Copper Remains Under Pressure

Copper futures fell below $6.3 per pound on Wednesday, giving back gains from earlier in the week as escalating tensions in the Middle East and growing expectations of central bank interest rate hikes weighed on the outlook for industrial metals. The US launched “self-defense strikes” against Iran in response to the downing of an American helicopter, threatening to undermine peace efforts while fueling concerns about inflation and higher borrowing costs. Investors also awaited the latest US inflation data after stronger-than-expected jobs figures last week reinforced expectations of a Federal Reserve rate hike later this year. Meanwhile, Jefferies expects copper prices to remain higher for longer than previously projected, pointing to an average annual supply deficit of 491,000 tons through 2030 and a slower-than-expected recovery at the Grasberg mine.

Copper futures steadied near $6.3 per pound on Tuesday after facing pressure in recent sessions, as solid trade data from top consumer China reinforced the demand outlook. Chinese exports jumped 19.4% to a record $376.8 billion in May, well above expectations, driven by strong demand for AI technology and renewable energy products. Copper also drew support from easing geopolitical tensions after Iran and Israel agreed to halt attacks against each other, reducing concerns that higher oil prices could fuel inflation and lead to tighter monetary policy that would weigh on global growth and metals demand. Meanwhile, Jefferies expects copper prices to remain stronger for longer than previously anticipated, citing an average annual supply deficit of 491,000 tons through 2030 and a delayed recovery at the Grasberg mine.

Copper futures in the US were above $6.3 per pound, halting the slide from the record high of $6.6 touched on June 2nd as supply risks from the war in the Middle East toggled against the macroeconomic headwinds stemmed by the conflict. The first exchange of strikes between Iran and Israel since their fragile ceasefire dimmed expectations of a broader deal between Tehran and the US. The prolonged conflict has halted exports of sulfur and sulfuric acid from key GCC producers, which in turn have driven China to halt their exports of the commodities and triggered shortages in major copper producer Chile. Tight supply of sulfuric acid limits copper refining capacity, challenging Codelco's ongoing campaign to reduce operating costs. Meanwhile, macroeconomic pressure on manufacturers due to the war limited the increase in prices. These were also capped by expectations of a hawkish Federal Reserve following the release of robust jobs numbers in the US, strengthening the dollar.