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

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 Schadol. Steve, great to see you. Welcome back.

It's great to be here. Thank you. All right, let's start with record copper prices. Do you believe they're justified by fundamentals or are we seeing speculative excess in the market? And do you think these prices could lead to aluminum substitutions?

Yeah, it's a great question. And anytime you see a runup in commodity prices, it's usually the two logical questions we get. We do believe that the higher prices are being supported by the fundamentals, the durable long-term demand that we're seeing really calls for higher prices in our view. And we're seeing a lot of different banks and others in the commodity space are calling for higher long-term prices.

What we're seeing is a huge expansion in the grid. And a lot of that has to do with what we're seeing from those AI data centers and ongoing electrification whether it's through energy transition or electric vehicles. So, this really calls for a lot of increased investment in the electrical infrastructure and that's been a huge driver in demand for copper. We've also seen some supply disruptions over the last year at a lot of the major mine sites.

As it relates to substitution, I think there's this misconception in a lot of parts of the investing world that it's pretty easy to switch from copper to aluminum. There's a lot that goes into that. While they're both conductive metals and there can be some substitution there, it's not as easy as flipping a switch. You're talking about changes to the industrial complex, setting up new machinery. Typically when you have aluminum wiring, it has to be much wider than what you would see out of copper wiring just because it's not as conductive. So, a lot would have to happen in aluminum. And I think in order to see significant threat of substitution, you would have to see persistently high prices over a long period of time.

Good to know. Well, we've had 50% tariffs on copper for around half a year. Have copper prices behaved as you thought they would? Yes. So, those tariffs that we saw of copper, that's around the finished copper products, so piping, wiring, things like that. A lot of what we're not seeing is that refined copper where we haven't seen those tariffs take into account.

There's some thoughts that maybe in June this year when there's another look at tariffs that maybe that refined copper gets pulled into that, but I think what we've seen so far whether it's in copper, uranium or other critical materials that they haven't been subject to tariffs and I think that's something that we're expecting to see as we go forward that as we're looking to reshore copper production, we can't just flip a switch and shut off and really push up prices of outside material. So it's not really a surprise that we're seeing the market react in a way with some skittishness and fears around increased tariffs.

But what it has introduced in the market is fragmentation where we're seeing prices of copper in the United States is priced differently than what we're seeing in London or what we're seeing in China. I think that fragmentation is something that's likely to stay for a while until we see some certainty not only around tariffs but I think from other economical and geopolitical risks that we're seeing as well.

Okay, 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? And how should investors think about AI's impact on long-term copper prices?

Yeah. So, it seems like every 25 years or so, we go under these large generational societal changes in the way the economy moves. And about every 25 years, we see the demand for copper doubles. We're now at the point where we're seeing AI, EVs, renewables, they're all working together, I think, to fuel that demand. AI becomes important with that because what we see is a lot of increased investment.

Building out these large data centers, the infrastructure that's needed to connect them to the grid. We have to build out oftentimes we're seeing clean energy sources because that's where these hyperscalers have mandates around on where sourcing their energy all of these are very copper intensive endeavors and that's an area where we're seeing significant demand growth come from as it relates to 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 in copper miners really haven't started to take hold because investors have been looking at these large tech stocks as a way to play AI. But what we're seeing is investors are starting to move to copper because they can get exposure to the AI theme because copper is so important to it. But it's not in a way that you're investing in these tech heavy indexes or stocks. With that investing in copper miners is also providing a level of diversification and also the growth characteristics that many are seeing when they're looking for AI investments.

All right. Now, S&P Global recently warned that copper supply could fall 10 million metric tons short of demand by 2040. What are the biggest obstacles in bringing new copper production online? And how realistic are these long-term shortage projections?

Yeah, I think the growing consensus is that over the long term we do expect to see shortfalls. There's some variations around you. I've seen 7 million, 10 million. That tends to change based on who's doing the projections, but I think the prevailing fact is that we're expected to see a prolonged supply deficit. A lot of that is being attributed to declining org grades that we see at copper mines.

Major discoveries just aren't happening to the same extent that we've seen in past years. Supply disruptions are a key thing that's really been 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 could take 15 years or 30 years in some cases. All of those make it difficult to increase supply and which is leading to these larger projections.

Bloomberg New Energy Finance just put out their annual report on transition metals last month. One of the pieces that they've noted is in order just to close the supply gap you need to invest about $122 billion by 2035. So taking a step back and looking at this from an investment standpoint, there's a significant opportunity in our view 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.

But Steve, we're seeing conflicting forecasts. Some predict a copper surplus in 2026 while others predict deficits. How should investors navigate this uncertainty? I try not to get too caught up in the short term. Most views, when we get the final numbers out for 2025 is probably that we hit a deficit last year.

Could be an earlier a year earlier than previously expected. One of the main drivers of that is the world's second largest copper mine, at Grasberg mine, actually had a huge mudslide, knocked all capacity out. It's not expected to be fully operational till late 2026 at the latest. That could put us in another deficit in 2026.

Typically when we're having discussions with investors, what we tend to focus on is the longer term view. When you start looking 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. So the copper miner space is just this area where we're seeing a lot of growth you know not only in the market caps and the tradability of these copper miners.

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. So as we're starting to see these higher prices, the copper miners become more attractive, much more profitable. We expect that to be get more investment into the sector.

All right. Well, that's encouraging. There are increasing concerns of an economic slowdown in the US. What implications would that have on copper? Copper's become known as Dr. Copper largely because its performance and price has largely been impacted by global economic health.

The fundamentals for the copper market have changed so much in the last 5 years that we're seeing this structural demand that didn't exist 10 years ago 15 years ago. Because of that we're actually seeing when you look at the performance of Chinese equities for example which you know their real estate market has been quite soft now for four or five years we actually see copper prices are up about 62 63% over the last 5 years when those equities hit their high by contrast Chinese equities are down about 19%.

So what this suggests to us is there's been a decoupling of copper as it relates to that barometer of economic health. A lot