U.S.-Israel-Iran Peace Talks Saw Repeated Setbacks, Copper Prices Fluctuated and Edged Up [SMM Macro Weekly Review]

Early this week, the market continued to trade around the progress of the US-Iran ceasefire and the volatile Middle East situation. Trump agreed to suspend strikes on Iran for two weeks, and Iran also accepted the temporary ceasefire proposal. Risk appetite recovered on a phased basis, and copper prices were briefly boosted. Subsequently, the US-Iran temporary ceasefire agreement was finalized, and the US dollar index pulled back to a one-month low, further supporting a rebound in copper prices. However, as the ceasefire agreement remained fragile, some of the truce terms proposed by Iran had already been violated, compounded by recurring disruptions to shipping through the Strait of Hormuz, the market consistently maintained caution over the sustainability of the agreement. By the latter part of mid-week, Israel sought peace talks with Lebanon, ceasefire expectations warmed again, and overall market sentiment tilted toward optimism. Overall, the macro theme this week remained the marginal easing of Middle East tensions driving risk appetite recovery and the US dollar pullback supporting copper prices, but geopolitical volatility kept the market cautious, and copper prices held up well overall.

On the fundamentals side, the copper concentrates tightness narrative continued to ferment. Smelter procurement remained aggressive; meanwhile, sulphuric acid prices surged significantly recently, notably offsetting smelting losses, and the actual profits generated from smelting further intensified smelters' competition for raw materials. Another noteworthy change on the supply side was that the Panamanian government approved First Quantum's plan to process and export stockpiled materials from the shut-down Cobre Panama mine, involving approximately 38 million mt of stockpiled ore and approximately 70,000 mt of recoverable copper. However, this measure did not equate to a formal restart of the mine, and the short-term incremental impact on copper raw material supply remained relatively limited. Affected by the Middle East situation, on one hand, reports emerged that two smelters in Iran had halted production; on the other hand, petrochemical-related product supply in Southeast Asia and Japan was disrupted. Both supply and demand sides saw declines. In contrast, China's consumption remained robust, with notable support from downstream orders.

Looking ahead to next week, the macro narrative is expected to remain largely unchanged for now. If the ceasefire agreement holds, risk appetite may continue to recover, and a weaker US dollar is also expected to provide some support for copper prices. However, given the potential for renewed volatility in the Middle East and the fact that shipping disruptions through the Strait of Hormuz have not been fully resolved, upside for copper prices is expected to remain constrained. On the fundamentals side, ore supply tightness and deteriorating smelting margins continue to support the price floor, and copper prices are expected to move sideways with an upward bias in the short term. LME copper is expected to fluctuate between $12,300-12,850/mt, and SHFE copper between 96,000-99,000 yuan/mt. Spot cargo side, as the futures center shifts higher, downstream willingness to chase higher prices may be suppressed, but if the price spread between futures contracts widens only modestly, spot premiums are still expected to remain firm.