SunSirs: The Impact of Geopolitical Tensions in the Middle East on Metal Prices

After three rounds of U.S.-Iran negotiations on February 6, 17, and 26 failed to yield results, the U.S. and Israel launched attacks against Iran on February 28, escalating geopolitical tensions in the Middle East. As the scope of the Middle East geopolitical conflict continues to expand, the fighting has gradually spread to Gulf nations such as Saudi Arabia, the United Arab Emirates, and Qatar. The conflict directly impacts the Strait of Hormuz—the sole maritime passage between the Persian Gulf and the Indian Ocean, often referred to as the “world’s oil valve.” Due to the narrowness of the waterway, which makes it vulnerable to blockades or attacks, more than ten ships have been sunk since the outbreak of the conflict. On March 9, Mojtaba, the son of Ayatollah Khamenei, was appointed as Iran’s third Supreme Leader. He holds a hardline stance, and the Strait of Hormuz remains blocked.

Recently, oil throughput through the Strait of Hormuz (4-day moving average) has dropped by 19.4 million barrels per day, remaining at an extremely low level of roughly 600,000 barrels per day. This has severely impacted crude oil supply, causing prices in the energy and petrochemical sectors to surge significantly. In contrast, prices in the non-ferrous metals sector have fallen sharply.

Macroeconomic factors influence the non-ferrous metals sector primarily through three channels:

First, the strengthening of the U.S. Dollar Index (which has surpassed 100). Second, the sharp rise in oil prices has boosted global inflation expectations, weakening expectations of a Fed rate cut and even shifting expectations toward a rate hike. According to relevant data analysis, a 10% increase in crude oil prices raises the U.S. Personal Consumption Expenditures (PCE) Price Index by 0.2 percentage points and the core PCE by 0.04 percentage points. Third, rising crude oil prices trigger expectations of an overseas economic recession, thereby affecting demand.

Fundamental Analysis of Metal Commodities:

Supply contraction makes aluminum prices relatively resilient to declines. Aluminum production in the Middle East accounts for approximately 10% of global output, and the risk of supply contraction further exacerbates the tightness of the global aluminum supply-demand balance in 2026. Meanwhile, rising alumina and energy prices are driving up aluminum smelting costs, which will further solidify the foundation for stronger aluminum prices.

Restricted supplies of energy and key materials will impact the semiconductor manufacturing industries in South Korea and Taiwan (instantaneous power outages or voltage fluctuations could result in the scrapping of entire batches of wafers). South Korea and Taiwan rely on energy imports for 95% and 85% of their needs, respectively. Additionally, they depend on imports from the GCC (Gulf Cooperation Council) and Israel for semiconductor-related specialty gases. Tin, a key material for semiconductor packaging, remains strategically scarce from a long-term perspective.

Lithium carbonate inventories are at low levels, with a clear bottom in fundamentals. The supply-demand outlook is positive, inventories continue to decline, and lithium carbonate prices are outperforming other metals. March sales of new energy vehicles (NEVs) rebounded, and rising oil prices have enhanced the cost-effectiveness of NEVs, suggesting that consumer demand for NEVs is likely to increase further. Battery energy density has improved beyond expectations, and demand for power batteries remains resilient. Utilization rates in the energy storage sector remain high, and demand growth is anticipated.

Costs for metallurgical silicon are expected to rise, while polysilicon prices continue to weaken. Supply of metallurgical silicon continues to grow, downstream procurement remains weak but stable, and inventories are at high levels. However, metallurgical silicon is undervalued, and rising energy prices may strengthen cost support for its prices. Polysilicon prices remain weak. With expectations of supply contraction failing to materialize, inventories continue to accumulate. From a valuation perspective, current polysilicon prices have fallen below the industry-wide average cost line, and the weak trend is expected to persist; close attention should be paid to changes in industry policies.

Copper prices are under pressure from inventory levels and macroeconomic factors. When copper prices plummeted to around 92,000 yuan per ton, downstream purchasing enthusiasm rebounded, supporting a modest recovery in copper prices. If copper inventories continue to draw down during the peak season, this will provide support for copper prices.

Investors should continue to monitor developments in the Middle East geopolitical conflict. If oil prices remain at high levels or even rise above $120 per barrel, this will have a significant impact on the global economy, and the metals sector may remain under pressure. If the conflict eases, prices for aluminum, nickel, tin, and lithium carbonate are expected to rebound.

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