Geopolitical Shocks and AI Drive Base Metals Market Changes

Geopolitical disruptions, resource nationalism, and an escalating power crunch are reshaping global base metals markets, according to Wood Mackenzie's latest analysis. The company's research highlights that the global data centre pipeline has surpassed 250 GW, driving a surge in demand for power infrastructure and creating new sources of structural demand alongside electrification and energy security investments.

Wood Mackenzie's analysis identifies four key themes shaping base metals markets through 2036. Copper prices have reached record levels of US$14,759 per tonne, reflecting severe refined market dislocation. This is due to US stockpiling, which has pushed domestic cover above 170 days while leaving the rest of the world in a 460 kilotonne deficit. Chilean mine output is expected to fall by 5.2% in 2026, but global mine supply is set to expand by more than 5% next year, ending three years of stagnant growth.

Aluminium markets are facing a supply shock from Middle East smelter damage, which has cut almost 2% of global primary output. Despite Chinese operating rates reaching 99% and Indonesia producing 1.3 million tonnes in 2026, the market is projected to return to surplus in 2027 as Indonesian output scales toward 3 million tonnes by 2030. However, underlying fundamentals remain supportive.

Nickel markets are expected to rebalance in 2026 as Indonesian supply restrictions curb production, with Class 2 supply tightening from 2027. Despite Class 1 oversupply and weak battery demand, prices are forecast to recover towards US$19,000 per tonne by 2030, subject to Indonesian policies and sulphur supply disruptions.

Lithium and energy storage markets are also experiencing significant shifts. Lithium carbonate prices have risen by approximately 130% from mid-2025 lows, yet raw lithium carbonate represents just 2% to 3% of turnkey storage project costs. Over the past decade, US$60 billion has been invested in the lithium supply chain, with an additional US$150 billion to US$250 billion required through the 2050s.

Electrification, geopolitics, and artificial intelligence (AI) are driving demand in the data centre sector. Wood Mackenzie is tracking more than 250 GW of data centre projects globally, over three times the pipeline a year ago. AI data centre electricity demand is forecast to increase fivefold between 2025 and 2030 and exceed 1,000 terawatt-hours by 2035. In Asia Pacific, demand is projected to nearly triple by 2030, while grid constraints are increasingly forcing operators to consider higher-cost microgrid and off-grid power solutions.

Copper markets remain distorted by US stockpiling and trade policy, which have pushed inventory cover above 170 days domestically while leaving the rest of the world with just 48 days and a 450 kilotonne deficit. The industry must deliver approximately 850 kilotonnes of new greenfield copper supply annually over the coming decade, but permitting, geopolitical risk, and increasing project complexity continue to constrain development.

Aluminium markets face a supply shock this year after attacks in the Middle East damaged two of the world's largest smelters, knocking out almost 2% of global primary production and pushing the 2026 balance into a 1 million tonne deficit. High aluminium prices and premiums, combined with low alumina costs, encouraged smelters worldwide to ramp up capacity and restart idled electrolytic cells. This was particularly evident in China, where operating rates reached 99% and output slightly exceeded the national capacity cap.

However, this additional volume and Indonesia's rapid growth (reaching 1.3 million tonnes in 2026 and scaling to just under 3 million tonnes by 2030) were not enough to eliminate the shortfall. While the market is projected to return to surplus in 2027 as prices soften, medium-term fundamentals remain supportive, leaving faster-than-expected Indonesian expansion and broader economic weakness as the only notable downside risks.

Nickel markets are experiencing a structural bifurcation between Class I and Class II. The Class II segment faces widening deficits from 2027, as Indonesian NPI production consolidates below its 2025 peak under the weight of tighter RKAB mining quotas, falling ore grades, and recent El Niño-related drought disruptions. In response, Chinese stainless steel mills are structurally increasing their use of scrap and Class I cathode in melt mixtures to hedge against shrinking NPI availability. Conversely, the Class I and chemical segments face ongoing surplus from expanding Indonesian HPAL projects and Chinese refining capacity, though localised sulphur supply constraints and power bottlenecks continue to present operational risks to new project delivery.

Battery technology and energy storage are also evolving. LFP (lithium ferrophosphate) will dominate the mass battery market through 2030, driven by Chinese exports, rapid gigafactory expansion, and significant advances in charging speed. CATL's third-generation Shenxing battery targets a 10% to 80% charge in under four minutes. European automakers are pivoting toward LFP to preserve margins as global EV adoption accelerates across Europe and emerging markets, though subsidy changes have stalled US momentum.

Beyond LFP, alternative chemistries are advancing on distinct timelines.