Commodities | Nov 04 2025
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US energy demand to resume growth; super-cycle in copper; investment in critical aluminium; downside risk for gold.
- US energy demand on the rise again
- All aboard the copper super cycle
- Critical aluminium
- When can gold resume its bull run?
By Greg Peel
Rising Energy Demand
US energy demand has been on a slight downward trend for the past two decades, Morgan Stanley notes.
After peaking in 2007, total US energy consumption has been slowly declining at an average rate of -0.0-0.5% per year. Technological advancements, efficiency improvements, and the de-industrialisation of economic growth have all pushed the energy intensity of US GDP lower, falling -36% over the period.
The mix of energy types has been changing, but slowly. Notably, says Morgan Stanley, the share of fossil fuels (coal, natural gas, and petroleum) has only declined -9% over the last 45 years, moving from 92% in 1980 to 83% in 2023. For just oil & gas (ex-coal), the share has actually held fairly steady for the last half century.
But Morgan Stanley points out US energy demand is set to resume growth in the decade ahead. Two emerging trends are set to push domestic energy needs higher, reversing decades of stagnation: reshoring of manufacturing, alongside rising electricity use from AI data centers and broader electrification.
Total domestic energy demand across all end-markets is forecast to rise by 10%, eclipsing the prior 2007 peak by 2030.
Renewables alone will struggle to keep pace with rising consumption, keeping the transition away from fossil fuels fairly slow. The energy intensity of GDP should continue to decline, but at a slower rate (-0.9% per annum in 2025-35 versus a -2.2% average over the past 20 years).
What Morgan Stanley does not address in this conclusion is Trump’s antipathy towards renewable energy, his cancelling of funding for projects previously approved by Congress, and his determination to dismantle Biden’s Inflation Reduction Act, which was largely focused on a renewable energy push.
Energy Requires Copper
Over the past year, leading US copper miner Freeport-MacMoRan halted operations at its large mine in Indonesia following an accident, and has subsequently been unable to meet contract obligations or its planned project ramp-up timeline.
Canadian miner Ivanhoe Mines halted production at its mine in the Congo due to flooding and a mine in Chile due to a tunnel collapse. These three mines produce around 7% of the world’s mined copper, Bell Potter notes, creating a short-term production headwind for the metal.
The US is viewing copper as strategic asset, with its supply critical to defence, electronics and autos. Hence, Trump decided in August to put a 50% tariff on copper imports, alongside steel and aluminium, until the price of US copper soared above the price of LME copper, creating a significant arbitrage. Then he TACO-ed.
Rising US copper inventories are currently suppressing the copper price, Bell Potter notes, effectively neutralising the impact of the significant supply shocks seen over the last 3-6 months. Looking ahead to 2026, the analysts anticipate a tighter global copper market.
Bell Potter expects the global copper market to tighten considerably as inventories fall and supply disruptions continue to persist. With demand simultaneously rising due to cyclical and structural factors. A tighter market is expected to manifest into a higher copper price.
Growing demand for copper rests on transition to a low-carbon world, in which demand for renewable energy continues to balloon. Bell Potter points to data collated by the International Energy Association, suggesting nearly 80m kilometres of power lines will need to be replaced by 2040 and power grid capex will need to double to US$600bn per annum by 2030 to support climate-related goals.
Estimated incremental copper demand is set to increase by circa 6 Mt/year to meet the IEA’s Stated Policy Scenario, designed to capture trends within the current policy landscape. The combination of new demand from growing industries including data centres, electric vehicles and emerging economies together with traditional supply channels is set to boost copper demand growth from a 2% compound annual growth rate over the last 15 years to a CAGR of 2.6% out to 2035.
Copper’s use throughout data centres is significant, with a study of Microsoft’s US$500bn data centre in Chicago finding the project used 2,177t of copper in its construction, corresponding to 27t of copper for each MW of power. As AI enabled chips start to make their way through data centre networks, the copper footprint per site is set to expand to cater for their more energy intensive workloads, Bell Potter notes.
However, copper only represents less than 1% of total data centre cost, meaning developers may exhibit a degree of demand inelasticity adding incremental buying pressure on copper irrespective of spot price.
Then there’s electric vehicles. EVs require substantially more copper than traditional combustion vehicles requiring around 80kg of copper per vehicle compared to 20kg for ICE vehicles, due to the use of electric motors, internal batteries and charging systems which are all electrified.
Bell Potter points to data suggesting copper demand from EVs is set to double by 2030.
On the supply side, global average copper head grade has been steadily declining for decades, falling from over 1.5% in the early 2000s to between 0.5% and 0.7% today across many major mining operations. A decline in grades means more material needs to be mined, crushed and processed per tonne of copper, increasing production costs, energy costs and waste volumes.
As the quality of ore mine falls, cash costs per tonne of copper rise, pushing the hurdle rate of return for new mines to be greenlit. These projects require incrementally higher copper prices to be viable, together with greater capex for infrastructure to sustain the project.
