Theme of the Day: Middle East Conflict Depresses Copper Prices

Copper prices have fallen ~10% since the conflict started on 28 Feb. High energy prices spurred by the Middle East war are triggering fears of weak economic growth and a slump in copper demand. USD strength is an added bearish factor. Warehouse stocks are growing after a period of tightness, meaning copper is more readily available. Exchange stocks >1Mt for the first time since 2003. Exchange stocks total 1.3Mt. Stocks on the LME have climbed to six-year highs, while inventories on the COMEX have reached unprecedented levels. The return of speculative and physical demand and industrial activity will be critical in determining whether the current consolidation phase evolves into renewed strength - or a deeper reset designed to attract fresh buyers. Watch copper stocks, US trade policy, mine supply and a resolution of the Iran war. The combination of an uncertain trade landscape, ongoing conflicts (e.g. Russia-Ukraine) have been compounded by the development of the Iran War, creating potentially longer-term headwinds for copper demand. Recent bull run was less about fundamentals and largely driven by investor flows into base metals. SHFE trading volumes in base metals in January 2026 was up 80% over December 2025. Aggregate open interest in copper contracts across CME, LME and SHFE swelled by $9.5bn across Der 2025 and Jan 2026 before reversing course, with a $24.6bn decline through Feb and Mar accompanying the price correction. There is little evidence of genuine tightness in physical supply. Spot premiums are well below contract levels and there is limited appetite for physical metal, suggesting that elevated prices have dampened consumption across key regions. A further 480kt of copper is sitting off-exchange in the US, drawn in by arbitrage opportunities between CME and LME pricing. COMEX premiums have now compressed to more historic levels. Nevertheless, the CME-LME arbitrage continues to pull metal into the US, as traders position ahead of a potential Section 232 decision on copper imports, expected by 30 June 2026. Copper is holding up well but is still rangebound ($11,000 - $13,000/t), with macro and geopolitical drivers offsetting each other and limiting directional conviction. Watching the USD and continued sensitivity to geopolitical supply risks, in particular, energy prices. Selling interest remains concentrated at the top of the range. We see this as a sign that copper continues to lack a clear catalyst for a breakout, with positioning likely capping gains for now. Macro factors are likely to remain the dominant driver of prices in the near term amid an energy shock of uncertain duration. Copper is expected to trade with heightened volatility, influenced more by investor positioning and geopolitical developments than by underlying supply-demand. Under a worst-case scenario, where the conflict persists through H126 and disruptions to energy supplies are more extensive, the economic hit would be more significant. In this scenario, the slowdown in world GDP growth would be sufficient to meet most definitions of a global recession. In this scenario, global GDP is 3% lower by 2030. The worst-case scenario has severe implications for copper. Copper demand falls ~1.2Mt in 2026-2027. Copper prices likely to trade in a $10,000-12,000/t range. China bid on price dips. Aluminium, by contrast, rose 11.4%, supported by supply disruption concerns and signs of a tighter nearby market (c-3’s backwardation).