Rewiring the Copper Market: AI, Fragmented Pricing, and the Case for a Structural Bull Run

Thalia Hayden: I'm Thalia Hayden with ETF Guide. Copper has had an extraordinary run, hitting record highs above $13,000 per metric ton in early January of 2026. 50% tariffs on semi-finished copper products took effect in August. AI data centers have emerged as a massive new source of demand. To help investors understand this transformed market landscape, we have Steve Schoffstall. Steve, great to see you. Welcome back.

Steven Schoffstall: It's great to be here, thank you.

Thalia Hayden: Let's start with record copper prices. Do you believe they're justified by fundamentals, or are we seeing speculative excess in the market? Do you think these prices could lead to aluminum substitutions?

Steven Schoffstall: It's a great question, and any time you see a run-up in commodity prices, those are usually the two logical questions we get. We believe the higher prices are supported by fundamentals. The durable, long-term demand we're seeing really calls for higher prices in our view, and we're seeing many banks and others in the commodity space calling for higher long-term prices.

What we're seeing is a huge expansion in the grid. A lot of that has to do with AI data centers and ongoing electrification, whether it's through energy transition or electric vehicles. This really calls for significant investment in the electrical infrastructure. That's been a major driver of copper demand.

We've also seen supply disruptions at many major mine sites over the last year. As it relates to substitution, I think there's a misconception in many parts of the investing world that switching from copper to aluminum is easy. There's a lot that goes into that. While they're both conductive metals, there can be some substitution, but it's not as easy as flipping a switch.

You're talking about changes to the industrial complex, so setting up new machinery. Typically, aluminum wiring is much wider than copper wiring, simply because it's less conductive. A lot would have to happen in aluminum, and in order to see a significant threat of substitution, you would have to see persistently high prices over a long period of time.

Thalia Hayden: Good to know. We've had 50% tariffs on copper for around half a year. Have copper prices behaved as you thought they would?

Steven Schoffstall: The tariffs that we saw with copper were around the finished copper products: piping, wiring and things like that. What we’re not seeing is tariffs applied to refined copper. There are some thoughts that, maybe in June this year, when there's another look at tariffs, refined copper could be pulled into that.

But I think what we've seen so far, whether it's in copper, uranium or other critical materials, is that they haven't been subject to tariffs. I think that's something we're expecting to see as we go forward. As we're looking to reshore copper production, we can't just flip a switch and shut off and push up the prices of outside material.

It's not really a surprise that we're seeing the market react with some skittishness and fear around increased tariffs. But what it has introduced into the market is fragmentation, with copper prices in the U.S. differing from those in London and China. I think fragmentation is likely to persist for a while until we see some certainty, not only around tariffs but also from other economic and geopolitical risks we're seeing.

Thalia Hayden: That makes sense. Now, AI data centers have emerged as a major new source of copper demand. How significant is this driver compared to traditional demand sources like EVs and renewable energy? How should investors think about AI's impact on long-term copper prices?

Steven Schoffstall: It seems like every 25 years or so, we go through these large generational societal changes in the way the economy moves. About every 25 years, we see the demand for copper double. We're now at a point where AI, EVs and renewables are working together to fuel that demand.

AI becomes important in that context because we see significant investment in building out these large data centers and the infrastructure needed to connect them to the grid. Oftentimes, we're seeing clean energy sources because that's where these hyperscalers have mandates to source their energy. All of these are very copper-intensive endeavors. That's an area where we're seeing significant demand growth, particularly in AI.

From an investor perspective, when you start looking at large tech stocks, whether it's the hyperscalers or Tesla, they make up about 35% of the S&P 500. A lot of the flows into copper miners haven't yet taken hold because investors have been looking to these large tech stocks to play AI.

But what we're seeing is that investors are starting to move to copper because it offers exposure to the AI theme, since copper is so important to it, without investing in these tech-heavy indexes or stocks. With that, investing in copper miners also offers diversification and growth characteristics that many are seeking in AI investments.

Thalia Hayden: S&P Global recently warned that copper supply could fall short of demand by 10 million metric tons by 2040. What are the biggest obstacles in bringing new copper production online? How realistic are these long-term shortage projections?

Steven Schoffstall: I think the growing consensus is that over the long term, we do expect to see shortfalls. There are some variations around, ranging from 7 million to 10 million. That tends to change based on who's doing the projections. But I think the prevailing view is that we'll see a prolonged supply deficit. A lot of that is attributed to declining ore grades at copper mines.

