According to a research report from Citigroup, copper prices face significant downside risks while conflict in Iran persists. The base case scenario anticipates that tensions will ease in the coming weeks, with copper rebounding to a range of $13,500 to $14,000 per ton within three months. However, there is a genuine possibility that copper could fall below $12,000 per ton in the near term, as ongoing disruptions to energy infrastructure and shipping in the Gulf region may lead to further unwinding of copper positions, driven by diminished expectations for U.S. Federal Reserve interest rate cuts and weaker cyclical growth forecasts.
Citigroup noted that the current copper price is around $12,900 per ton, near its 50-day moving average. A breach of this support level could trigger additional short-term technical selling. Nevertheless, the bank believes that any credible signs of de-escalation in the conflict or the elimination of drone and missile threats to energy shipping and infrastructure should allow copper to recover its previous levels and advance further.
Overall, Citigroup indicated that base metals have limited exposure to prolonged conflict risks, as concerns over energy supply shocks would lead markets to reassess expectations for interest rate cuts, compounded by inflationary pressures and a stronger U.S. dollar. However, aluminum and zinc, given their susceptibility to shipping disruptions in the Gulf and rising smelting costs due to higher energy prices, are viewed as having more upside price risks.
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