LME Week: Overhyped AI, economic pressures could chill copper demand growth

Expectations surrounding copper consumption in AI data centers, much like projections of copper demand surge in India, may prove to be overstated, experts warned at the Triland Global Metals Outlook hosted by Triland Metals during LME Week Oct. 19-23.

Referring to a recent statement by market analyst Andy Home, Bruce Alway, director of metals research at London Stock Exchange Group Data & Analytics, said at the conference that a calculation error in data center copper usage estimates has overstated the copper needs for these facilities.

As for India, many bulls look at it as "the next China," but Alway argued that even in its prime, India may not consume the metal at China's historic rate due to lower metal intensity in modern infrastructure and greater circularity.

"While the green energy and data center narratives sound great, technologies like fiber optics reduce copper usage inside data centers," the analyst said.

Wide divide

More critically, China's market, the world's largest, is slowing, as declines in the construction and home appliance sectors — both historically metal-intensive — are not offset by expanding power grid and electrical demand.

Looking at China's PMI, electronics, AI and battery manufacturing — the booming sectors — hit an all-time peak in August at 59.7 points, while the construction index, at 42.9, was down massively from its historic peak, Alway said.

China's yearly copper consumption growth is projected to drop to 1%-1.5% toward 2030. This deceleration could turn the country into a net copper exporter, he said.

Projected supply deficits have pushed copper prices to record highs, above levels that reflect underlying demand. But soaring costs are forcing even booming sectors to scale back purchasing, according to the panel.

The state-run power grid sector, which requires substantial amounts of copper, is highly price-sensitive. Though mandated by the government, projects are being delayed to await lower copper prices, Alway said.

Downstream squeeze

"When copper prices peaked above $14,000/mt, we saw an immediate reaction: Customers stopped fulfilling their orders," Tanja Winter, executive director of German copper recycling company Aurubis, told the panel.

Adjusting to these price spikes requires an immense amount of working capital and places a heavy burden on cash flow. This is compounded by industry payment terms.

"I hear from our customers they often have to wait 60, 80 or 120 days to get paid by their clients," she said.

Even large original equipment manufacturers have slowed their payment frequencies, shifting from regular intervals to once a month, Winter said.

Along with rising prices, the debate over copper-to-aluminum substitution has reached a peak — but today, it is driven by flawed logic, she said.

Five years ago, substitution was occurring naturally when the copper-to-aluminum price ratio hit 3:1. Today, copper is almost 4.8 times more expensive than aluminum. Anxiety over scarcity has triggered unnecessary panic-buying, as smaller customers worry that major OEMs will hoard copper and rush to aluminum. But fear of shortages is a bad reason to switch, especially for high-precision components, Winter said.

Desperate cost-cutting is also compounding that panic.

"In Germany, the automotive industry is in the news daily because their backs are against the wall financially," she said, adding that to cut costs, carmakers are pivoting to aluminum under the guise of sustainability, but from technical, lifetime performance and functional standpoints, aluminum is often a poor choice.

LSE's Alway pointed to the aluminum substitution in the air conditioning sector, where manufacturers are designing high-efficiency units with thin-walled aluminum tubes instead of copper.

While switching materials has its hurdles — like the cost of changing tooling and equipment — there comes a point where prices force a shift.

"Aluminum has about 60% of the electrical conductivity of copper, meaning you need thicker wires, but the price gap is already significant," Alway said. "If the copper-aluminum price ratio stretches to 6:1-7:1 times, substitution will skyrocket."

"The era of high copper intensity, from when prices were much lower, is gone," he said.

Perfect storm winds down

The good news, he noted, is that the copper concentrate market is emerging from a perfect storm of disruptions from May 2025 to August 2026. El Niño brought rare snow to the Atacama Desert, while a mud flood at Grasberg and seismic activity at Kamoa-Kakula halted major mines.

The International Copper Study Group sees this year's growth in copper mine production as concentrated in Mongolia, Indonesia and Russia. Also, China is expanding its Yulong mine, and Peru's Antamina mine should deliver slightly higher output. But traditional concentrate supplies will decline, as production in the Democratic Republic of Congo and Indonesia continues to face constraints, with the Kamoa-Kakula and Grasberg mines not yet fully recovered from the accidents, Kamila Slupek, secretary general at the International Copper Study Group, told the panel.

Although the industry does not anticipate sizable supply shocks in 2027, concentrate treatment charges remain deeply negative.

"Smelters need to pay miners $1,500 per ton of refined copper," Aurubis' Winter said. "That's not healthy."

Western smelters narrowly avoid closures thanks to elevated prices for co-products such as precious metals and sulfuric acid, but those revenue drivers are independent of copper and could evaporate at any moment, she said.

What mitigates the same squeeze for Chinese smelters is that through joint ventures, China owns 25% of global copper mine supply, including two-thirds of Africa's mining operations, according to Alway.

"While global competition for copper concentrate is tightening, China is successfully increasing imports from its own overseas assets — like the Mirador mine in Ecuador and Oyu Tolgoi in Mongolia," Alway said.

He added that China's relationships with Chile and Peru, the nations providing 60% of its copper imports, remain solid, and their brownfield expansions will ensure China maintains its smelting dominance.

Contradictory behavior

Intense competition for concentrate put secondary feedstocks in the spotlight, too. In Europe, retaining scrap metal domestically is becoming a strategy partly encouraged by major OEMs pressuring local suppliers to deliver higher-recycled-content metals.

With OEMs, the cooperation should be more reciprocal, Aurubis' Winter said.

"They request higher recycling rates for their marketing purposes, but when we ask these same OEMs what they do with their own factory scrap, they sell it to those very renowned traders that ship it to China," she said.

Refined copper generally contains less than 14% of recycled content, whereas in finished copper products, that share is just over 30%, according to Aurubis.

Higher copper prices should make "urban mining" — extracting decommissioned underground cables or recycling old electronics — more economically viable, and dedicated projects are picking up in France and Germany, but copper recycling also faces the same economic traps as the EV battery black mass sector, where two-thirds of planned recycling plants are shutting down due to processing complexity.

Furthermore, even as metal prices incentivize recycling, other inflationary pressures and scrap export bans are not helping the economics of scrap collection, according to the panel.