Copper and Aluminum "Duo" Drive LME Metal Index to Record High, Aluminum Industry "Black Hole" Descends!

Industrial metal prices on the London Metal Exchange (LME) surged to a record high, driven by rising aluminum prices after the Middle East war disrupted supply, as well as a recent recovery in copper prices.

The LME Index, which tracks six major metals, rose nearly 12% over the past four weeks and hit an all-time high at Thursday's close, gaining 3.6% this week. Aluminum prices have risen about 15% since the outbreak of the Iran war, with approximately 9% of global aluminum production coming from the Middle East.

Aluminum carries the largest weighting in the index, and together with copper, the two metals account for nearly three-quarters of the index's weighting.

JPMorgan warned thatthe aluminum industry is heading toward a "black hole,"and even if flows through the Strait of Hormuz resume,"the global aluminum market will face severe and prolonged supply disruptions."

This week, the bank told clients that the market has now entered a void, and aluminum prices could break through $4,000 per mt, as the industry is set to face the largest supply deficit in 25 years. Aluminum hit a record high of $4,073.50 per mt in 2022, when the Ukraine conflict triggered a similarly severe supply shock.

Aluminum supply losses escalated sharply after Iran directly attacked two major smelters in Abu Dhabi and Bahrain at the end of last month, and a severe and lasting supply deficit is hitting the market. The dual blockade of the Strait of Hormuz by the US and Iran has also hindered transportation of goods.

However, despite the waterway remaining closed, hopes that the US-Iran ceasefire will be extended, along with signs that both sides may be moving toward a peace deal, have provided support for other metals. These metals had previously been hit by surging energy costs and concerns that the war would slow down global growth, but rebounded recently on signs that the conflict may be nearing an end.

Trump claimed on Thursday, without any evidence, that Iran had agreed to terms it had long resisted, including abandoning its nuclear weapons ambitions. Tehran has not confirmed that it has made concessions.

Mercuria Energy Group and BMO Capital Markets predicted this week that copper prices will surpass the record high set in January. They noted that Chinese buyers are returning to the market, and the White House's upcoming tariff decision is also encouraging more exports to the US.

Copper prices have risen 11% over the past four weeks, just about 3% below their record closing price.

(Jin10 Data)