Base Metals Decline as US, Iran Flare-Up Clouds Demand Outlook

Base metals retreated after renewed hostilities between the US and Iran fueled concerns over global economic growth, clouding the outlook for industrial commodities.

(Bloomberg) — Base metals retreated after renewed hostilities between the US and Iran fueled concerns over global economic growth, clouding the outlook for industrial commodities. The latest flare-up has raised fears of higher energy costs and prolonged supply disruptions from the Persian Gulf stoking inflation, resulting in interest-rate hikes. Investors are awaiting US inflation data this week for clues on the Federal Reserve’s policy path.

The status of shipping through the Strait of Hormuz remains unclear. Traffic through the channel was almost nonexistent on Monday, after the Islamic Republic’s forces launched retaliatory drone and missile assaults on American allies in the region. The US said it is prepared to ensure freedom of navigation through the critical waterway, even as Iran declared it closed “until further notice.”

Rate hike expectations have diverged, leading to higher market volatility, due to the escalation in tensions again, Galaxy Futures wrote in a note on Monday. Still, fundamentals for copper remain “relatively healthy” for long-term prices, supported by supply outlook and demand from AI and energy storage, it said. Copper, seen as a proxy for global growth, has traded in a tight range since the US and Iran reached an interim peace agreement last month.

Traders have raised bets on further tightening with swaps pricing in almost 40 basis points of Fed rate hikes by December, up from about 15 basis points in early June. Higher borrowing costs for manufacturers typically hamper demand for industrial metals. Copper fell 0.8% to $13,378.50 a ton on London Metal Exchange as of 12:30 p.m. in Singapore.

Lead dropped 1% while zinc was down 0.9%. Aluminum was little changed. Iron ore on the Singapore Exchange fell 0.8% to $98.50 a ton, while Dalian futures dropped 1% to 743.5 yuan a ton.

Shanghai steel futures also declined. —With assistance from Katharine Gemmell.