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(Bloomberg) — Copper fell to the lowest since December as the worsening war in the Middle East pushed energy prices higher and increased the risk of damage to the global economy.
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There were broad declines on the London Metal Exchange after Iran and Israel traded strikes on energy facilities in the Middle East. Iran targeted the world’s biggest liquefied natural gas plant, after the Israelis hit Iran’s South Pars gas field.
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The latest hostilities prompted US President Donald Trump to press for a de-escalation of attacks. With no resolution to the war in sight and oil prices soaring, risk assets including industrial commodities are coming under severe selling pressure.
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“It’s about concerns over the economy and inflation,” said Wu Kunjin, head of base metals research at Minmetals Futures Co. “The longer crude oil stays at elevated levels, the more it feeds into inflation. Rising oil prices don’t necessarily mean interest rates will be hiked, but it is possible.”
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Copper, which started this year in bullish form and reached an all-time high in late January, has shed more than 8% this month. It dropped 1.1% to $12,262 a ton as of 1:17 p.m. in Shanghai on Thursday.
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Metals traders are weighing the potential for supply disruptions — especially in the aluminum market — against the threat to manufacturing activity worldwide if the conflict triggers a broader economic slowdown. Chinese metals demand was already soft before the US and Israel attacked Iran.
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However, the metals rout might also help to stimulate some buying, especially among Chinese consumers who had baulked at the high prices earlier this year. Stockpiles of aluminum and copper in China had surged to record levels.
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“After prices fell, expectations for consumption in China have improved quite a bit, which is also helpful for inventory drawdowns going forward,” Wu from Minmetals said.
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Aluminum dropped 0.2% to $3,393 a ton, although it’s still up 13% for this year. Zinc, nickel and tin all declined. Iron ore rose 0.3% to $107.60 a ton in Singapore.
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