Industrial metals experienced a retreat from their record highs on the London Metal Exchange (LME) due to escalating hostilities in the Middle East. This downturn occurred after a period of significant price surges, where the LME's all-in index of six base metals reached an all-time high on Tuesday. Copper had soared to fresh highs, aluminum extended its gains, and zinc breached $4,000 a ton for the first time since 2022.
The recent surge in metal prices was largely attributed to supply-side issues and anticipation of US import tariffs, particularly for copper, which saw hundreds of thousands of tonnes shift to the US market. The LME copper price reached an intraday record above $14,600 per metric ton earlier in September, representing a gain of over 40% from a year ago for the LMEX Index. However, the ongoing "Iran war" poses a significant risk to these prices by threatening global economic growth.
Wednesday saw copper fall by 0.6% to $14,625 a tonne in Shanghai, as all LME base metals pulled back. This decline follows the latest flare-up of violence in the Middle East, including reports of the US military destroying five Iranian tankers carrying crude oil after Iran attempted to strike a US Navy warship. This geopolitical instability has led to Brent crude rallying towards $100 a barrel, intensifying concerns about inflation ahead of upcoming US consumer price data.
Analysts are advising caution at the macroeconomic level, citing uncertainty around US inflation and shifting expectations for Federal Reserve policy as potential factors that could exert downward pressure on copper prices. Supply issues have been prominent for various metals, with zinc suffering from significant ore supply pressures and aluminum flows from the Middle East being crimped by the conflict.