Major discoveries aren't happening to the same extent as in past years. Supply disruptions have been a key factor in pushing down supply this year, as we've had many major disruptions in the market. And then the long lead times to get new mines up and running. It could take 15 years or 30 years in some cases. All of those make it difficult to increase supply, which is leading to these larger projections.

Bloomberg New Energy Finance released its annual report on transition metals last month. One of the pieces they've noted is that, just to close the supply gap, you need to invest about $122 billion by 2035. Taking a step back and looking at this from an investment standpoint, there's a significant opportunity in the copper miner space, because they're the ones that are in the front lines of increasing this primary production, and that's where we expect to see a lot of the investment happen over the next decade to two decades.

Thalia Hayden: Steve, we're seeing conflicting forecasts. Some predict a copper surplus in 2026, while others predict deficits. How should investors navigate this uncertainty?

Steven Schoffstall: I try not to get too caught up in the short term. Most views when we get the final numbers out for 2025 are probably that we hit a deficit last year. It could be a year earlier than previously expected. One of the main drivers of that is the world's second-largest copper mine, the Grasberg mine, experienced a massive mudslide that knocked out capacity. It's not expected to be fully operational until late 2026 at the latest. That could put us in another deficit in 2026.

But typically, when we're discussing with investors, we tend to focus on the longer-term view. When you look at the longer-term fundamentals, you see that the supply-and-demand picture is quite favorable to higher prices and increased investment in copper miners. The copper miner space is just this area where we're seeing a lot of growth, not only in market caps and tradability, but also in the broader market.

If you look at how their financials have improved as prices have moved higher, they're operating with a median all-in sustaining cost of mining margin of about 56%. That's up from about 48% back in 2024. As we're starting to see these higher prices, copper miners are becoming more attractive and much more profitable. We expect that to be getting more investment in the sector.

Thalia Hayden: That's encouraging. There are increasing concerns of an economic slowdown in the U.S. What implications would that have on copper?

Steven Schoffstall: Copper has become known as Dr. Copper largely because its performance and price are influenced by global economic health. The fundamentals of the copper market have changed so much over the last 5 years that we're seeing structural demand that didn't exist 10 or 15 years ago.

Because of that, when you look at the performance of Chinese equities, for example, whose real estate market has been quite soft now for 4 or 5 years, we see copper prices are up about 62-63% over the last 5 years when Chinese equities hit their high. By contrast, Chinese equities are down about 19%. What this suggests to us is that there's been a decoupling of copper from that barometer of economic health. A lot of that comes from the $2.1 trillion in investment in 2024, focused on the energy transition, artificial intelligence, and increased electrification.

That's not to say that any slowdown in China or the U.S. won't impact copper prices. I just don't expect that that would be as important a factor as it would have been 5 or 10 years ago.

Thalia Hayden: Now, you emphasize that not all copper exposure is equal. With resource nationalism on the rise and 15-year lead times for new mines, how should investors differentiate between paper copper ETFs and mining equities?

Steven Schoffstall: The geopolitical tensions and threats of tariffs have caused some dislocations in the market. With that, we're starting to see some price fragmentation. We can see copper futures prices that are significantly different from those of physical copper.

Our rule of thumb is that most investors should probably look for exposure to a physical commodity or miners, if available, rather than investing in futures, since there are ample mining opportunities in copper. That's where I think the opportunity lies for most investors.

The mining equities do provide the operational leverage we expect from copper. That's an area where we think investors have significant upside, as prices are expected to move higher than we're seeing through projections. We think investors in copper miners could be well-positioned to benefit from higher prices.

Thalia Hayden: Steve, thank you so much for your timely insights. You do great work for us.

Steven Schoffstall: Thank you, looking forward to coming back.

Thalia Hayden: See you next time, and that does it for today's episode of Metals in Motion. Thank you for joining us. If you enjoyed the show, please tell us in the comments below, and hit that like button. To learn more about the critical materials and ETFs we discussed on today's program, be sure to visit SprottETFs.com. Finally, if you missed previous episodes of Metals in Motion, just hit the Metals in Motion playlist to catch up. I'm Thalia Hayden with ETF Guide. Thanks for watching, and we'll see you next time.