Copper prices in London are on track for their steepest weekly decline since March, as a broad selloff in technology stocks dampened the market's enthusiasm for artificial intelligence and the metal's role in powering data centers.
The pullback highlights how copper has increasingly become a barometer for AI sentiment, even as the physical market tells a different story: supplies outside the US remain tight, which has helped cushion the downside.
Why copper is tied to AI
Copper has long been a bellwether for global economic health, used in everything from construction to electronics. But in recent months, traders have focused on a new driver: the massive build-out of data centers that underpin AI services. These facilities require vast amounts of power, and copper is essential in the cables, transformers, and grid upgrades needed to deliver that electricity.
So when US tech shares tumbled—sparking fears that AI spending could slow—copper futures followed suit. The metal's price has become more sensitive to sentiment around AI than to today's actual wiring demand. This dynamic has made copper a proxy for the so-called 'AI trade,' alongside chipmakers and other tech names.
The selloff in tech was not confined to the US. Asian markets also felt the pinch, with Japan's Nikkei plunging 5% as AI favorites led a regional decline. The ripple effects were visible across asset classes, with safe-haven currencies like the yen and franc gaining as investors sought shelter.
A tale of two markets
While futures prices have fallen, the physical copper market is sending a different signal. Outside the US, metal availability is tight. That's because inventories have been drawn down and shipped toward America, where traders are positioning for a possible tariff on refined-copper imports. The prospect of tariffs has created an incentive to move metal into the US, reducing supply elsewhere.
This divergence means that while the headline price is falling, the underlying physical market remains relatively firm. In other words, the drop is being driven more by financial flows and sentiment than by a sudden glut of copper.
For everyday investors, this split is worth understanding. The copper price you see quoted in the news reflects a complex mix of expectations, not just the metal's immediate supply and demand. When AI sentiment sours, copper can fall even if the real-world market is tight.
What it means for investors
For those with exposure to copper miners or copper-linked ETFs, the recent slide is a reminder of how intertwined the metal has become with the tech sector. A sustained tech selloff could keep pressure on copper prices, even if physical demand remains solid.
On the other hand, the tight supply outside the US could provide a floor under prices. If the tariff threat materializes, it could further distort trade flows and potentially push prices higher in the US while keeping them subdued elsewhere.
Investors should also watch broader market signals. The current tech-led selloff has already hit miners and tech stocks on Australia's ASX 200, and Canada's TSX fell 1.3% as tech names like Celestica and BlackBerry declined. These moves show that the AI trade is not just a US phenomenon—it's global.
For now, copper's weekly drop is a cautionary tale about how sentiment can drive prices in the short term. But the physical market's tightness suggests that the metal's longer-term fundamentals remain intact, especially if AI infrastructure spending continues to grow.
As always, it's important to remember that commodity prices are volatile and influenced by many factors beyond any single narrative. Investors should focus on their own time horizon and risk tolerance rather than reacting to weekly price swings.
