If You Understand Copper, You Understand the Future

Copper is one of those commodities that feels too obvious to bother writing about, until you look closely and realise that the obvious point is exactly why it matters. It sits inside nearly every modern convenience and almost every modern ambition. Energy systems, transport, housing, industry, communications, computing and defence all depend on moving electrons safely and efficiently, and copper remains the most trusted industrial conductor for that job. When you strip the story back to first principles, copper is not a theme in the way the market often uses the word. It is infrastructure, and infrastructure is the stuff that gets built whether or not the market feels like applauding.

The point of this memo is not to guess next month’s price, next year’s price, or even the price over the next decade. It is to lay out a framework for why copper looks structurally supported over a multi year horizon, why the supply side is unlikely to respond at the speed required, and why copper is quietly becoming one of the most strategically relevant “hold” assets in the real economy.

Rowe Capital currently runs roughly 8.4% copper exposure. I am looking to lift that closer to 10% to 12% over time, which would take copper into either the 3rd or 4th largest holding in the portfolio. This is not offered as a portfolio recommendation for anyone else. It is simply transparency about how I am thinking, and why I believe copper deserves deeper attention than it typically receives.

WHY DEMAND IS EVERYTHING

Copper demand is often discussed as if it were a single lever, China construction, EV adoption, renewables buildout. In reality, it is better understood as a mesh of overlapping systems that all point in the same direction. Electrification is no longer a discrete part of the economy, it is essentially the economy, and global society itself.

Power grids are being expanded, hardened and re engineered. Renewables require new transmission and distribution. EVs require charging networks, upstream electrical upgrades, and a lot of copper in the car and the charging ecosystem. Buildings require retrofits. Industry is shifting processes toward electricity where it can, because electricity is controllable, automatable, and increasingly cost competitive.

The easy mistake is to treat these as separate trends. The more accurate view is that they compound. Grid spend accelerates because renewables and EVs require it. Data centres accelerate because modern economies are digitising and then re digitising through AI. Industry electrifies because it wants efficiency, automation, and resilience. Each new layer tends to pull the base layer harder.

One of the more useful “reality checks” here is that grid investment is no longer an abstract policy ambition, it is real capex at scale. Reuters has highlighted record global grid spending, and tied it directly to copper demand, precisely because transmission, distribution, transformers and cabling are fundamentally copper intensive systems.

AI, WHY IT IS SECRETLY A COPPER STORY

A modern demand pillar that many commodity investors still underweight is AI infrastructure. People talk about AI as software, but the limiting factors are often physical. Land, power, transformers, cabling, cooling, redundancy and permitting. These are not abstractions. They are the tangible components that make “compute” possible, and they lean heavily on copper in the real world.

This is where it becomes useful, in a supporting way, to listen to what prominent operators and capital allocators are emphasising, without making the piece about them. Jensen Huang’s “five layer cake” starts with energy, then chips and compute infrastructure, then cloud services, then models, then applications. Larry Fink’s framing is also infrastructure first, capital needs to be deployed into the buildout. The key point is not their optimism. The key point is what their optimism implies mechanically. If the world is genuinely committing to a multi trillion dollar buildout in generation, grids, data centres, chip plants, and industrial automation, then copper is one of the few inputs that shows up across all of it, quietly, repeatedly, and at scale.

There is also the incentive caveat, and it matters. Technology leaders and asset managers have plenty of skin in the game. Optimism about buildouts is not charity, it is often aligned with their economic interests. That does not make the direction wrong. It simply means you should treat their comments as corroboration rather than proof. The copper thesis should stand on its own, and the copper thesis is simply that the physical buildout implied by AI is copper dense.

DEVELOPMENT AND INDUSTRIAL POWER

Copper consumption has historically tracked industrial power. Britain in its industrial ascent, then the United States, then China. This is not simply a history lesson. It is a reminder that copper is embedded in the process of building an economy, and industrial leadership tends to be copper intensive because it is energy intensive, manufacturing intensive, and infrastructure intensive.

