket demand for data centers
Copper prices took a hit early in the COVID-19 pandemic, falling to just over $2 per pound in March 2020, but have rebounded as the global economy recovers and demand for EVs increases. As a result, the value of copper more than doubled to nearly $4.80. By May 2021.
Copper prices fell in early 2022 after central banks started raising interest rates to combat inflation, but the price has declined since around the time ChatGPT was launched, as a boom in AI demand gave way to explosive growth in data centers. It rebounded in the second half of 2022.
The International Energy Agency (IEA) predicted earlier this year that electricity consumption by data centers, AI, and the crypto sector could double by 2026.
The IEA noted that its power consumption is roughly equal to that of Japan, and warned that improved technology and updated regulations are “crucial to mitigate the surge in energy consumption from data centers.” .
Such improvements include addressing strained power grids that require upgrades even in developed countries. However, grid upgrades also require copper wire. These upgrades increasingly involve renewable energy solutions, which Bank of America noted “tend to have much higher copper content than traditional fossil fuel power plants.”
Potential supply shortage looms
BofA said that even if production increases, global demand for copper could “turn a balanced market into a (supply) deficit” by the end of this year and into 2026.
BofA estimates this could push copper prices to $5.44 a pound by 2026, 41% higher than last year's average.
The IEA said global electricity demand is expected to grow by 3.4% annually until 2026, following a 2.2% increase last year, with most of the demand growth coming from China and India.
China could play a key role in whether these predictions prove correct. Production was cut due to mine supply constraints. At the same time, we continue to spend heavily to upgrade our power grid.
Meanwhile, BofA acknowledged that prices may not rise as much as expected if China reduces spending on renewable technologies and copper exports resume as supply constraints ease.