Metals, miners, and AI

  • Copper prices hit record high on Wednesday
  • Tight supply, AI demand fueling rally?
  • S&P metals and mining group up 20% in three months

Two commodities widely viewed as economic bellwethers have been moving in opposite directions recently.

While US crude oil prices tagged a nearly two-month intraday low Wednesday morning, copper prices pushed to an all-time high.

As of yesterday, copper futures (HGN4) were up roughly 25% since late February—10 percentage points more than June gold futures (GCM4), which set multiple record highs this year—with the bulk of the move occurring after the market broke out of a multi-month trading range in March:

Chart 1: July copper futures (HGN4) and June gold futures (GCM4), 2/27/24–5/13/24. Copper outshined gold.

Source: Power E*TRADE (For illustration purposes. Not a recommendation.)

The rally didn’t necessarily come out of the blue, though. In late January, Morgan Stanley & Co. strategists noted that, contrary to widespread expectations, tight supply could be the new normal for the copper market this year.1

But there’s also a demand side to the story, and as seems to be the case with many areas of the markets these days, it has an AI angle.

As Morgan Stanley & Co. strategists explained, by 2027, generative AI power consumption could equal Spain’s total power use from 2022.2 While the AI datacenter boom has implications for a wide range of industries and markets, one of the most immediate and tangible is the demand for copper. In March, for example, AI chipmaker Nvidia (NVDA) announced increased use of copper to reduce power usage in its data center gear.3

Two copper miners and refiners, Freeport-McMoRan (FCX) and Southern Copper (SCCO), have certainly tracked the copper rally in recent months—in fact, both have outgained copper by comfortable margins since late February:

Chart 2: Howmet Aerospace (HWM), 10/30/23–5/13/24. Freeport-McMoRan (FCX) and Southern Copper (SCCO), 2/27/24–5/13/24. Miners outgained metal.

Source: Power E*TRADE (For illustration purposes. Not a recommendation.)

As compelling as the recent copper picture may appear to be, there are a few market realities for traders and investors to keep in mind. First, “commodity stocks” like miners represent businesses that can prosper or struggle for reasons that have nothing to do with the price of the raw goods they deal in—i.e., mining stocks don’t always closely track the metals they pull out of the ground.

Second, the buzz surrounding things like record highs and breakthrough technologies can increase the risk of rushing into trades. As longtime traders know, it’s usually helpful to separate short-term momentum and long-term outlooks. Markets ebb and flow, and even the longest and strongest trends can experience significant setbacks.

Market Mover Update: On Wednesday, Ingersoll Rand (IR) closed at its highest level of the month, up more than 6% from its May 3 earnings sell-off (see “Unusual timing for unusual trade activity”).

Today’s numbers include (all times ET): Housing Starts and Building Permits (8:30 a.m.), weekly jobless claims (8:30 a.m.), Philadelphia Fed Manufacturing Index (8:30 a.m.), Import and Export Prices (8:30 a.m.), Industrial Production and Capacity Utilization (9:15 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Deere (DE), Walmart (WMT), Applied Materials (AMAT), Doximity (DOCS), Take-Two Interactive Software (TTWO).


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1 5 Unexpected Investment Ideas for 2024. 1/31/24. A Central Piece of the GenAI Puzzle. 4/18/22.
3 Investor’s Business Daily. AI Data Centers Seen Driving Demand For Copper. These Stocks Could Benefit. 4/18/24.

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