Behind copper’s record rally in 2025, Trump’s tariffs, supply disruptions, AI demand

Copper is essential to the modern economy, with uses ranging from housing and manufacturing to power grids, clean energy, artificial intelligence and defence. Thus, it is often seen as a barometer of economic health. A rise in copper prices is considered a signal of robust economic growth, while falling prices tend to raise concerns about an economic slowdown.

This is why the latest rally has raised eyebrows. The surge is coming at a time when global economic growth is steady but far from strong. What is pushing copper prices to record levels this year?

Impact of Trump’s tariffs

While a combination of factors is responsible, the global trade disruptions resulting from US President Donald Trump’s tariffs have been a key driver. In August, President Trump imposed a 50% tariff on semi-finished and derivative copper imports, prompting US buyers to stockpile the metal ahead of the tariff’s implementation on August 1.

The possibility that refined copper — thus far exempt from these duties — could potentially be subject to these tariffs has been a key driver of the copper price rise this year. US buyers have aggressively purchased and stockpiled copper reserves in warehouses, steadily building up their inventories, to avoid facing potentially higher costs.

These tariff expectations have also created arbitrage opportunities in the market, Bloomberg reported last week. An arbitrage opportunity arises when the same commodity is priced differently in two markets. Copper is traded on multiple exchanges, including the London Metal Exchange (LME) and US markets such as COMEX. When prices are lower in one market and higher in another, traders can buy copper in the cheaper market and sell it simultaneously in the more expensive one, profiting from the price gap.

Since January, copper prices have risen much faster in the US than in London, widening the gap between the two markets, The Economist reported in October. Prices on the US exchange jumped to record highs earlier this year following news of a potential tariff on the metal. After a brief respite during August, when refined copper was excluded from the proposed duties, its price has continued to rise over renewed speculation about new tariffs. This divergence has fuelled a strong arbitrage trade, causing an exodus of stock to New York. According to The Economist report, some 340,000 tonnes are now stranded in New York, up from 80,000 in January.

Tightening supply, growing demand

Another key factor is the tightening supply caused by disruptions at some major copper mines worldwide. A series of accidents in major mines in Indonesia, Chile, and the Democratic Republic of Congo (DRC) has curtailed global output.

In September, a mudslide struck Indonesia’s Grasberg mine, the world’s second-largest copper mine, forcing the operator to declare force majeure. The mine remains shut and is unlikely to return to full production before 2027. In July, a major rock blast brought operations to a halt at a copper mine in Chile, while seismic activity triggered severe underground flooding at one of the world’s most important copper mines in the DRC this May.

Together, these disruptions have significantly squeezed global copper supply at a time when demand is rising sharply, driven in part by the rapid expansion of artificial intelligence and the resulting proliferation of data centres worldwide. A conventional data centre uses between 5,000 and 15,000 tons of copper. A hyperscale data centre, on the other hand — the kind being built to run artificial intelligence (AI) — can require up to 50,000 tons of copper per facility, according to the estimates by the North America-based Copper Development Association.

The transition to clean mobility is also adding to copper demand. Electric vehicles use more than twice the amount used by conventional cars. While a conventional car requires about 22.3 kg of copper, an electric vehicle needs around 53.2 kg per vehicle, according to the International Energy Agency (IEA).

Further, the global push for power grid infrastructure expansion and the energy transition is also driving a significant surge in copper demand.

Diverging forecasts

Apart from supply constraints, a weakening US dollar has also added upward pressure on copper prices. The dollar has been softening amid growing expectations that the US Federal Reserve will begin cutting interest rates next year. Lower interest rates typically reduce the dollar’s appeal, causing it to weaken against other currencies. Since copper is priced in US dollars, expectations of a weaker dollar tend to push up dollar-denominated copper prices.

Citigroup has told clients that copper prices could climb to as high as $15,000 a tonne in a bullish scenario, where a weakening US dollar and interest-rate cuts by the Federal Reserve further enhance the metal’s attractiveness, drawing in stronger investor inflows, Bloomberg reported.

In November, JPMorgan forecast that the copper rally could extend into 2026, citing the sharp supply disruptions that are tightening the market.

However, the rally has its sceptics. Earlier this month, Goldman Sachs Research said that it expects copper prices to decline in 2026 as a modest global surplus of supply is likely to persist next year. Over the longer term, the firm said sustained demand from power grids and electricity infrastructure would likely support prices and gradually push them higher beyond 2026.