China Galaxy Securities has released a research report stating that heightened uncertainty regarding macro and liquidity expectations due to Middle East conflicts in the first half of 2026 led to base metal commodity prices surging and then retreating, interrupting the upward momentum of the industry's prosperity.
In the second half of 2026, US-Iran ceasefire negotiations progressed amidst twists and turns, and tensions around the Strait of Hormuz eased. The market gradually became desensitized to Middle East conflicts, and the retreat of oil prices from highs is expected to alleviate inflationary pressures. With the market's increasing expectations for a marginally looser macro environment and Federal Reserve monetary policy, the combination of "improved liquidity expectations + economic recovery + improved risk appetite" is expected to drive the base metals industry back into an upward trend.
Furthermore, the medium-term logic of rising base metal price levels driven from both supply-demand and resource value perspectives continues to play out. This includes intensifying global geopolitical conflicts, heightened competition for strategic resources among major powers amid deglobalization, the rise of resource nationalism in resource-rich countries, and aging resources coupled with insufficient development investment. This reinforces the sustainability of the industry's upward cycle.
Precious Metals: Gold Price Expected to Resume Upward Trend After Turmoil Subsides
In H1 2026, rising oil prices due to Middle East conflicts exacerbated inflation expectations, leading the market to shift its expectation from Fed rate cuts to a rate hike within the year. Combined with liquidity realization, this put pressure on gold prices after their initial surge. The market has now largely priced in one Fed rate hike for H2 2026 into gold prices. If Middle East conflicts and Strait of Hormuz blockades ease in H2, leading to lower oil prices and inflation, the market's expectation for a marginally looser Fed monetary policy could drive gold prices back into an uptrend.
The long-term bullish logic for gold, driven by the evolution of the global order, US debt and credit issues, the substantive advancement of "de-dollarization" prompting a shift in the global reserve currency anchor, and the consequent increased gold purchases and asset allocation by global central banks, investment institutions, and households, remains intact. This will support the medium-to-long-term upward trend in gold prices and the valuation expansion of the A-share gold sector.
Industrial Metals: Tight Supply-Demand Dynamics Support Upward Shift in Copper Price Trend
Frequent disruptions to global copper mines persist, with the pace of restarts and production increases consistently falling short of expectations. Factors like resource depletion and insufficient capital expenditure constrain long-term supply elasticity. The tight supply situation at the mine level continues, and the potential "siphon effect" triggered by US tariff expectations may lead to regional supply tightness.
On the demand side, the progress of US-Iran ceasefire negotiations reduces global economic uncertainty. Strong support from electrification and industrialization processes, coupled with rapid growth in emerging sectors like new energy, grid upgrades, energy storage, and AI data centers, keeps overall consumption resilient. The tightening industry fundamentals, combined with the heightened strategic importance of copper amid major global changes, provide a solid foundation for a systemic upward shift in its price trend.
Industrial Metals: Middle East Conflicts Widen Global Primary Aluminum Supply-Demand Gap
Under the impact of Middle East conflicts, large-scale production halts at Middle Eastern primary aluminum facilities, with most capacity expected to be idled for 6-12 months, will lead to a substantial reduction in overseas primary aluminum supply. The global primary aluminum supply-demand gap may widen to the million-tonne level in 2026. The expanding overseas aluminum supply gap, coupled with robust domestic demand for aluminum product exports driving down domestic primary aluminum inventories, will support sustained increases in domestic primary aluminum prices and profits. This is expected to drive a bottom-up valuation recovery for the A-share aluminum industry.
Energy Metals: Lithium Exits the Trough, Enters New Cycle
Accelerating global energy transition and the high growth of global energy storage continue to boost demand for lithium resources. A slight global lithium surplus is forecast for 2026-2027, but potential short-term supply-demand mismatches in 2026 remain possible due to factors like Zimbabwean transport cycles and permit renewal disruptions in Jiangxi. The lithium battery industry chain has now moved past the cycle's bottom, having cleared excess capacity and reduced inventories. With a long-term tight supply-demand balance, lithium prices have completed their bottoming phase, ushering in an upward adjustment in their price trend.
Minor Metals: Fundamental Recovery and Long-Term Strategic Value Highlighted; Tungsten Price Trend Expected to Rise
Manufacturing transformation and import substitution support the fundamental demand for tungsten downstream, while high-end manufacturing sectors like electronics and defense provide incremental demand. Emerging fields like photovoltaics and controlled nuclear fusion open new demand avenues for tungsten. Global primary tungsten demand is expected to grow steadily over the next three years.
On the supply side, declining ore grades and tightening quotas in China are slowing supply growth, while overseas tungsten resource development is progressing slowly, limiting global primary tungsten supply increments. A persistent global primary tungsten supply deficit is expected in the coming years, maintaining a long-term tight supply-demand balance. The resolution of short-term supply-demand mismatches and fundamental recovery have allowed tungsten prices to bottom out and rebound. The strategic value of tungsten resources is expected to become increasingly apparent. With tungsten prices returning to fundamental pricing logic, a significant long-term upward shift in the tungsten price trend is anticipated.
Investment Recommendations
The report suggests focusing on: 1) Commodities affected by Middle East geopolitical events: Middle East capacity shutdowns will substantially widen the global primary aluminum supply-demand gap. Recommended stocks include Shenhuo Co., Ltd. and Tianshan Aluminum Group Co., Ltd.. Middle East conflicts will accelerate the global energy transition and the development pace of new energy and energy storage industries, driving lithium demand growth. Recommended stocks include Sinomine Resource Group Co., Ltd. and Ganfeng Lithium Group Co., Ltd..
2) Amid amplified global uncertainty, demand driven by AI-related resource expenditure enhances the earnings certainty and comparative advantage of relevant base metal resources: The development of the AI industry in 2026 is relatively certain. Continued substantial spending in the AI field will bring clear incremental demand for upstream metals like copper and tungsten, while supply for both remains constrained. Recommended stocks include Zijin Mining Group Co., Ltd., China Molybdenum Co., Ltd., and China Tungsten and Hightech Materials Co., Ltd..
Risk Warnings
Risks include: economic recovery falling short of expectations; the Federal Reserve raising interest rates more than expected; base metal downstream demand falling short of expectations; significant declines in base metal prices; and Middle East conflicts exceeding expectations.
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