- Hormuz risk lifts copper, aluminium price bands on SHFE
- 7 mnt Middle East capacity at risk while China inventories remain elevated
Mysteel Global: Escalating military tensions involving the United States, Israel, Iran as well as Gulf Cooperation Council (GCC) countries have led to increased volatility in China’s non-ferrous metals market, with copper and aluminium prices likely to remain firm in the near term, according to Mysteel Global.
On 28 February, the US and Israel carried out large-scale strikes in Iran, following which Tehran announced the closure of the Strait of Hormuz, a critical global shipping route. The development has intensified supply-side concerns across commodity markets.
While both metals are expected to benefit from geopolitical risk premiums, aluminium is seen with relatively stronger upside potential compared to copper.
Copper: Supply risks and oil-led cost pressures support prices
Copper prices are expected to draw support from heightened risk aversion and potential supply disruptions. On the Shanghai Futures Exchange (SHFE), copper is projected to consolidate at elevated levels between Yuan 98,000-106,000/t ($14,290-15,456/t) in the near term.
Iran is a significant exporter of copper concentrate, and any disruption to shipments through the Strait of Hormuz could tighten global supply. Additionally, rising crude oil prices linked to the conflict are expected to push up smelting and logistics costs, reinforcing price support.
However, copper remains constrained by macroeconomic uncertainty and subdued downstream demand. Mysteel notes that if geopolitical tensions ease and shipping normalises, the current risk premium may fade, with high inventories and slow downstream restarts reasserting pressure on prices. Conversely, prolonged disruption to maritime trade could sustain elevated price levels, though gains may be capped by actual consumption trends.
Aluminium: Greater upside elasticity amid Middle East supply exposure
Compared with copper, aluminium is expected to exhibit stronger price elasticity due to its higher sensitivity to energy costs and significant production concentration in the Middle East.
In the short term, SHFE aluminium is expected to trade in the range of Yuan 23,500-24,500/t, largely influenced by geopolitical developments and safe-haven flows.
The closure of the Strait of Hormuz directly threatens around 7 mnt/year of primary aluminium capacity across six Middle Eastern countries, including approximately 0.80 mnt/year in Iran, substantially elevating global supply risk.
Market sentiment currently reflects this escalation narrative, with hedging flows and risk-averse capital reinforcing near-term price strength.
Domestic fundamentals remain mixed
Despite geopolitical support, domestic aluminium fundamentals in China remain relatively weak.
Post-Chinese New Year demand recovery has been gradual, with the average operating rate of aluminium fabricators edging up to only 57%, according to Mysteel data.
As of 2 March, aluminium inventories remained elevated, with ingot stocks at 1.48 mnt and billet inventories at 0.87 mnt, underscoring continued supply overhang and moderate downstream absorption in the domestic market.
These represent increases of 0.48 mnt and 0.52 mnt, respectively, compared with pre-holiday levels, indicating continued inventory pressure in the domestic market.
Overall, near-term price direction for both metals will hinge on the duration and intensity of the US–Iran conflict and the restoration of shipping access through the Strait of Hormuz. Geopolitical risk premiums are currently underpinning prices, while underlying demand and inventory trends remain key counterbalancing factors.
Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.
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