AI’s Thirst for Data Center Power Feeds Renewed Demand for Copper

Global copper prices more than doubled in the wake of the COVID-19 pandemic, driven by burgeoning electric vehicle (EV) demand. Now, they’re surging again to meet demand from another source: large data centers powering artificial intelligence (AI).

Prices for the metal commonly used in electrical wiring have climbed about 20% since the start of the year, at $4.65 per pound as of 5 p.m. ET Friday. Bank of America (BAC) estimates prices could rise another 17% by 2026, according to a note released Thursday.

The recent increase in copper prices and BofA’s projection come even as EV demand has slowed, as the worldwide race to add AI capabilities has fostered a substantial need for data centers using copper wires.

“With demand from EVs still growing, albeit at a slower pace, the focus has shifted toward the copper in the data center build-out” BofA analysts said.

AI Fuels Exploding Demand for Data Centers

The price of copper took a hit in the early days of the COVID-19 pandemic, dropping to just over $2 a pound in March of 2020, but as the global economy recovered and EV demand increased, it more than doubled in value to near $4.80 by May 2021.

Copper prices tumbled in early 2022 after the onset of central bank interest rate hikes to fight inflation, but rebounded in late 2022 around the time ChatGPT launched, as a boom in AI demand gave way to explosive growth in data centers.

The International Energy Agency (IEA) projected earlier this year that electricity consumption from data centers, AI, and the cryptocurrency sector could double by 2026.

That level of electricity consumption, the IEA noted, roughly equals that of Japan, and warned that technological improvement and updated regulations “will be crucial to moderate the surge in energy consumption from data centers.”

Such improvements include addressing strained electrical power grids that need upgrades, even in the developed world. Grid upgrades, however, also require copper. Those upgrades increasingly involve renewable energy solutions, which Bank of America noted “tend to have a much higher copper content than traditional fossil fuel power plants.”

Potential Supply Deficit Looms

The demand for copper globally could lead a “balanced market to flip into (supply) deficit” by the end of this year into 2026, BofA said, even as production increases.

With that, copper prices by 2026 could reach $5.44 per pound, 41% higher than last year’s average, BofA estimated.

The IEA said it expects global electricity demand to increase 3.4% annually through 2026 after rising 2.2% last year, with the bulk of that demand growth coming from China and India.

China could play a key role in whether these forecasts prove correct. It has curtailed production amid mine supply constraints. At the same time, it continues spending substantially to upgrade its grid.

On the other hand, BofA acknowledged that if China slows spending on renewable technology and supply constraints ease, allowing it to resume copper exports, prices might not rise as high as anticipated.