Copper prices reached record highs this week as global supply faces its first annual decline since 2017, driven by deteriorating production across major mining regions rather than tariff-driven trading as commonly believed. Three-month copper on the London Metal Exchange touched $14,779 per ton on Tuesday, while New York futures crossed $3.74 per pound. The red metal is up approximately 24% year-to-date and about 51% over the past 12 months, according to analysis by Frank Holmes published by Investing.com on September 11, 2026.
While traders have attributed the rally to anticipated tariffs on refined copper imports beginning in 2027, Holmes argues the evidence suggests otherwise. The Commerce Department has proposed a 15% duty on refined copper imports beginning in 2027, rising to 30% in 2028, and July imports reached a record 225,094 tons. However, the COMEX copper premium over LME prices has averaged only 1% all year, compared to nearly 23% in July 2025 when tariff expectations were higher.
This narrow spread indicates the tariff narrative does not adequately explain copper's valuation surge. The real driver appears to be supply deterioration. The International Copper Study Group reports that global mine production fell 1.1% in the first half of 2026, with output declining in Chile, Indonesia, and the Democratic Republic of Congo—three of the world's largest producers.
Chile, responsible for nearly a quarter of global copper supply, posted its weakest second quarter in at least 19 years and cut its full-year forecast to a 2.6% annual decline. Both Codelco and Freeport-McMoRan reported double-digit production declines. Morgan Stanley initially expected mine supply expansion but now projects production running flat or slightly lower for the full year, representing the first annual decline in global copper mine supply since 2017.
Longer-term supply concerns center on the exploration deficit. S&P Global Market Intelligence data spanning 36 years shows the industry discovered 263 major copper deposits totaling approximately 1.4 billion tons. However, discoveries have slowed dramatically by decade.
The industry found 714.8 million tons in the 1990s alone, while everything discovered since 2000 totals just 687 million tons. Thus, 26 years of exploration since 2000 have not matched a single decade from the 1990s. The cost of exploration has surged dramatically.
In the 1990s, the industry spent roughly $6 billion to find 714.8 million tons, equating to approximately $8 per ton discovered. Since 2020, it has spent $16.4 billion and found only 8.7 million tons, representing roughly $1,889 per ton—a 225-fold increase in discovery costs. Geological challenges compound these economic pressures.
Average drilling depth has risen nearly 50% since 2010 to around 600 meters, while ore grades continue declining. Permitting timelines have extended, with S&P calculating the average timeline from discovery to production at 17.5 years. This means deposits discovered today will not deliver copper until the 2040s.
Demand pressures meanwhile remain robust. S&P projects copper demand will climb from 28 million tons in 2025 to 42 million by 2040, representing a 50% increase. The firm warns of a potential 10 million ton shortfall without meaningful supply expansion.
Artificial intelligence represents a significant new demand driver. Research published in Resources Policy found that copper accounts for 82% of the total mineral mass in AI data center construction, with grid transmission and distribution accounting for the largest share. Bank of America estimates that each incremental megawatt of data center capacity embeds 60 to 75 tons of metal, predominantly copper.
The demand is highly price inelastic since metals represent under 5% of total data center costs. Capital market behavior reflects the tightening supply situation. Ivanhoe Mines raised its resource estimate at the Western Forelands project in the Congo by 30% to 12 million tons of contained copper.
Company founder Robert Friedland reported receiving calls from sovereign wealth funds and Silicon Valley hyperscalers, describing the level of interest as unprecedented across his 45 years in mining. Copper mining stocks have rallied substantially. Freeport-McMoRan is up 44% year-to-date, while Southern Copper and Teck Resources each gained approximately 45%.
Freeport's sensitivity analysis indicates each 10-cent move in copper prices generates roughly $390 million in annual EBITDA. While projections show refined market deficits later this decade, current balances remain close, with Bloomberg Intelligence's model showing surpluses in 2025 and 2026 before turning negative later in the decade. Holmes emphasizes that copper's scarcity is determined by geology, drilling depth, permitting queues, and the 17.5-year production lead time—none of which respond to price rallies.
The fundamental tightness in supply, rather than tariff-driven trading dynamics, appears to explain the sustained price strength.
Source: ca.investing.com