The Future of Digital Transformation and the Critical Importance of Copper
Much has been said about the growing demand for critical metals such as copper, nickel and lithium for clean technologies such as batteries, electric vehicles and green energy. But copper has a broader role to play in terms of technology and its use in the cables that connect power grids and data centres around the planet.
As one of the best electrical conductors, copper maximises efficiency in the transmission and distribution of electricity, and its thermal conductivity makes it vital for cooling in data centres. Its easy processing makes copper more preferable than other electrical compact systems. The fact that it is fully recyclable makes it an excellent contribution to the green economy, which is becoming more and more important every day.
As an important indicator of the health of the real economy, this industrial commodity, known as Dr Copper in market jargon, will inevitably become more synonymous with cloud computing systems and the Internet of Things (IoT) in the near future. With the proliferation of cloud technology and the Internet of Things (IoT), North America's data centre market continues to expand.
The use of 2,000 tonnes of copper in Microsoft's (MSFT) USD 500 million data centre in Chicago puts the current copper demand in perspective. The business volume of North American data centre infrastructure is expected to grow from USD 33 billion in 2020 to USD 70 billion in 2030 and USD 185 billion in 2040. Copper consumption for data centres is estimated to increase from 197 thousand tonnes in 2020 to 238 thousand tonnes in 2030 and 293 thousand tonnes in 2040. All these developments will inevitably increase the demand for copper in the medium and long term.
From a holistic perspective, despite the critical importance of copper in technology, we have recently seen prices decline due to concerns about the short-term demand outlook in China and the rest of the world. The Bloomberg industrial metal index lost nearly 4% in October, falling as low as January 2021 levels. As we have reached the middle of November, it would not be wrong to say that copper has made a relatively good start.
The fact that we receive clearer signals that the FED has ended the interest rate hike cycle will support copper prices. High Grade copper contracts in futures markets indicate that this important industrial metal is trying to form an uptrend. This trend is likely to be further strengthened by a break above the falling trend line (white line), which is currently around 383 USD. We have seen this breakout effort rejected several times recently. The critical support point, which we show with the red line on the chart and corresponds to 351 USD levels, gives an important signal about the bottom formation. However, there are strong overhead resistances, especially around USD 383 levels, where a trend line falling from the January 2022 record peak meets the 200-day moving average. Until this level is broken, copper is likely to remain in an increasingly narrowing channel with a cautious bias. A breakout of this narrowing channel may cause copper to shine in all its brilliance.
