The spillover effects of Middle East tensions on commodities are expanding from energy into the industrial metals sector, according to a report. As military conflict around Iran enters its fourth month, copper and aluminum markets are experiencing a simultaneous tightening of supply and upward pressure on prices. Companies and analysts widely believe this tightness could persist for several years.
Copper prices are nearing all-time closing highs, while aluminum has climbed to its highest level in four years. Demand is being driven primarily by data centers, power grid construction, and electric vehicle expansion: copper is widely used in power transmission and wiring, while aluminum is used in equipment like server racks. Meanwhile, the supply system is being impacted by disruptions to shipping through the Strait of Hormuz and the intensification of regional conflict, creating a supply-demand mismatch.
A chief executive at a South African mining company noted that the commodities sector is facing a tightening supply environment. He pointed out that the energy transition and AI development will continue to drive metal demand higher, but supply growth clearly cannot match this pace of expansion.
Supply Chain Disruptions Coupled with Rising Costs
The ripple effects of the conflict are not confined to metals alone. The price of Brent crude has risen from $72 to over $90 per barrel, pushing up costs for agricultural and industrial goods, with prices for wheat, corn, plastics, and asphalt all increasing.
In the mining sector, higher diesel prices directly raise extraction costs, while the price of sulfuric acid, a key input for copper and nickel production, has also surged sharply. A chief investment officer at an investment firm stated that, given the current supply-demand structure, he is surprised prices haven't risen even more significantly.
"These markets have structural issues of their own, and we may ultimately have to face substantially higher price levels," he said.
Supply pressures are particularly acute in the copper market. The market was already expecting a supply deficit this year, and the conflict has further widened this gap. A doubling in the price of sulfur, a by-product of oil refining, has imposed additional constraints on mine production.
Consulting firm Wood Mackenzie estimates that sulfur supply disruptions could reduce copper output in the Democratic Republic of Congo by up to 125,000 tonnes. An analyst at Morgan Stanley noted that about 200,000 tonnes of production in Chile is also at risk, stating that "copper supply is becoming increasingly difficult to deliver." She also emphasized that the lengthy recovery cycle for disrupted mines further prolongs the tight situation.
Regarding supply deficit assessments, Goldman Sachs has sharply raised its annual deficit forecast for markets outside the US from 60,000 tonnes to 640,000 tonnes. It has also increased its year-end copper price target by 10% to $13,735 per tonne, citing supply issues at Indonesia's Grasberg and the DRC's Kamoa-Kakula mines.
In the long term, industry underinvestment is also a key factor. The chief executive of Pan African Resources pointed out that since the early 2000s, investors have consistently emphasized capital discipline, which, while improving financial stability, has also suppressed investment in new mine development. "We now have to play catch-up in some way," he said.
Aluminum Supply Faces Direct Hit, Demand Outlook Remains Strong
The aluminum market is being affected both directly and indirectly. The Middle East accounts for nearly 10% of global refined aluminum output. Damage to Iranian infrastructure from strikes, coupled with restricted shipping through the Strait of Hormuz making it difficult to supply alumina raw materials on time, has forced major producers including Alba and EGA to cut production.
At the same time, high oil prices are prompting some countries to accelerate investments related to energy security, particularly in renewable energy—a trend expected to continue boosting demand for copper and aluminum over the medium term.
The chief economist for Australia and global commodities at HSBC has defined this phase as a "super squeeze," noting its nature differs from previous supercycles driven primarily by demand expansion.
He stated that this round of price increases stems mainly from supply disruptions, which are positive for key energy transition metals like copper, nickel, and aluminum, but also mean the global economy is enduring a "massive negative supply shock."
However, this trend is not without risks. Analysts are broadly watching whether high prices will, in turn, suppress demand, or whether the Iran conflict could trigger a global economic slowdown that would weaken metal consumption.
For now, demand does not appear to be cooling significantly. An executive director at a cable manufacturer stated the company has not yet observed signs of demand destruction. He noted that cost increases have been passed on to end customers, who remain willing to bear them, saying, "People are not going to stop buying cables for renewable energy in the short term."
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