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The Market May Still Be Underestimating How High Copper Has To Rally

@Goldfinger · 2026-05-11 · 12 upvotes · 8 replies

On Thursday morning, copper mining giant Freeport McMoRan (NYSE:FCX) announced the delayed restart of full production at the Grasberg mine. FCX said it now expects the giant complex in Central Papua province to return to full capacity by early 2028.

Grasberg produced 3% of global copper, amounting to 680,000 tonnes in 2023. With curtailment of production due to sulphur shortages, this portends poorly for global copper production. JP Morgan and Goldman Sachs are forecasting a 3-4% deficit this year, but the real deficit could be more in the ~5% range (more than 1,000,000 tonnes).

But the more important story is that copper is increasingly being treated as the cleanest macro expression of the next capex cycle: AI data centers, grid buildout, electrification, defense spending, reshoring, and hard-asset scarcity. Reuters reported last week that BHP is seeing new generalist investors buying the company specifically for copper exposure and AI-linked demand, with copper now overtaking iron ore as BHP’s largest earnings contributor.

That is a major tell.

Copper closed the week at a new weekly closing high above $6.25/lb, and it is continuing higher Monday morning:

Copper (Monthly)

While most investors have been focused on crude oil, AI stocks, or the Strait of Hormuz, the red metal has been experiencing a stealth rally in 2026. Stealth rallies are typically the best kind of rallies, and the case for copper being the most strategic metal only seems to grow stronger by the day.

The copper market is sending a clear message: $4 copper was enough for yesterday’s supply base, but it is not enough for tomorrow’s mine buildout.

Despite the fact that ~$4/lb copper is in the realm of being the 90th percentile AISC/lb for copper mines globally, there is growing evidence that more and more new mines require a $6/lb+ incentive price to move into construction.

The projects that matter at the margin are not spreadsheet fantasies. They are deeper, smaller, more capital-intensive, more technically complex, and increasingly located in jurisdictions where permitting, labor, infrastructure, and environmental standards come with real costs.

Talon’s Eagle Mine and Arizona Metals’ Kay Mine are not failures of geology. They are evidence of a new cost reality in copper — one where grade alone is not enough, and where capital intensity, operating costs, scale, complexity, and jurisdictional realities determine whether a deposit can actually become a mine, or whether an existing mine can generate a profit.

At Arizona Metal’s Kay Mine Project, a US$4.70/lb copper ‘base case scenario’ results in a negative after-tax NPV(8) for the project. Meanwhile, the economics looks much more attractive for Kay using today’s spot metals prices, including US$6/lb copper. However, without the discovery of additional economic ore at Kay, or much higher metals prices it is unlikely that this project will move into construction anytime soon.

At Talon Metals’ Eagle Mine in Michigan, a recently published technical report really underscores just how sensitive marginal mine economics are to metal prices. During Eagle’s final four years of operation, the mine is expected to be slightly cash-flow negative using US$4.50/lb copper and US$7.00/lb nickel. However, the economics improve dramatically with copper above $5/lb and nickel above $8/lb.

At $4.50/lb copper, marginal projects struggle — and some deposits simply do not work. A $4.50/lb copper price environment is not conducive to meeting the surging global demand from AI data centers, growing defense budgets, and electrification (more energy delivered as electrons instead of molecules).

At $5.00/lb copper, many projects still fail to clear a compelling investment hurdle. Investors do not fund new mines because a Leapfrog model looks interesting; they fund projects that can deliver robust after-tax returns. In today’s market, that generally means a 20%+ after-tax IRR, and many ore bodies that look good geologically still fail to meet key economic thresholds at $5.00 copper.

At $6.00/lb copper, the economics finally begin to look investable — but even then, the returns are not excessive.

In a volatile world transitioning from just-in-time economics to a new just-in-case reality, it is becoming increasingly clear that the copper incentive price is no longer $4.00 or $4.50 per pound.

It may be closer to $6.50/lb copper — the price required to bring online the new metal supply the world says it desperately needs.

Citi’s Commodities Research Team has a US$14,000/tonne (~US$6.35/lb) near term target on copper, while retaining a forecast for LME copper to average ~US$13,000/t (US$5.90/lb) across Q2–Q4 2026. Citi’s thesis leans heavily on mine supply constraints, disrupted production, and the difficulty of quickly adding new copper supply.

Meanwhile, global copper demand growth is being driven by a multi-faceted grid-and-compute capex cycle; AI, data centers, power-sector investment, humanoid robots, and broader electrification themes are forecast to underpin a ~50% growth in global copper demand by 2040 (from 28 million tonnes per annum in 2025 to 42 million tpa by 2040).

The copper concentrate market is expected to remain tight for years, with a cumulative deficit of ~3 million tonnes projected by 2036. Most new supply is concentrated in brownfield expansions, limiting the system’s ability to respond quickly to growing demand or disruptions to existing supply.

Source: S&P Global

That suggests the long-term copper price required to maintain global production growth is probably not $4.00/lb or even $4.50/lb. It is more likely in the $5.50–$6.50/lb range, particularly if the world expects new supply from North America, Europe, and other higher-standard jurisdictions.

In other words: the cure for the copper deficit is higher copper prices — and the market may still be underestimating how high the copper incentive price has become.

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