The AI-driven supercycle in energy transition metals

The accelerating adoption of artificial intelligence (AI) is expected to contribute to ‘demand for energy transition metals, with copper, lithium, nickel and rare earth elements emerging as critical enablers of digital infrastructure and sustainable energy systems.(1)

This convergence of technological advancement and mineral dependency is reshaping global commodity markets while exposing strategic vulnerabilities in supply chains dominated by geopolitical and operational constraints.

The AI revolution and its mineral requirements

AI has emerged as a transformative technology poised to revolutionise industries through optimisation, automation and innovation. McKinsey forecasts indicate generative artificial intelligence (Gen AI) could increase global corporate profits by US$2.6 trillion to US$4.4 trillion annually.(2)

This digital transformation is underpinned by physical requirements. The International Energy Agency (IEA) has highlighted that electricity consumption from data centres, AI and cryptocurrency sectors could double by 2026, roughly equalling Japan’s national consumption.(3)

These extensive digital systems cannot function without certain minerals that form the building blocks of the AI revolution. From the vast networks of servers processing information to the sophisticated chips enabling complex calculations, minerals form the backbone of AI infrastructure.

Data centres and the importance of minerals

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Copper: The conductor of the AI revolution

Copper stands at the epicentre of the AI-driven mineral demand surge, primarily due to its unmatched electrical conductivity among non-precious metals (second only to silver).(4) This property makes copper critical to the development and functioning of data centres, and the electricity grids supporting them.

Copper plays several crucial roles in AI infrastructure:

• Production of semiconductor chips necessary for AI technology, serving as a key metal for interconnects in integrated circuitry(5)
• Essential component in data centres, including power cables, busbars, electrical connectors and heat exchangers
• Critical material in power distribution systems for energy-intensive AI facilities.

Copper used in data centres globally is forecast to grow six-fold by 2050 – from roughly half a million tonnes a year of copper today to around 3 million tonnes a year by 2050. This uplift is equivalent to the combined annual output of the world’s four largest copper mines today.(6)AI data centres are expected to account for 6-7% of copper demand by 2050, up from less than 1% today. This shift is expected to drive global copper demand to 52.5 million tons annually by mid-century, compared to 30.4 million tons in 2021.(7) The lack of new copper discoveries and the reluctance of major miners to invest in large-scale, capital-intensive greenfield projects is setting the stage for an expected supply deficit in the years ahead.(8)

The long lead times of copper production further complicate the supply picture – copper mines now take an average of 24 years from discovery to production globally, with Australia slightly ahead at 20 years.(9) Despite these challenges, Australia remains well-positioned with the world’s second-largest proven reserves of copper.(10)

Critical battery minerals powering storage for AI systems

The global battery market is poised for rapid growth, driven in main by the need to ‘firm’ renewable energy (wind and solar) and the increasing production of electric vehicles. The rapidly growing demand from data centres focused on AI technologies will feed into the demand for clean energy and the need for battery energy storage systems (BESS), but also create new sources of demand.

As AI adoption accelerates, data centres are expanding rapidly, requiring substantial energy resources and reliable backup power systems. Further, data centres are increasingly adopting renewable energy sources such as wind and solar to power their operations. Sophisticated battery storage systems are needed for this integration to regulate the intermittent behaviour of renewable energy sources and to ensure a constant and uninterrupted power supply. While data centres have traditionally relied on uninterruptible power supply (UPS) backup systems, they are now turning to server rack battery backup units mainly composed of lithium and nickel-based battery solutions.

Lithium-ion batteries offer a higher energy density, and a longer lifespan compared to traditional lead-acid alternatives, while nickel-zinc chemistries provide space efficiency and operational tolerance at higher temperatures. Australia holds advantageous positions as the world’s largest producer of nickel and the second-largest holder of lithium reserves.(11)

Rare earth elements: The invisible infrastructure

Rare earth elements underpin critical AI hardware components, from neodymium-based magnets in storage drives to terbium-doped optical fibres. These elements are used in everything from powerful magnets found in cooling fans and hard drives to sophisticated components for servers and networking equipment. Their unique magnetic, optical, and electronic properties make them irreplaceable in certain applications, especially where energy efficiency and high performance are essential.

Backup power systems also depend on rare earth metals. UPS and advanced cooling systems rely on rare earth components to ensure data centres remain operational despite power failures or equipment malfunctions.(12)

China currently dominates rare earth production with a 60% share of global output and around 85% control of processing capacity.(13) This concentration creates significant vulnerabilities in global supply chains, particularly as geopolitical tensions escalate between China and Western nations. As a means of mitigating this risk, the US is investing in alternative supply sources, including mining projects led by Australian companies like Lynas Rare Earths.(14)

Australia is poised to play a pivotal role in the global rare earths market, leveraging its substantial reserves and strategic initiatives to diversify supply chains away from China. Projects such as the Nolans rare earth processing facility in the Northern Territory, supported by a A$200 million investment from the National Reconstruction Fund, aim to establish Australia as a leader in downstream processing and production of neodymium and praseodymium oxides. This facility alone is expected to account for 4% of global demand by 2032.(15)

Additionally, Lynas and Iluka Resources are expanding domestic processing capabilities, aimed at ensuring Australia contributes significantly to global supply chains while creating export opportunities.(16) Through strategic partnerships, research initiatives and government-backed investments, Australia is strengthening its capacity to support industries dependent on rare earth elements.

Strategic challenges for Australia

The convergence of AI expansion and the global energy transition presents both opportunities and challenges for Australia’s resources sector. Key issues include:

• Supply chain fragility: Extended lead times for new mining projects hinder the ability to meet demand.
• Geopolitical risks: Dependence on China for rare earths processing increases vulnerability.

To address these challenges, Australia is pursuing initiatives such as precision mining technologies that could significantly reduce discovery-to-production timelines. Additionally, government programs like the Critical Minerals Strategy 2030 and international partnerships such as the Australia-United States Climate Compact aim to boost domestic production and position Australia as a global leader in critical minerals.(17)

The path forward

The rapid growth of AI and its infrastructure demands are poised to collide with the global energy transition, fuelling a historic ‘supercycle’ in mineral demand which will potentially reshape industries and test supply chains. Data centres – the backbone of AI’s expansion – rely on copper, lithium, nickel and rare earths for everything ranging from electrical systems to battery backups, intensifying pressure on mineral markets already strained by renewable energy projects and electric vehicle production.

This convergence exposes a critical vulnerability, and global supply chains remain unprepared for the scale of demand. Decades of underinvestment in mining, coupled with geopolitical tensions over mineral processing dominance, create a perfect storm for shortages. As digital and green revolutions converge, managing this mineral crunch will define Australia’s – and the world’s – economic trajectory through the 21st century.

For Australian investors looking to gain exposure to this powerful convergence of digital technology and resource demand, the Betashares Energy Transition Metals ETF (ASX: XMET) focuses on companies producing some of the minerals driving this revolution.

XMET provides exposure to global producers of copper, lithium, nickel, cobalt, graphite, manganese, silver and rare earth elements—the metals underpinning both AI infrastructure development and the broader clean energy transition.

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