One way to see this clearly is to look at how copper consumption has shifted with economic leadership over time. The world’s copper demand has not been evenly distributed, it has followed the centre of industrial gravity. First the UK in the early industrial era, then the US as mass electrification and manufacturing scaled, and now China as the world’s dominant builder of housing, grid, and industrial capacity. The point is not that one country matters forever. The point is that copper demand is a footprint of industrialisation itself, and when industrialisation spreads, the copper footprint spreads with it.

Anglo American’s James Gait (Global Head of STrategy) thoughts have been particularly useful on this point because it forces the frame wider than the typical “EV plus renewables” narrative. He states that, in essence, is that decarbonisation and electrification are not the only copper story. Copper is foundational to industrial activity itself. It underpins grids, housing, transport, machinery, communications, and the physical base of productive capacity.

The more uncomfortable part of that framing is the development gap. A relatively small share of the world has historically consumed the majority of raw materials, and a large share of the global population remains below developed world levels of metal intensity. If the energy transition is to succeed politically, it cannot be a transition reserved for wealthy countries. It must also be a development transition. Development is copper intensive because development means grid buildout, housing, transport, industrial capacity, and the infrastructure that converts labour into productivity.

The development gap is easiest to understand when you treat copper not as annual consumption, but as installed stock, the physical copper embedded in grids, buildings, machines, and transport. Installed copper stock behaves like productive capital, it is accumulated slowly, and once it exists it supports higher output for decades. The relationship between GDP and installed copper is not a marketing slide, it is a reminder that economic growth has a physical precondition. The world is still wildly uneven in that installed base, and if the next few decades involve any meaningful convergence, the incremental copper required is not marginal, it is structural.

This is why I am cautious about demand narratives that feel “contained.” You can model EV penetration rates and renewable installations. It is harder to model the compounding effect of billions of people moving up the development curve while advanced economies rebuild and modernise their electrical systems at the same time. Scale problems rarely resolve politely, particularly when the input is a metal with long lead time supply.

SUPPLY THESIS

The copper story becomes more compelling when you pair demand with the supply reality. New supply is not a switch that can be turned on. Deposits are harder to find, grades are lower, orebodies are deeper, projects take longer, permitting is slower, and capital has been reluctant to fund long cycle mining in the way it once did. Even when management teams want to build, they cannot simply will a mine into existence. The time constants are long, and they matter.

The supply constraint becomes more credible when you stop treating it as a narrative and start treating it as a track record. The industry has repeatedly overestimated how much copper it can actually deliver, even in periods where prices were supportive and where incentives should have pulled new tonnes forward. The reasons are not mysterious, they are structural barriers to entry, capital is cautious, geology is deteriorating, costs rise, and permitting stretches timelines. When a system consistently underdelivers relative to its own forecasts, it is telling you that supply is not just slow, it is fragile.

This is the point the major producers keep circling back to in slightly different language. Copper and base metals are not merely “high because the cycle is hot,” they are high because the system has not built enough slack, and demand has broadened. BHP’s leadership has described the market in these structural terms, not as a short lived commodity spike, and that aligns with the plain reality of the pipeline, permits, ore grades, and capital intensity.

Underinvestment is only half the problem. The other half is that the easy copper is increasingly behind us. Reserve replacement has weakened, reserve life has shortened, and the cadence of truly major discoveries has slowed materially versus prior decades. That matters because long cycle commodities do not recover supply by wishing harder, they recover supply by discovering, permitting, financing, and building. When the discovery pipeline thins out, the industry loses its future option value, and the market becomes more sensitive to delays, disruptions, and political friction in the projects that remain.

Even where there is political support, supply does not necessarily arrive faster. Resolution Copper in Arizona is a clean example of the modern mining paradox. It is a world class asset, it sits inside a country that wants more domestic copper, and it still faces legal and permitting complexity that can delay the timeline materially. That dynamic is not a side note. It is increasingly the story. Mining is becoming politically strategic, yet that strategic status often increases scrutiny, and scrutiny creates delay.

