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Copper prices have surged to record highs, driven by unprecedented demand from AI data centers, electrification, and grid expansion. In this episode of Metals in Motion, Sprott’s Steve Schoffstall explains why copper’s rally is fundamentally backed, why supply constraints are likely to persist for decades, and how investors can think strategically about copper exposure amid tariffs and market fragmentation.
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00:02I'm Thalia Hayden with ETF Guide. Copper has had an extraordinary run, hitting record highs above
00:09$13,000 per metric ton in early January of 2026. 50% tariffs on semi-finished copper products took
00:17effect in August. AI data centers have emerged as a massive new source of demand. To help investors
00:24understand this transformed market landscape, we have Steve Schaafstahl. Steve, great to see you.
00:30Welcome back. It's great to be here. Thank you. All right, let's start with record copper prices.
00:35Do you believe they're justified by fundamentals, or are we seeing speculative excess in the market,
00:42and do you think these prices could lead to aluminum substitutions? Yeah, it's a great question,
00:48and anytime you see a run-up in commodity prices, it's usually the two logical questions we get.
00:53We do believe that the higher prices are being supported by the fundamentals. The durable
00:57long-term demand that we're seeing really calls for higher prices in our view, and we're seeing a lot
01:02of different banks and others in the commodity space are calling for higher long-term prices, and
01:08what we're seeing is a huge expansion in the grid, and a lot of that has to do with what
01:13we're seeing
01:13from those AI data centers and ongoing electrification, whether it's through energy transition or electric
01:20vehicles. So this really calls for a lot of increased investment in the electrical infrastructure,
01:26and that's been a huge driver in demand for copper. We've also seen some supply disruptions over the
01:32last year at a lot of the major mine sites. As it relates to substitution, I think there's this
01:38misconception in a lot of parts of the investing world that it's pretty easy to switch from copper to
01:44aluminum. There's a lot that goes into that. While they're both conductive metals and there can be
01:49some substitution there, it's not as easy as flipping a switch. You're talking about changes to
01:55the industrial complex of setting up new machinery. Typically, when you have aluminum wiring, it has to
02:01be much wider than what you would see out of copper wiring just because it's not as conductive.
02:05So a lot would have to happen in aluminum, and I think in order to see significant threat of
02:11substitution, you would have to see persistently high prices over a long period of time.
02:15Good to know. Well, we've had 50% tariffs on copper for around half a year.
02:21Have copper prices behaved as you thought they would?
02:24Yeah, so those tariffs that we sell with copper, that's around the finished copper products,
02:30so piping, wiring, things like that. A lot of what we're not seeing is that refined copper,
02:35where we haven't seen those tariffs taken into account. There's some thoughts that maybe in June
02:40this year, when there's another look at tariffs, that maybe that refined copper gets pulled into
02:45that. But I think what we've seen so far, whether it's in copper, uranium, or other critical materials,
02:51that they haven't been subject to tariffs. And I think that's something that we're expecting to
02:56see as we go forward, that as we're looking to reshore copper production, we can't just flip
03:01a switch and shut off and really push up prices of outside material. So it's not really a surprise
03:08that we're seeing the market react in a way with some skittishness and fears around increased tariffs.
03:15But what it has introduced in the market is fragmentation, where we're seeing prices of copper
03:19in the United States is priced differently than what we're seeing in London or what we're seeing in China.
03:24I think that fragmentation is something that's likely to stay for a while until we see
03:28some certainty, not only around tariffs, but I think from other economical and geopolitical
03:33risks that we're seeing as well. Okay, that makes sense. Now,
03:36AI data centers have emerged as a major new source of copper demand. How significant is this driver
03:43compared to traditional demand sources like EVs and renewable energy? And how should investors
03:49think about AI's impact on long-term copper prices? Yeah, so it seems like every 25 years or so,
03:56we go under these large generational societal changes in the way the economy moves. And about
04:02every 25 years, we see the demand for copper doubles. We're now at the point where we're seeing AI, EVs,
04:09renewables, they're all working together, I think, to fuel that demand. AI becomes important with that
04:14because what we see is a lot of increased investment, building out these large data centers,
04:19the infrastructure that's needed to connect them to the grid. We have to build out. Oftentimes,
04:25we're seeing clean energy sources because that's where these hyperscalers have mandates around on
04:30where sourcing their energy. All of these are very copper intensive endeavors. And that's an area where
04:36we're seeing significant demand growth come from as it relates to AI. From an investor perspective,
04:41when you start looking at large tech stocks, whether it's the hyperscalers or Tesla, they make up about
04:4635% of the S&P 500. A lot of the flows in copper miners really haven't started to take
04:54hold because
04:54investors have been looking at these large tech stocks as a way to play AI. But what we're seeing
05:01is investors are starting to move to copper because they can get exposure to the AI theme because copper is
05:07so important to it. But it's not in a way that you're investing in these tech heavy indexes or stocks.
05:13With that, investing in copper miners is also providing a level of diversification
05:18and also the growth characteristics that many are seeing when they're looking for AI investments.
05:22All right. Now, S&P Global recently warned that copper supply could fall 10 million metric tons
05:28short of demand by 2040. What are the biggest obstacles in bringing new copper production online?
