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Equity outlook: The high cost of global fragmentation for US portfolios
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Chief Investment Strategist
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Copper extends rally on tariff-related supply squeeze
Ole Hansen
Head of Commodity Strategy
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Key points:
With energy prices slumping in response to the removal of a key supply-risk premium tied to recent tensions in the Middle East, the industrial metals sector has emerged as the top performer across the commodities complex this week. The Bloomberg Commodity Industrial Metals Index is up 2%, led by a fresh surge in copper, which has extended its already impressive year-to-date rally to around 22% — placing it among the best-performing major commodities of 2025. On the London Metal Exchange (LME), three-month copper futures are trading near multi-month highs in the $9,800–$10,000 per metric ton range. Meanwhile, COMEX High Grade copper in New York trades close to $5 per pound after briefly hitting a record peak at $5.37 back in March, fueled by frantic buying ahead of a widely anticipated announcement of U.S. import tariffs.
Supply Squeeze Driving Market Tightness
The latest leg higher comes amid a supply squeeze in London, where LME copper inventories have fallen sharply in recent weeks. Readily available stockpiles have dropped precipitously — in large part due to a surge in shipments to the U.S., as traders and manufacturers rushed to secure material before new tariff measures are imposed. The drain on LME warehouses has triggered a pronounced backwardation, with near-term contracts trading at a premium to later deliveries — a classic signal of tight physical availability.
While the current price momentum is being driven by logistical dislocations and inventory dynamics, the longer-term backdrop for copper remains firmly bullish. As the global economy accelerates its transition toward electrification, copper — the world’s most efficient and versatile industrial conductor — is becoming increasingly indispensable.China and U.S. grid growth: Two copper-hungry giants.
China remains at the forefront of global electricity expansion. Over the past decade, Chinese electricity consumption has grown at an average annual rate of 5–6%, and today it doubles that of the United States. By 2030, China’s power demand could exceed 11,000 terawatt-hours (TWh) — a scale equivalent to 1 trillion solar panels, or 1.5 million 4 MW wind turbines, or roughly 1,200–1,400 nuclear reactors.Meanwhile, the U.S. is seeing an emerging and strong focus on electricity production as well, leading to the reopening of nuclear plants in order to meet future demand, partly to mitigate often unreliable production from renewables such as solar and wind. Constellation Energy, the largest nuclear operator in the U.S. sees national electricity demand growing at twice the pace through 2030 compared to the previous decade — a shift fueled by:
- AI and hyperscale data centers
- EV adoption and charging networks
- Industrial reshoring
- A digital infrastructure boom led by AI computing hubs and energy-intensive cloud services
These developments, especially the digital infrastructure boom and in parts of the world increased demand for cooling to mitigate rising temperatures represents a powerful, additional driver of copper demand, leading the International Energy Agency (IEA), to project an increase in global consumption from 26 million tonnes in 2023 to nearly 33 million tonnes by 2035 — a 26% jump, driven almost entirely by clean energy and digital infrastructure deployment.
A New Multi-Year Supercycle in Motion?
Historically, commodities have moved in long, demand-driven supercycles — multiyear periods of elevated returns triggered by fundamental shifts in global economic trends. The most recent cycles include:
- 1970s–1990s: Post–Bretton Woods monetary expansion and oil shocks (+780% BCOM return)
- 2000s–2020: Industrialization of China and India (+470%)
- The current rally, potentially launched in 2020, may mark the beginning of a new commodity supercycle, driven by what some analysts call the "Six Ds": Decarbonization, Deglobalization, Defense spending, De-dollarization, Demographics, Droughts & climate change
Outlook: A Metal in Motion.
The current copper rally — sparked by a tangible supply squeeze — underscores how quickly fundamentals can assert themselves in a tight market. But beyond the short-term squeeze, the global energy transition is laying a firm foundation for sustained structural demand growth. If supply fails to keep up — particularly given ongoing underinvestment in mining and refining — the stage is set for higher prices and growing volatility. As one of the few commodities with both near-term bullish momentum and long-term megatrend tailwinds, copper is steadily solidifying its status as "the metal of the future."| More from the author |
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