The International Energy Agency has been explicit that copper’s supply gap risk is elevated, driven by declining ore grades, rising costs, and the difficulty of bringing enough new projects online at the pace implied by electrification goals.

The funding problem is also real, and it is under discussed. It is difficult to raise capital for long cycle mining unless the market believes the price signal will persist for long enough to justify it. Investors want discipline, management teams respond with discipline, and then the system discovers that discipline often means underbuilding capacity. That tension is part of why copper shortages can become prolonged. It is not that the world cannot build new mines. It is that the incentive structure often delays the commitment until the tightness is undeniable.

This is also where the “productivity plateau” matters. If mining productivity is not improving meaningfully, and ore grades are declining, then even maintaining current output can require more effort, more capital, and more time. That is not bullish rhetoric. It is a physical constraint.

This is the less discussed constraint, and arguably the most important one. Even if capital suddenly becomes abundant, and even if permitting improves at the margin, the industry still has to fight the rock. Ore grades have trended down, strip ratios rise, and the productivity gains that once offset worsening geology are not compounding the way they did in earlier eras. That combination forces the same conclusion again and again, maintaining output requires more energy, more equipment, more labour, and more time. If productivity is not accelerating, incumbents earn “rents” simply because replacement supply is harder to create than most models assume.

IMPLICATIONS OF THE SHORTFALL AND WHO BENEFITS

If copper remains structurally tight, the beneficiaries extend beyond the miners. There are national winners, places with reserves and the capacity, politically and operationally, to convert geology into output. Chile and Peru have long been central. The DRC and Zambia have enormous potential, with the obvious caveat that execution, governance and infrastructure matter. Australia tends to be the lucky country in these cycles because it combines geology with relative institutional strength. Indonesia has ambition and policy leverage. Mongolia has world class deposits and China next door. Canada remains one of the more durable “rule of law” beneficiaries of any long cycle metals tightening.

I treat this list as directional rather than definitive because the bottleneck is rarely the rock alone. It is the path from discovery to construction to permitting to power to transport to social licence. But the strategic implication is clear. Copper scarcity pulls geopolitical attention toward the jurisdictions that can produce, and that attention can shape investment, diplomacy, and industrial policy.

COUNTERWEIGHTS AND HEADWINDS

High prices encourage substitution where standards allow it, particularly aluminium replacing copper in some wiring and transmission applications. High prices also pull more scrap and recycling into the market, which can cap extreme rallies. Projects get value engineered. Timelines can slip. Marginal demand can be deferred.

China remains the swing factor that can change the tape fast. When copper moves too far, too fast, China does not need to persuade the market with commentary. It simply buys less. You see it in physical indicators, in import signals, and in the feel of the market. That matters because it can turn a structurally tight story into a volatile path, even when the long run need for copper remains intact.

Macro conditions still matter because copper is not gold. In risk off regimes, copper can behave like the cyclical asset it is, even while remaining strategically necessary. That is not a contradiction. It is simply the difference between utility and market behaviour.

These counterweights do not make copper uninteresting. They make it more realistic. Copper should be thought of as a strategic holding thesis with volatility, not a one way narrative. The structural argument rests on the breadth of demand and the friction in supply, not on the claim that copper rises uninterrupted.

One useful way to anchor this without turning it into a trading memo is to separate the story into two layers. The first layer is physical necessity, grids, electrification, industrial buildout, data centre power delivery. That layer is durable. The second layer is how the market prices that necessity through cycles, sentiment, and macro. That layer is volatile. The thesis does not require the second layer to be calm. It requires the first layer to remain true.

The supply deficit case, now with mainstream backing

What has changed over the last couple of years is that the “copper shortage” argument has moved from niche commodity circles into mainstream institutional research. S&P Global has warned that the world may face a material copper deficit over the coming decades unless supply expands meaningfully, framing it as a risk to broader economic growth because copper is essential for electrification and the infrastructure buildout tied to AI.

