Copper's Next Move Depends On Washington, Not The Strait Of Hormuz

Market Volatility Driven by Conflicting Signals

Six months following a significant military operation that jolted the metals sector, the status of the Strait of Hormuz remains a persistent question mark. Shortly after a key memorandum of understanding was inked on June 17, Iranian military pronouncements suggested the vital waterway was once again off limits. However, this was quickly countered by Iran's foreign ministry, which informed state media that maritime traffic was proceeding without disruption. The agreement itself outlines a July 19 deadline for Washington to fully dismantle its naval blockade. Tehran, meanwhile, has pledged only its 'best efforts' to reestablish pre-conflict shipping levels.

Base metals have spent the initial six months of the year reflecting this very ambiguity. The prevailing narrative is shifting, however, as the second half approaches, with a new dominant risk factor emerging that is truly influencing market movements. The LME Index, a benchmark comprising six key base metals, has experienced a volatile journey, oscillating between extreme optimism and deep pessimism, ultimately landing in a neutral zone by the close of the first half.

Digging deeper beneath this aggregate figure reveals a more nuanced picture. Metals with direct exposure to the Persian Gulf are actively shedding their 'war premium,' a speculative pricing element tied to conflict risk. Conversely, metals lacking such direct geographical ties never truly needed this premium in the first place. Disruptions, including missile strikes on smelters in the UAE and Bahrain, eliminated approximately 2 million tons of annual regional production between February and May. This supply shock propelled LME three-month aluminum to a four-year pinnacle, exceeding $3,780 per ton in early June.

Much of that exceptional premium has since evaporated, as market participants begin to price in a semblance of stability. This recalibration is occurring even as oil shipments through the Strait of Hormuz are expected to take years to fully recover. The choke point's disruptions also constricted the supply of sulfuric acid, impacting producers reliant on leaching processes. Furthermore, collapsing smelter treatment charges have forced processors to depend on byproducts merely to maintain operational viability.

Copper's Fate Tied to US Policy, Not Gulf Tensions

Copper prices themselves reached impressive heights, touching nearly $14,000 per ton in June, nearing their all-time record set in January. Yet, the primary driver for copper's next significant move is no longer the geopolitical situation in the Gulf. Instead, the critical factor now resides in Washington D.C.

Commerce Secretary Howard Lutnick's comprehensive review of the domestic refined copper market, concluded on June 30, was intended to inform President Trump's decision on imposing a tariff. This potential levy, slated to begin at 15% in January 2027, has yet to be finalized. Market intelligence suggests that opposition to the tariff remains strong.

BNP Paribas metals strategist David Wilson indicated that opponents are "still actively and significantly lobbying to not have a tariff," underscoring that the outcome remains highly contested.

This intense lobbying effort highlights the genuine uncertainty surrounding the tariff's implementation, making it the dominant influence on copper pricing as the year progresses.

Sector Performance Diverges Based on Unique Drivers

Beyond copper, other base metals have charted distinct courses, largely independent of the Hormuz tensions. Zinc, for example, has been a standout performer in the first half, climbing 14% by June. This surge was fueled by an unexpected global deficit outside of China, a development largely insulated from the regional conflict.

Nickel's price action mirrored Indonesian mining quotas more closely than events in the Gulf. It experienced a spike due to production cutbacks before retreating as discussions about potential quota adjustments emerged. Tin and lead, entirely unaffected by the Persian Gulf situation, have traded based on their own intrinsic supply and demand dynamics. Tin has seen a significant 27% increase due to a structural supply squeeze, while lead has declined 7%, attributed to market surplus and warehouse arbitrage opportunities.

As observed by Vandana Hari of Vanda Insights, the Strait of Hormuz's reopening remains a fragmented and unpredictable process, lacking full transparency. Once the speculative war premium fully dissipates from the broader base metals complex, prices are expected to revert to their fundamental drivers. For copper, this means its future pricing will hinge significantly on the forthcoming decision from Washington.

Reading Between the Lines

The narrative surrounding base metals is undergoing a critical shift. While the Strait of Hormuz has been a focal point, its influence on prices is diminishing as the market digests the ongoing geopolitical complexities and the gradual, albeit uneven, normalization of shipping. The real catalyst for significant price movements, particularly for copper, now rests with US trade policy. The impending decision on tariffs by the US administration introduces a substantial layer of uncertainty that overshadows the more erratic geopolitical risks emanating from the Persian Gulf.

Traders and investors should closely monitor the developments surrounding the potential US tariffs on refined copper. This policy decision has the potential to create significant price volatility, far exceeding that driven by temporary disruptions in the Strait of Hormuz. Related assets like copper miners' stocks and potentially broader industrial metals indices could be directly impacted. The market's focus will likely pivot from supply chain fears related to geopolitical hotspots to the direct impact of protectionist trade measures.

Key risks include the sudden imposition of tariffs, which could lead to a sharp repricing of copper and related equities. Conversely, the decision not to impose tariffs could remove a significant overhang, potentially allowing copper to rally on its underlying supply/demand fundamentals. Market participants should also watch for shifts in global demand, particularly from China, which remains a major consumer of base metals. The interplay between US trade policy and global demand will be crucial in determining the medium-term outlook for copper and other industrial commodities.