Copper: Grasberg disruption adds fuel to robust demand outlook

Key Points:

Copper rallied strongly on Wednesday with LME futures breaking above key resistance, with recent developments once again highlighting a combination of robust demand, underpinned by structural shifts in energy and technology, set against supply disruptions from some of the world’s largest mines. This has underpinned copper prices and supported a surge in mining equities, underscoring the market’s sensitivity to supply shocks.

Supply under pressure

The catalyst for the latest rally came from Indonesia, where Freeport-McMoRan declared force majeure on contracted supplies from its Grasberg mine. Grasberg, the world’s second-largest copper mine with roughly 3% of global output, suffered a devastating mudslide earlier this month that claimed lives and halted production. The company’s shares fell 17% on the news, as near-term copper and gold output was sharply reduced and a full recovery may take years, while other miners rose in anticipation of higher copper prices.

This disruption adds to existing challenges in Latin America. In Chile, the world’s biggest copper producer, Codelco is still struggling to restore output at its flagship El Teniente mine after July’s deadly tunnel collapse. Recovery timelines have been extended, and management has signaled further revisions to expansion plans. Meanwhile in Peru, political protests forced Hudbay Minerals to temporarily halt operations at its Constancia mine.

The market’s immediate reaction was telling. LME futures surged more than 4% on the day of the Grasberg news, breaking through key resistance at USD 10,160 per ton, and the move underlines just how quickly sentiment shifts when physical availability is threatened. For now, the initial rally has partly been driven by momentum and technical-focused traders, and in order for those longs to be maintained these gains need to hold, leading to a great deal of focus on the price behaviour in the coming days, and whether the mentioned gains will hold and potentially expand.

Demand resilience

While supply is fragile, demand for copper remains firmly supported. The drivers extend far beyond cyclical industrial production. Global electricity consumption continues to rise at an elevated pace, driven by electrification, expansion of data centers, and renewable energy integration. The electrification of transport adds further structural demand, with electric vehicles using several times more copper than conventional cars.

The ongoing build-out of AI and hyperscale data centers is a relatively new but increasingly significant source of copper demand. These facilities require enormous amounts of power, and by extension, cabling and grid reinforcement. The combined effect is that copper is moving from being a cyclical commodity to one with increasingly structural underpinnings.

Miners outperform the metal

Against this backdrop, copper miners have staged an even more dramatic rally than the underlying futures. The Global X Copper Miners ETF (COPX), which tracks a broad basket of major producers, has gained 46.5% year-to-date. This compares to year-to-date gains of around 18% in copper futures traded in London and a tad higher in New York.

The divergence is not unusual. Mining equities often deliver outsized returns when prices rise, as higher realized copper prices expand margins disproportionately. Reserves also get revalued, lifting net present values of development projects and encouraging fresh investor interest. Additionally, many miners benefit from by-product credits, such as gold and molybdenum, and from local currency dynamics which can enhance profitability.

The strong run in equities therefore reflects both the immediate gains from higher copper prices and the market’s expectation that supply tightness will continue to drive favorable conditions.

Outlook

Looking ahead, the balance of risks tilts toward persistent tightness. Grasberg’s phased recovery is unlikely before 2027, while Codelco’s challenges may extend well into next year. Peru’s political backdrop remains unpredictable. At the same time, electrification, AI-driven infrastructure, and renewable energy deployment continue to build structural demand.

This alignment—fragile supply against robust demand—suggests copper prices will remain well supported, with potential for further spikes on news-driven supply setbacks. Miners, already having outpaced the metal this year, may continue to attract inflows as leveraged plays on the theme.