05:34And how realistic are these long term shortage projections?
05:38Yeah, I think the growing consensus is that over the long term, we do expect to see
05:42shortfalls. There's some variations around. I've seen 7 million, 10 million. That tends to change
05:49based on who's doing the projections. But I think the prevailing fact is that we're expected to see a
05:53prolonged supply deficit. A lot of that is being attributed to declining ore grades that we see at
05:59copper mines. Major discoveries just aren't happening to the same extent that we've seen in
06:04past years. Supply disruptions are a key thing that's really been pushing down supply this year,
06:11as we've had many major disruptions in the market. And then the long lead times to get new mines up
06:16and
06:16running could take 15 years or 30 years in some cases. All of those make it difficult to increase
06:21supply and which is leading to these larger projections. Bloomberg New Energy Finance just put out
06:27their annual report on transition metals last month. One of the pieces that they've noted is
06:33in order just to close the supply gap, you need to invest about $122 billion by 2035. So taking a
06:41step
06:41back and looking at this from an investment standpoint, you know, there's a significant
06:45opportunity on our view in the copper miner space because they're the ones that are in the front lines
06:50of increasing this primary production. And that's where we expect to see a lot of the investment
06:54happen over the next decade to two decades. But Steve, we're seeing conflicting forecasts. Some
06:59predict a copper surplus in 2026, while others predict deficits. How should investors navigate
07:05this uncertainty? I try not to get too caught up in the short term. You know, most views, you know,
07:11when we get the final numbers out for 2025 is probably that we hit a deficit last year, could be
07:18an
07:18earlier year earlier than previously expected. One of the main drivers of that is the world's second
07:24largest copper mine, a Grasberg mine, actually had a huge mudslide, knocked all capacity out. It's not
07:31expected to be fully operational until late 2026 at the latest. That could put us in another deficit
07:36in 2026. But typically, when we're having discussions with investors, what we tend to focus on is the
07:43longer term view. When you start looking at the longer term fundamentals, you see that the supply
07:48and demand picture is quite favorable to higher prices and increased investment in copper miners.
07:53So the copper miner space is just this area where we're seeing a lot of growth, not only in the
08:01market
08:01caps and the tradability of these copper miners. If you look at how their financials have improved as
08:07prices have moved higher, they're operating with a median all in sustaining cost of mining margin of
08:13about 56%. That's up from about 48% back in 2024. So as we're starting to see these higher prices,
08:21the copper miners become more attractive, much more profitable. We expect that to be get more
08:26investment into the sector. All right. Well, that's encouraging. There are increasing concerns
08:30of an economic slowdown in the US. What implications would that have on copper?
08:35Copper has become known as Dr. Copper largely because its performance and price has largely
08:41been impacted by global economic health. The fundamentals for the copper market have changed
08:46so much in the last five years that we're seeing this structural demand that didn't exist 10 years ago,
08:5315 years ago. Because of that, we're actually seeing when you look at the performance of Chinese
08:58equities, for example, which their real estate market has been quite soft now for four or five years,
09:05we actually see copper prices are up about 62, 63% over the last five years when those equities
09:12hit their high. By contrast, Chinese equities are down about 19%. So what this suggests to us is there's
09:19been a decoupling of copper as it relates to that barometer of economic health. A lot of that comes from
09:25the investment 2.1 trillion in 2024 as it relates to the energy transition, artificial intelligence,
09:31increased electrification. So that's not to say that any slowdown in China or the United States
09:37won't impact copper prices. I just don't expect that that would be as important of a factor as it would
09:42have been, you know, five or 10 years ago. Okay. Now you emphasize that not all copper exposure is equal.
09:47With resource nationalism on the rise and 15-year lead times for new mines,
09:53how should investors differentiate between paper copper ETFs and mining equities?
09:58Yeah. So the geopolitical tensions that we're seeing, threats of tariff, it's caused some dislocations
10:03in the market. With that, we're starting to see some fragmentation in pricing. So we can see copper
10:10futures prices that are significantly different than what we're seeing out of physical copper.
10:15Our rule of thumb generally is that most investors probably should look for exposure in a physical
10:21commodity or miners if they're available as opposed to investing in futures. Being that there are ample
10:27mining opportunities available in copper, that would tend to be where I think the opportunity is for most
10:32investors. You know, the mining equities do provide that operational leverage that we expect to see
10:38out of copper. And that's an area where we think investors have significant upside as prices are
10:44expected to move higher that we're seeing through projections. And we think that those investors that
10:49have an investment in copper miners could be well positioned to benefit from higher prices.
10:54All right, Steve, thank you so much for your timely insights. You do great work for us.
10:58Oh, thank you. Looking forward to coming back.
10:59See you next time. And that does it for today's episode of Metals in Motion. Thank you for joining
11:05us. If you did enjoy the show, please tell us in that comment section below and you can hit that
11:09like button. To learn more about the critical materials and ETFs we discussed on today's program,
11:14be sure to visit SprottETFs.com. Finally, if you missed previous episodes of Metals in Motion,
11:21just hit the Metals in Motion playlist to catch up. I'm Thalia Hayden with ETF Guide.
11:26Thanks for watching and we'll see you next time.
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