The ongoing US-Iran conflict could either persist or severely damage copper companies: weak demand and rising raw material costs.

Ask AI · How the U.S.-Iran conflict could affect the copper market’s supply-demand balance?

CLS Zhongxin 3月25日讯（编辑 马兰） The spillover impact of the U.S.-Iran conflict has gradually shifted from energy supply shortages to demand destruction, and industrial metals have also become among those harmed. Research indicates that if disruptions in the Strait of Hormuz continue, it may lead to a copper supply surplus and significantly cut the earnings of major producers.

Analysts say that if the conflict drags on, with oil prices staying above $150 per barrel, it will slow global economic growth and limit copper demand growth to 0.5% to 1%. Copper prices would then fall below $10,000 per ton, with a refined copper supply surplus of 1 to 2 million tons.

Besides weak demand, copper refining feedstocks such as sulfuric acid may also face supply shortages and price increases due to disruptions in the Strait of Hormuz, driving up production costs for copper producers.

Under such bleak expectations, copper producers’ profit margins will be hit hard, and producers with higher costs are especially vulnerable to the U.S.-Iran conflict. Analysts estimate that a protracted conflict could raise copper unit costs by 10% to 20%.

Producers caught on both sides

According to one report, analysts formed different outlooks based on the length of time the U.S.-Iran conflict lasts. Among them, a rapid resolution would restore a small supply shortfall for copper and keep prices supported at $12,000; a conflict lasting several months would cause less damage, and it is expected that this year the copper market’s supply and demand will be broadly balanced, with prices falling between $10,500 and $11,500 per ton.

At present, global copper inventories are close to 1.4 million tons. Weak demand has pushed the market into a buyer’s market, increasing downward pressure on prices.

However, due to ongoing shutdowns at major mines, copper producers also find it difficult to increase mine supply, and this supply risk may limit how far copper prices can fall. In addition, shortages in raw materials such as sulfuric acid will also limit the size of any refined copper surplus.

With demand and supply both constrained, the market focus will center on the cost issues of refiners. Looking only at the U.S. market, if the conflict continues for more than a year, Southern Copper Corporation, the lower-cost producer, will see this year’s profit decline by 20%, while First Quantum, the higher-cost producer, will see profit decline by 55%.

Profit margins for high-cost producers could compress from about 70% last year to about 40%, and the combined profit margin would approach the long-term average level. This will increase the risks of higher capital expenditures, reduced spending, and delayed project approvals.

A broader conclusion is that the copper structural shortage problem will not be resolved, but will be postponed, because short-term geopolitical shocks are reshaping the industry’s demand, cost, and investment timelines.

（CLS Zhongxin Ma Lan）