AI and tariffs reshape pricing logic: Why is the record-high "Doctor Copper" no longer an indicator of economic health?

According to Zhitong Finance APP, international copper prices refreshed their historical records again on Thursday, but this round of the rally does not signal an acceleration in global economic expansion — the so-called "Dr. Copper", once regarded as a reliable indicator of global economic health, is becoming increasingly difficult to interpret.

On Thursday, copper futures on the New York Commodity Exchange (COMEX) broke through $6.90 per pound during trading, extending the recent rally. The three-month copper contract on the London Metal Exchange (LME) touched $14,369.5/ton, rising 1.8% intraday, and getting closer to the January all-time high this year of $14,527.5/ton. Since the beginning of this year, copper prices have increased by about 19%.

However, unlike in traditional cycles where a rise in copper prices signaled accelerating global growth, the record prices this time are driven by a complex mix of factors including supply constraints, surging grid investment, US tariff uncertainties, and rising electrification demand.

The Supply Side Faces a “Perfect Storm”

The surge in copper prices originates primarily from a structural tightening on the supply side. The world’s largest copper producer, Codelco of Chile, openly admitted it has failed to meet its production targets for seven consecutive years. The company’s core business focus has shifted from “maximizing output” to “prioritizing profitability,” with a 2026 production guidance of only 1.331 to 1.357 million tons — more than 300,000 tons below its previous targets. Development in the Andes North area of its flagship El Teniente mine may also be suspended for up to two years. At the same time, rare winter snowstorms in northern Chile have caused widespread production halts at leading miners like Codelco and BHP. In the second quarter, Chile’s copper output fell by 7.7% to 1.27 million tons, the lowest for the period in 19 years.

Michael Widmer, Head of Metals Research at Bank of America, points out that this round of the market “is not driven by copper demand, but by supply,” as mine production growth remains sluggish and supply disruptions create new constraints.

On Thursday, the Democratic Republic of Congo officially announced a ban on copper and cobalt concentrate exports. As the world’s second-largest copper producer, the DRC aims to promote domestic processing of its mineral resources. Gu Fengda, Chief Analyst at Guosen Futures, believes this marks the entry of key global minerals into a stage where "resource countries take active pricing."

The copper concentrate treatment charge (TC) has fallen to a historic low of -$160.67/ton, confirming the extreme tightness of upstream raw material supply.

Tariff Expectations Fuel “Copper Hoarding Wave”

US tariff policy is another key variable driving up copper prices. In July 2025, Trump signed an order imposing a 50% tariff on copper semi-finished products; in April 2026, Section 232 tariff measures were further adjusted. The market widely expects the US to impose a 15% tariff on refined copper from 2027, expanding to 30% by 2028.

This expectation has triggered a “mass migration” of refined copper to the US. Over 200,000 tons of copper arrived at US ports in July, the largest monthly inflow in more than a decade. COMEX copper inventories soared to 720,000 tons, and the total copper stockpiled in the US is estimated to exceed 1 million tons. StoneX Financial Head of Metals bluntly stated: “Tariff arbitrage is overwhelming demand growth.” The COMEX-LME price spread has widened to about $500/ton, keeping the arbitrage window open and causing non-US market supply to become extremely tight — LME copper inventories have fallen below 250,000 tons.

Demand Logic Shifts: AI and Grids Replace Traditional Cycles

There has also been a structural change on the demand side. William Osnato, Director of Commodities Data Research at Barchart, said the “core support story for copper prices is demand from data centers and the power grid to support the rapid expansion of the AI industry,” a demand that “is more concentrated and not the traditional, broad-based economic growth that used to underpin copper prices.”

China’s grid investment is a significant support for demand. In the first half of 2026, grid investment from State Grid grew by 13% year-on-year. China recently announced a grid upgrade investment plan of about $574 billion (about 4 trillion RMB). Demand for cables from AI data centers is also exploding. Traditionally, the power grid was the second-largest pillar of copper consumption, and now, together with AI, it forms a new growth engine for copper demand.

Why Has “Dr. Copper” Lost Its Accuracy?

In the past, copper prices were seen as a “thermometer” of global economic activity — with expansion in manufacturing driving copper demand, and higher prices signaling economic improvement. But the logic behind the current copper price rally has fundamentally changed:

First, supply restrictions have replaced demand expansion as the main pricing driver. Aging mines, insufficient capital spending, frequent extreme weather, and tighter resource-nation policies have collectively formed a supply “ceiling.” According to ICSG data, the global copper mine deficit could widen to 300,000 tons by 2026. This rigid supply means copper prices now respond less sensitively to demand signals.

Second, tariff-driven inventory migration has distorted price signals. Over 1 million tons of copper are stockpiled in the US, not because of strong physical demand, but due to trader arbitrage ahead of tariffs. This "artificial" demand has drained spot supply from other regions, driving up global prices with little connection to the true state of world economic growth.

Third, demand structure is shifting from “breadth” to “depth.” Traditionally, copper demand was spread across construction, transport, home appliances, and other broad areas, in high synchrony with the economic cycle. Now, incremental demand is increasingly concentrated in power grid upgrades and AI data centers — investments more influenced by policy and industrial trends than short-term economic sentiment.

Osnato concluded: “This is definitely a new chapter for ‘Dr. Copper’.” As copper prices no longer faithfully reflect the temperature of the global economy, investors and policymakers need to re-examine the effectiveness of this traditional indicator — perhaps Dr. Copper has not “failed,” but the signal it sends is no longer the simple, clear economic barometer of the past.