Theme of the Day 17-09-2024

BHP warns AI growth will worsen copper shortfall

BHP, the world’s largest miner expects global demand for red metal will rise by more than 70% by 2050. The growth of artificial intelligence will exacerbate a looming shortage of copper, a metal vital for the clean energy transition, miner BHP has warned. The rise of data centres and AI, which requires more energy-intensive computing, could boost global copper demand by 3.4Mtpy by 2050, BHP’s chief financial officer Vandita Pant told the Financial Times. “Today, data centres are less than 1% of copper demand, but that is expected to be 6 to 7% by 2050,” she said. “There is a lot of copper in data centres.”

BHP expects global copper demand will rise to 52.5Mtpy by 2050, up from 30.4Mt in 2021 — a 72% increase. AI is reshaping energy systems as well as demand for commodities around the world. The expectation of a shortfall of copper has triggered a race to secure access to mines.

Data centres are expected to exacerbate this shortage in the shift to accommodate AI applications, which use more energy-intensive chips and increase energy needs. Demand in this sector, currently about 1% of global copper demand, could grow six-fold out to 2050. Copper is used not only to supply power to data centres but also in the cooling systems and to connect processors in the centre. However, others caution that long-term forecasts for copper in data centres are highly uncertain. “We are trying to predict the future of a market that we don’t really know that much about,” said one analyst. “We are at the dawn of AI, so how much AI will the world be using in 2050? We don’t have any idea.”

The copper market is in surplus this year due to poor demand, and that will continue next year as well, according to BHP forecasts, before reversing towards the end of this decade. That said, we still expect the expected accumulation of inventory to only provide scant coverage against anticipated deficits in the latter half of this decade. The company warned in Aug that rising demand for copper “in the final third of the 2020s” could lead to a “fly-up” pricing regime as demand outpaces supply. Whereby prices disconnect from the cost curve due to systematic excess of demand over supply amid inadequate inventory levels.

While recycled scrap will be an important source of supply to meet growing demand, primary mine supply is struggling to keep up and continues to face large-scale challenges. In our estimation, the world requires about 10Mtpa of copper supply over the next 10 years, including mine life extensions and replacement for depletions. This translated to around a quarter trillion dollars investment in the sector for the same period.

Beyond the immediate horizon, we see copper pricing moving into a phase of durable outperformance.