Data point to a persistent decline in major copper mine discoveries since the early 2000s, with the majority of production growth coming from brownfield expansions rather than new deposits.
The data highlight only 29 new copper discoveries since 2010 representing just 9% of total volume since 1990. A significant downturn in new deposits adds downward pressure on supply growth and benefits existing miners who have access to relatively higher-grade ore at a lower capital base.
Bell Potter’s conclusion: we are at the start of a copper super-cycle.
The analysts note miner valuations tend to lag copper price rallies early, indicating a sign of relative value as equity multiples are yet to fully re-rate with outsized moves in spot markets moving disproportionately to the bottom line.
Aluminium is Critical Too
Much focus of late has been on global demand for rare earth minerals, and investment required to contest China’s dominance in production and processing. Rare earth minerals are not actually rare (they do like to hang around together in orebodies, making them expensive to separate), but they certainly are critical in the twenty-first century.
The focus on rare earths tends to leave other critical minerals to be overlooked. As the above item suggests, copper is clearly critical. Wilsons points out so is aluminium.
The recent critical mineral deals between the US and Australia, as well as four Southeast Asian nations, have highlighted the West’s push to strengthen supply chain resilience by increasing domestic production and reducing reliance on China for elements essential to defence, economic development, and the energy transition, Wilsons notes.
In addition to US$8.5bn of financing support for mining and processing projects announced in the US–Australia deal (including US$2bn over the next six months), the partnership will include coordinated infrastructure development, accelerated regulatory approvals, pricing mechanisms (eg price floors) and guaranteed purchase agreements.
We note that price floors are a contentious issue. They are intended to overcome China’s capacity to crash rare earth prices through flooding the market, thus making ex-China projects uncommercial, but are resisted by the mining industry as a form of government manipulation.
While support for rare earths has been the focal point of the deal, Wilsons notes recent policy efforts have encompassed a much broader suite of critical metals with China-dominated supply chains – including aluminium. Like rare earths, aluminium is strategically important for both defence and energy transition.
Both alumina and aluminium production are dominated by China, which underscores the desire of the West to “reshore” the aluminium value chain.
Both the US and Australian governments have provided material financing to the aluminium value chain over the past year, with a focus on “green” aluminium.
This includes a US$500m grant from the US Department of Energy for the construction of the first new US primary aluminium smelter in 45 years, and the Australian government’s A$2bn Green Aluminium Production Credit, which will support domestic smelters transitioning to reliable, renewable electricity before 2036.
Wilsons does not address the possibility of the government bailing out global mining giant Rio Tinto’s ((RIO)) Tomago aluminium smelter, which faces commercial unviability once electricity prices step-jump on the expiry of existing supply contracts. The government is exploring all options, but has prior form, having this year pumped taxpayer funds into a steel plant, as well as copper, lead and zinc smelters.
Questions are being asked as to why the government insists on hand-outs and rejects equity stakes on behalf of taxpayers, as is preferred by a socialist Donald Trump.
On that subject, despite speculation Trump could water down some aspects of Biden’s Inflation Reduction Act, Wilsons notes he remains committed to strengthening domestic aluminium production given its strategic importance; a goal that is at the forefront of ongoing trade negotiations, with the US currently imposing 50% tariffs on aluminium imports.
Collectively, growing recognition of aluminium as a strategically important critical metal –-alongside expanding policy support-– comes at a time when the commodity’s fundamentals are becoming increasingly attractive, Wilsons points out.
Robust demand and constrained supply are expected to drive widening deficits and higher aluminium prices over the medium and long-term.
Losing its Glitter?
Trump’s shift towards dealmaking, not just with China, but also with Malaysia, Thailand, Vietnam, Cambodia, and likely soon with Brazil, India, and Taiwan, and President Xi’s apparent willingness to go along with it, alongside a shift in price momentum in the gold market, and a possible end to the US shutdown, are set to see gold continue to move lower over the coming days and weeks, Citi believes.
Citi has downgraded its gold 0- to 3-month target to US$3,800/oz from US$4,000/oz, which is around the 50-day moving average, and its silver 0- to 3-month forecast to US$42/oz from US$55/oz.
The litany of worries that are driving the price of gold higher may eventually need to become the base case to sustain this bull run through 2026, Citi warns.
Whether US Fed board member Lisa Cook is replaced (or not) before the February 20 Fed meeting can be a critical catalyst for lower real rate expectations, Citi suggests, as will the sustainability of the AI-led bull market in equities.
If Lisa Cook stays in her post (or is not replaced by February 20), and if the Trump administration is successful in driving sustained capex and equity strength driven US growth during 2026 (Citi’s base case), Citi thinks the gold bull market will have a hard time extending from these levels.
Having said all of this, Citi acknowledges the medium- to long-term case to allocate towards gold as a hedge against possible tensions between China and the US, Russia and Ukraine, or China and Taiwan; an equity market collapse; or a government-debt-related debasement, or recession, or bond vigilante attack, remains strong.
The question is at what price asset allocators step in. Citi doesn’t think it is US$4,000/oz on the way down.
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