Copper Hits Record High as AI Demand and Tariff Hedging Offset China Slowdown

Copper prices reached historic highs this week, climbing 12% year-to-date to $11,400 per metric ton amid converging market forces. The rally defies weakening Chinese industrial demand as investors position for structural shifts in global supply chains.

Three primary factors drive the surge:

1. AI Infrastructure Boom: Data center construction requires substantial copper wiring and cooling systems. Each new hyperscale data center consumes approximately 25,000 pounds of copper. Goldman Sachs estimates AI-related demand could add 1 million metric tons annually by 2028.

2. Tariff Hedging: Manufacturers are stockpiling copper ahead of potential U.S. import tariffs expected under a second Trump administration. Industrial users in electronics and automotive sectors increased inventory holdings by 18% month-over-month.

3. Supply Constraints: Major producers like Chile's Codelco reported 7% year-on-year output declines, while BHP forecasts a 4.5 million metric ton market deficit by 2030. Warehouse inventories monitored by the London Metal Exchange fell to 18-year lows.

Despite China's property sector slowdown reducing copper consumption by 9% in Q1, the AI and tariff factors have outweighed this drag. Copper's dual role as an industrial metal and economic barometer - earning it the nickname "Dr. Copper" - signals investor confidence in technology-driven growth offsetting traditional economic weaknesses.

Market analysts note unusual hedging patterns. "Manufacturers aren't just buying for immediate needs," said Metals Focus analyst Philip Newman. "They're building strategic reserves, anticipating both tariff impacts and prolonged AI infrastructure buildouts."

The rally has broader implications:

• Mining stocks surged, with Freeport-McMoRan gaining 24% YTD
• Recycled copper prices reached parity with new material for first time since 2021
• Copper-intensive renewable energy projects face 5-7% cost inflation

While some technical indicators suggest overbought conditions, fundamental drivers appear strong. Citigroup's commodity team revised their 2026 average price forecast upward by 28% to $10,200/ton, noting: "The AI acceleration is rewriting commodity demand playbooks faster than China's slowdown can counterbalance."