Copper fell below recent highs this week, wiping out its 2026 gains. The London Metal Exchange three-month contract slid to about $12,955 per tonne. Traders pointed to strikes in the Middle East and surging energy costs as the trigger.

What happened in the markets

Copper's three-month benchmark on the London Metal Exchange dropped to roughly $12,955 per tonne, a fall of about 3.6% from the $13,439 per tonne level seen before the US-Israel campaign against Iran began on 28 February. The retreat eliminated an 8% year-to-date rally that followed an intraday record of $14,527 per tonne in late January. Look, that's a dramatic swing for a market that had been among the year's top performers.

Prices dropped after new strikes hit Iran's gas infrastructure, followed by retaliatory attacks on LNG facilities in Qatar and the Gulf. Energy markets tightened and crude oil prices jumped, and those higher fuel costs feed directly back into industrial budgets and inflation expectations. The US Federal Reserve held interest rates steady this week and signalled only a single cut for 2026 — a stance that supports higher real borrowing costs and can cool demand for industrial commodities such as copper.

Supply shocks and inventory moves

Copper's strong rally in 2025 came from several factors. Production hiccups at major mines played a big part: a mudslide at Indonesia’s Grasberg mine in September 2025 forced a force majeure that knocked out about 70% of output, and producers in Chile — notably Quebrada Blanca and Collahuasi — have downgraded near-term output projections. That helped push prices higher last year and into January.

At the same time, refined-copper flows shifted. COMEX warehouse stocks rose above 503,000 tonnes in early 2026 as traders and processors pre-positioned ahead of the possibility of expanded US tariffs on refined copper imports.

The International Energy Agency reported that annual smelter treatment and refining charges fell to zero per tonne in January 2026, the lowest benchmark on record, which signals that smelting capacity is abundant relative to newly mined concentrate.

But supply-side trouble remains. JP Morgan projects a global refined copper deficit of about 330,000 tonnes in 2026 and pegs a full-year average price near $12,075 per tonne. Citi's analysts say the metal could rebound to between $13,500 and $14,000 per tonne within three months once the conflict eases — and they warn it could be pushed toward $15,000 per tonne if a Strait of Hormuz blockade persists through the end of March.

Mastheads

Why traders are torn

Two main forces are at play here. On one hand, fundamental demand for copper is still strong: electrification, expansion of data centres for artificial intelligence and a constrained pipeline of new mines are structural forces that BloombergNEF has flagged as likely to push the market toward a long-term deficit. On the other hand, a spike in oil and gas costs directly threatens manufacturing activity and inflation, which can choke demand for industrial metals.

"This is about concerns over the economy and inflation," said Wu Kunjin, head of base metals research at Minmetals Futures. "The longer crude oil prices remain at high levels, the greater the impact on inflation." That comment reflects the immediate worry among traders: if energy costs stay elevated, central banks may stay tighter for longer and slow economic activity, denting commodities demand.

Implications for Britain and the LME

The London Metal Exchange sits at the centre of these moves. Reasonable to say the LME's copper benchmark acts as the price reference for a wide swathe of British industry — from wiring and plumbing firms to the car and renewables sectors that need copper for electric vehicles and cabling. Higher input costs for manufacturers in the UK would show up in margins and, potentially, prices for consumers if the shock persists.

Currently, UK investors and commodity funds that gained from the rally are dealing with more volatility. Banks and commodity houses in the City will be recalibrating exposure as traders weigh the timeline for de-escalation against continued supply tightness. There are knock-on effects for shipping and insurance markets, too, because any disruption to flows through the Gulf raises freight and security premiums.

British pension funds and asset managers that hold industrial-mining stocks or copper futures won't be alone in reassessing portfolios. Some of the positioning in early 2026 reflected tariff-driven stockpiling, and that inventory can unwind quickly if demand softens or if refined product flows resume normally. At the same time, a structural shortfall in mined supply — the sort BloombergNEF warns of — would keep a floor under prices over the medium term.

Short-term scenarios traders are weighing

Markets are factoring in several possible scenarios. One path is a rapid de-escalation around diplomatic efforts and emerging peace talks; if that happens and shipping lanes reopen unhindered, Citi's short-term rebound scenario could take hold and prices may head back toward $13,500–$14,000 per tonne. Another path is a prolonged squeeze on Gulf supply and shipping, which could amplify inflationary pressure and test the higher-end forecasts.

Thing is, the timing matters for producers and buyers alike. Smelters with available capacity can process concentrate quickly if miners send product, but any lingering bottleneck in concentrate supply keeps spreads tight. Traders will be watching inventories in LME-registered warehouses and on COMEX closely in the weeks ahead for clues about how physical flows are adjusting to the geopolitical shock.

Where the numbers leave us

Despite this week's drop, copper's outlook is still uncertain. The metal posted a gain of more than 40% in 2025 — its largest annual dollar rise in at least a decade — as market participants priced in both supply interruptions and strong demand growth. Now markets are trying to price in the economic implications of wartime strikes, central-bank policy and the speed at which diplomatic channels might reduce the risk premium on shipping through the Gulf.

British manufacturers and traders will be paying close attention. If energy prices keep rising and central banks stay cautious, demand for copper could weaken.

But if supply remains constrained and shipping normalises only slowly, prices could swing back higher just as quickly. Bottom line: volatility is the most certain thing soon.

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Citi analysts warned the metal could test $15,000 per tonne if a Strait of Hormuz blockade persists through the end of March.

This article was created with AI assistance.