The Copper Shock: U.S. Tariffs, Inventory Drain, and the Next Shortage

Copper prices on the COMEX exchange closed 2025 with an impressive gain of nearly 50%, reaching a historic high of around USD 6 per pound. Similarly, on the LME, copper prices also hit a record level of nearly USD 13,000 per tonne. The primary driver behind this surge was the imposition of high U.S. tariffs, which caused a significant shift in physical copper flows toward the United States, sharply reducing inventories in other regions. In addition, the global push toward green energy and the explosive growth in AI infrastructure have significantly increased copper demand. Meanwhile, major supply sources are facing substantial challenges in expanding capacity, which is expected to lead to a severe supply deficit.

Table 1: Copper prices on the two main exchanges (standardized)

Source: Bloomberg, LME

First, a major factor has been the strong shift of physical copper from global exchanges to the United States, causing COMEX inventories to rise sharply. This was driven by concerns over a steep increase in U.S. import tariffs on refined copper, expected to reach 15–30% starting in 2027. Prior to that, some semi-finished copper products had already been subject to tariffs of up to 50% since August 2025. Traders moved hundreds of thousands of tonnes of copper from around the world into U.S. warehouses to lock in current prices before trade barriers pushed import costs higher. While this created a large strategic stockpile in the U.S., it significantly tightened supply in other regions, driving global copper prices higher. Meanwhile, LME inventories fell by nearly half in 2025, while COMEX inventories increased fivefold compared to the beginning of the year.

Figure 2: Copper inventories on the COMEX exchange

Source: Bloomberg, LME

Next (LON:NXT) is the strong growth in demand, reflecting the overall health of the economy, particularly the accelerated transition to clean energy and the expansion of AI, both of which are driving copper consumption across a wide range of applications. The rapid development of wind and solar power, which are far more geographically dispersed and require smaller capacity per unit area than traditional energy sources, has increased the need for expanded power transmission networks. This has boosted copper demand. Although aluminum can substitute for copper in some cases, copper remains widely used in transmission and transformer networks due to its superior electrical conductivity. Wind power, in particular, uses a significant amount of copper, requiring nearly three times more copper per unit of capacity than solar power. Renewable energy capacity is expected to continue growing at a rate of 7–10% over the next decade, further supporting copper demand. Electric vehicles and AI are also major demand drivers, with copper used extensively in motors, data center cooling systems, and power supply infrastructure.

According to BloombergNEF estimates, copper demand related to the energy transition is expected to account for around 40% of total copper demand in the coming years. Without new mines coming online, this demand is projected to exceed supply over the next decade, potentially as early as 2026. JPMorgan forecasts a refined copper deficit of around 330,000 tonnes in 2026, while Goldman Sachs estimates a shortfall of approximately 15,000 tonnes, and Morgan Stanley projects a deficit exceeding 590,000 tonnes.

However, prices at these elevated levels are likely to incentivize the reopening of previously unprofitable mines and the development of new ones. That said, restarting or developing new mines requires significant time and capital, with new projects typically taking around 15 years, meaning supply cannot respond quickly. According to S&P Global, only 14 new mines have been discovered over the past decade, compared with 239 major discoveries between 1990 and 2023.

Figure 3: Supply-demand balance

Source: BloombergNEF

On the supply side, disruptions at major mines worldwide, combined with declining ore grades, are placing increasing pressure on production. Chile, the world’s leading producer with annual output of around 1 million tonnes, is also facing these challenges, raising global concerns. Analysts note that average ore grades worldwide have declined by approximately 25% over the past decade, forcing mining companies to process about 33% more material to produce the same amount of refined copper.

Although copper supply is generally easier to expand than precious metals, as it can be refined directly from ore, global economic uncertainty has made producers cautious about ramping up output too quickly. Rapid supply increases could trigger sharp price declines, so producers are more likely to pursue gradual production growth to benefit from higher prices over time.

Given the strong demand outlook driven by renewable energy, electric vehicles, and AI, alongside continued cyclical economic demand and the potential for sustained supply shortages, copper prices may remain above USD 10,000 per tonne in the period ahead.