AI and tariffs reshaping pricing logic Why does the record-high "Copper Doctor" no longer indicate the warmth or coldness of the economy?

On Thursday, international copper prices once again set a new historical record, but this surge is not a signal of accelerated global economic expansiononce regarded as a reliable indicator of global economic health, "Doctor Copper" is becoming increasingly difficult to interpret. Copper futures prices on the New York Commodity Exchange (COMEX) surged past $6.90 per pound during trading on Thursday, continuing the recent upward trend. The three-month copper contract on the London Metal Exchange (LME) hit $14,369.5 per ton, with an intraday increase of 1.8%, further approaching the historical high of $14,527.5 per ton set in January this year. Since the beginning of the year, copper prices have risen by approximately 19%. However, unlike traditional cycles where an increase in copper prices signals accelerated global growth, this round of record prices is driven by a complex interplay of factors including supply constraints, a surge in grid investments, uncertainty surrounding U.S. tariffs, and rising electrification demand. A perfect storm on the supply side The spike in copper prices primarily stems from structural tightening of supply. Codelco, the worlds largest copper producer, has publicly acknowledged that it has not met production expectations for the past seven years. Its operational focus has shifted from maximizing output to prioritizing profits, with a 2026 production guidance of only 1.331 to 1.357 million tons, representing a structural shortfall of over 300,000 tons compared to previous targets. Development work at its flagship El Teniente mine in the northern Andes may be suspended for up to two years. Meanwhile, rare winter snowstorms in northern Chile have led to widespread production stoppages at major mining companies such as Codelco and BHP. In the second quarter, Chiles copper production fell by 7.7% to 1.27 million tons, marking the lowest level for that period in 19 years. Michael Widmer, head of metals research at Bank of America, pointed out that this market trend is not driven by copper demand, but by copper supply, as mine supply growth is sluggish, and supply disruptions continue to create new constraints. On Thursday, the Democratic Republic of the Congo (DRC) officially announced a ban on the export of copper concentrates and cobalt concentrates. As the worlds second-largest copper producer, this move is intended to promote domestic processing of mineral resources. Gu Fongda, chief analyst at Guosen Futures, believes this marks the entry of global key mineral resource competition into a phase of resource countries actively pricing. The processing fee for copper concentrates (TC) has fallen to a historic low of -$160.67 per ton, confirming the acute tightness in upstream raw material supply. Tariff expectations give rise to a copper hoarding wave U.S. tariff policy is another key variable driving copper prices upward. In July 2025, Trump signed an announcement imposing a 50% tariff on copper semi-finished products; further adjustments to the Section 232 tariffs are expected in April 2026. The market generally anticipates that the U.S. will impose a 15% tariff on refined copper starting in 2027, rising to 30% by 2028. This expectation has triggered a mass migration of refined copper to the United States. In July, over 200,000 tons of copper arrived at U.S. ports, the largest single-month inflow in over a decade. COMEX copper inventory has climbed to a high of 720,000 tons, and total copper hoarding across the U.S. is estimated to have far exceeded 1 million tons. A metals executive at StoneX Financial remarked, Tariff arbitrage is overshadowing demand growth. The price difference between COMEX and LME has widened to about $500 per ton, keeping the arbitrage window open and sharply tightening non-U.S. market supplyLME copper inventory has fallen to under 250,000 tons. The demand logic has changed: AI and the grid replace traditional cycles Demand is also showing structural changes. William Osnato, director of commodity data research at Barchart, stated that the core supporting story for rising copper prices is the demand from data centers and the grid to support the rapid expansion of the AI industry, signaling a more concentrated demand that does not resonate with the traditional broad economic growth supporting copper prices. Investment in Chinas power grid is a key pillar of demand. In the first half of 2026, the completed investment by the State Grid increased by 13% year-on-year. China recently announced an investment plan of approximately $574 billion (about 4 trillion RMB) for grid upgrades. The demand for cables from AI data centers is also experiencing explosive growth. Traditionally the second-largest pillar of copper consumption, the power grid is now forming a new growth pole for copper demand alongside AI. Why Doctor Copper is failing In the past, copper prices were viewed as a thermometer for accelerating global economic activityexpansion in manufacturing drove copper demand, and price increases indicated a positive economic outlook. However, the logic behind the rising copper prices has fundamentally changed: First, supply constraints have replaced demand expansion as the primary pricing driver. Aging mines, insufficient capital expenditure, frequent extreme weather, and tightening policies in resource-exporting countries have collectively created a ceiling on supply. According to data from the International Copper Study Group (ICSG), the global copper mine deficit may widen to 300,000 tons by 2026. This rigidity in supply has dulled copper prices response to demand signals. Second, tariff-driven inventory migration has distorted price signals. Over 1 million tons of copper are hoarded in the U.S. not due to strong real economy demand but due to traders arbitraging before tariffs take effect. This artificial demand has drained spot supply from other regions, driving up global prices while bearing little relation to the actual state of economic growth. Third, the structure of demand has shifted from breadth to depth. Traditionally, copper demand was dispersed across construction, transportation, and home appliances, highly synchronized with economic cycles. Currently, incremental demand is more concentrated in specific areas such as grid upgrades and AI data centersthese investments are driven more by policies and industry trends than by short-term economic conditions. Osnato concluded, This is absolutely a new landscape for Doctor Copper. When copper prices no longer faithfully reflect the global economy's temperature, both investors and policymakers need to reassess the effectiveness of this traditional indicatorDoctor Copper may not have failed, but the signals it generates are no longer the straightforward economic thermometer they once were.