Geopolitical shocks build copper’s bull case: Sprott

The investment thesis for copper is only getting stronger amid renewed emphasis on energy security and growing concerns over supply as the cost of metal production surges, according to Sprott Asset Management.

Sprott’s latest report lined up several catalysts for the global copper market against the backdrop of the United States-Iran conflict. These potential tailwinds are often “underappreciated” during periods of macro stress, but may now be starting to shape investment sentiment in copper, moving the metal beyond its role as just an economic bellwether, Sprott said.

Electrification underpins demand

One major catalyst is the pivot toward alternative energy sources as oil and gas supplies continue to face disruptions. Copper, due to its essential role in energy generation, transmission and storage, is set to greatly benefit.

Electrification is now the leading and fastest-growing end use of copper, said Sprott analyst Jacob White. This shifts the market from cyclical construction dependence toward more stable, strategic, long-term investment in electrification. 

Data center infrastructure and the energy transition are set to significantly outpace the growth projected for core economic uses.

“By 2040, these strategic segments could account for 45% of total copper demand, up from 32% in 2024,” White said. “Importantly, this demand is significantly less price-sensitive than traditional cyclical consumption,” he added, emphasizing that grid modernization won’t stop just because commodity prices are elevated.

Acid shortage

Another catalyst lies on the supply side. An acute sulfuric acid shortage with direct implications for copper production, given that about a fifth of the world’s copper is produced by solvent extraction and electrowinning (SX-EW), which uses the acid as input, the Sprott report said.

About 4.8 million metric tons of global copper mine supply are produced via SX-EW and are therefore structurally dependent on sulfuric acid availability, according to Sprott’s estimates.

However, the closure of the Strait of Hormuz has caused major disruptions to copper producers that depend on sulfur. According to the International Fertilizer Association, countries upstream of the Strait account for roughly 49% of global sulfur trade. Since the war began, sulfuric acid prices have nearly doubled.

The production impact will unfold over months, not weeks, Sprott warns. “While copper producers are buffered in the near term by existing sulfuric acid inventories and in-transit shipments, the immediate effect is higher costs rather than outright disruptions,” it said, adding that the net effect is bullish for copper miners.

Copper miners to benefit

Significant increases in other input costs, namely diesel, won’t fundamentally challenge the economics of most of the global copper production, Sprott says. At the current spot price of $13,000 per tonne, nearly all of the world’s copper mines are operating below their AISC, meaning virtually every mine is profitable, it said.

The tailwinds from both the demand and supply sides, reinforced by the Middle East conflict, will shape copper’s trajectory in the coming months, Sprott said, underlining the structural investment case for copper.

Sprott is also bullish on copper mining equities. Shares of copper miners ended April with a gain of 7.98%, outpacing the metal itself and many other classes.