Mining Megadeal Shows the World Is Crazy for Copper — WSJ

By Ed Ballard and Rhiannon Hoyle

For years, copper bulls have talked up its key role in the transition to green energy, needed for wind turbines, electric cars and grid infrastructure. Now, the metal is at the nexus of two new megatrends: artificial intelligence and rising military spending.

A proposed $53 billion merger between Anglo American and Teck Resources, the mining sector's biggest deal for a decade, amounts to a giant play on future demand for the base metal. Copper consumption has been climbing for years but new supplies aren't expected to keep pace with demand.

The rise of AI is powering a wave of extra demand for copper, with huge amounts of the conducting metal now finding its way into server farms that guzzle electricity. A single AI data center can use as much electricity in a year as hundreds of thousands of electric cars.

Over the next decade, data centers will require more than 4.3 million metric tons of the metal, according to research firm BloombergNEF. That corresponds to nearly a year's supply from Chile, the world's top supplier.

"Significant amounts of copper are required to build, power and keep these centers cool," said Anna Wiley, head of BHP's South Australia copper business, at a conference last month. BHP, which sought to buy Anglo American itself last year to cement its position as the world's biggest copper producer, forecasts a 70% increase in demand for the metal by 2050.

Then there is the copper needed for bullet casings, jet fighters, missile systems and other weapons as governments around the world dial up spending on defense.

The Trump administration is pressuring NATO allies to expand their defense budgets. China, the world's second-largest military, plans to boost spending too, while arms production has become a motor of Russia's economy.

"We're having to think about copper in another way, which is potential military spending," said Michael Haigh, head of fixed-income and commodities research at Société Générale.

Cranking up military spending from current levels, at around 2.5% of global gross domestic product, to 4% — roughly where it was before the end of the Cold War — would translate into 170,000 tons of extra copper demand, Haigh estimates. That's a lot in a finely balanced market.

Haigh forecasts that the copper market will see a modest surplus next year, and that is without factoring in any additional demand from rising defense budgets. He expects global benchmark copper prices to rise from current levels around $9,800 a ton to an average of $11,500 over 2026 and 2027.

Copper prices have risen this year despite volatility stoked by President Trump's trade policies. U.S. prices surged well above global prices in July after Trump said he would slap tariffs on the metal. They then plunged when he targeted copper products instead, but are still up for the year.

In the U.S., copper has been caught up in a general push to shore up supplies of key commodities. Copper is the Defense Department's second-most used material, according to the White House, and Trump has said he wants to boost domestic production.

To be sure, alternatives are emerging. "Copper was the best conductor of the last hundred years but now there are simply better options out there, " said Will Reynolds. He works on data-center applications for MetOx International, one of a few companies making wires from advanced materials that are far better at conducting electricity. But those products still represent a sliver of the market.

All these factors are key reasons that help explain why copper has been at the heart of dealmaking in the mining sector in recent years — and why analysts say the proposed Anglo-Teck tie-up could spur rival offers as companies jostle for copper assets.

Britain's Anglo and Canada's Teck have both rejected multibillion-dollar takeover approaches in the past two years from BHP and Glencore, respectively.

Anglo Teck, as the combined company will be called, is set to be a top five copper producer, with key assets in Chile, Peru and Canada — all places that are perceived to be relatively low risk to do business.

"These things are coveted. There are very few around and a lot are in difficult jurisdictions," said Duncan Hay, an analyst at broker Panmure Liberum.

The deal also highlights a challenge to bolstering supplies of the commodity: Many miners determine it is easier and cheaper to buy rather than build mines.

A proposed giant copper mine in Arizona has been under development for roughly two decades, having faced opposition from local groups. A further delay to the project this summer stirred the ire of Trump. "3,800 Jobs are affected, and our Country, quite simply, needs Copper — AND NOW!" he wrote on his social-media platform.

The transition to lower-carbon energy and the broader electrification of the economy remains the major trend driving copper demand.

Despite the Trump administration's efforts to curb green-energy subsidies and dismantle emissions regulations, wind turbines and solar farms continue to spread. So do electric vehicles, which need far more of the metal than gasoline-powered cars.

Around $2.2 trillion of investment will flow to low-carbon energy, low-emission fuels, efficiency and electrification in 2025, double the amount for fossil fuels, the International Energy Agency forecasts.

Copper demand for EVs alone will rise to 2.3 million tons in 2030 from 1.3 million tons in 2025, Benchmark Minerals Intelligence estimates. The research firm sees demand for the metal to upgrade power generation and transmission networks rising by 19% to 14.9 million tons over the same period.

"It's still there," SocGen's Haigh said of the energy transition. "It's just less talked about."

Write to Ed Ballard at ed.ballard@wsj.com and Rhiannon Hoyle at rhiannon.hoyle@wsj.com