Even more importantly, the shortage framing is no longer limited to 2040 charts. The near term market is already showing the sensitivity that comes with a tight system. Reuters has noted how quickly the copper price can respond to supply disruptions and the broader demand impulse from electrification themes.

None of this proves copper will behave linearly. It does reinforce the central point. The world is trying to do several copper heavy things at once, and the supply system is slow, capital intensive, politically complex, and increasingly constrained by geology and time.

If you want a simple visual of what “slow supply” looks like when it collides with compounding demand, the deficit charts are blunt. The shape is always the same, the market can muddle through near term balance, then the gap opens as multiple demand channels stack on top of each other while projects fail to arrive on schedule. The exact numbers will move, they always do, but the direction of travel is the point. Once deficits become persistent, prices stop being set purely by marginal cost, they start being set by scarcity and the willingness of end markets to pay up for continuity of supply.

TAKING ADVANTAGE OF THE CURRENT SITUATION

Now all our research and analysis regarding copper is useful, but how do we take advantage of potentially a major commodity swing in favour of copper? Below is a comprehensive list of four equities that are well positioned in the current market. Although some (if not all) have run quite high over the last year, there is still plenty more upside.

Freeport-McMoRan ($FCX)

FCX is the large cap stock that tends to move hardest when copper tightens, because the business sells a lot of copper and its costs do not move one for one with the copper price. When copper prices rise, a disproportionate share of that uplift becomes profit and free cash flow, so the equity can reprice quickly. This is why FCX is often the cleanest way to express a bullish copper view through a single liquid US stock. The risk is operational, if a major asset underperforms or disruptions hit volumes, the stock can lag even in a strong copper tape.

Southern Copper ($SCCO)

SCCO is the quality producer expression, long life reserves, low costs, and a business model that turns high copper prices into very high margins. You own SCCO when you want exposure that is less dependent on “perfect timing” and more dependent on owning a structurally advantaged copper producer. In a supply constrained cycle, the company does not need to chase growth to create value, it simply needs to keep producing and capturing margin. The key risk is political and regulatory, because the market will always apply a discount to assets where taxation, permitting, or government pressure can change the economics quickly.

Teck Resources ($TECK)

TECK works when the market starts paying for future copper scarcity, not just today’s copper price. It is increasingly valued as a copper growth story, meaning the upside comes from delivery, ramp stability, and volume growth into an environment where copper units are scarce. If the copper deficit thesis is right, the market tends to reward companies that can credibly add supply, because new copper is hard to bring online.

The risk is execution, if operations do not stabilise or costs rise, the “growth rerate” does not stick.

Ero Copper ($ERO)

ERO is the higher beta version of copper exposure, smaller scale, more upside when copper is strong, more downside when sentiment turns. The payoff comes from two things happening at once, copper prices staying supported and the company growing production cleanly. If both land, earnings power can change meaningfully and the market usually reprices faster than it does for larger, steadier producers. The risk is concentration, a smaller company has fewer assets to absorb operational noise, so one issue can matter a lot.

CONCLUSION

The world is building. Not in a metaphorical way, but in a literal way, grids, generation, charging, factories, and data centres. Copper sits underneath that build, quietly indispensable, and increasingly difficult to expand supply for at the pace the world appears to require.

The most important part of the copper case is not the narrative. It is the mechanics. Electrification is copper heavy. Grid hardening and expansion are copper heavy. Data centres are copper heavy. Development is copper heavy. Supply is slow, permitting is slow, grades are declining, and the capital cycle is reluctant until the tightness becomes undeniable.

The prominent voices, like Larry Fink, like the BHP CEO, like Jensen Huang are not the thesis. They are signposts. When mining executives describe the tightness as structural, when industrial strategists frame copper as foundational to development, and when AI leaders describe an infrastructure buildout that begins with energy and power delivery, they are all pointing at the same bottleneck from different angles.

That is why we have meaningful copper exposure today, and why I am looking to add to it shortly. Not because copper is fashionable, but because copper is foundational, and the world’s next phase of investment looks set to demand more of it, while the supply system remains slow to respond.