Following the United States' announcement to intensify military actions against Iran, the global base metals market experienced a significant pullback on Thursday. LME three-month copper fell by 1.06% to $12,305 per ton, ending its recent run of gains. This price fluctuation not only reflects the risk-averse retreat of macro funds but also profoundly reveals the potential impact of prolonged geopolitical conflicts on the global manufacturing supply chain. When faced with the rising risk of energy prices such as crude oil, both smelting costs of industrial metals and downstream demand expectations are being re-evaluated. Although the domestic main contract of Shanghai Copper showed relative resilience with a drop of 0.68%, the cautious sentiment throughout the industrial chain's upstream and downstream has become evident in the divergence of the market.
Upstream Supply Expectations and Smelting Cost Game
The sharp rise in Middle Eastern geopolitical tensions is being transmitted through the energy price channel to the upstream smelting sectors of non-ferrous metals. The smelting of base metals like copper, aluminum, and zinc heavily relies on electricity and fossil energy inputs. Although U.S. military actions are mainly concentrated in the Middle East region, the resulting global energy logistics disruptions and rising price centers will directly increase the marginal production costs of high-energy-consuming smelters in Europe and parts of Asia. However, this cost support has not been able to translate into price increases in the short term, as market concerns about terminal demand recession outweigh the pricing of supply-side cost increases. LME aluminum and zinc futures fell by 0.85% and 1.49%, respectively, indicating that in the face of macro systematic risks, funds prioritize avoiding pro-cyclical risks on the demand side rather than trading on the logic of supply-side costs.
Industrial Chain Transmission
The drastic fluctuations in the macro environment are quickly transmitting downstream along the metal industry chain. Taking copper and tin as examples, these metals are core foundational materials for global electrification and the electronics information industry. The single-day plunge of 3.44% in LME tin and 3.05% in Shanghai tin reflects the market's extreme pessimism regarding the recovery expectations of downstream demand in consumer electronics and semiconductor packaging. For primary copper processing companies in sectors such as cables, home appliances, and new energy vehicle components, the high-level oscillation of Shanghai Copper at 95,880 yuan combined with external macro risks leads to extreme caution in spot procurement. Many processing companies may choose to consume existing inventories and delay the signing of new long-term orders to avoid the unilateral exposure risk of price retreats from high levels. If downstream orders were to significantly reduce due to global economic recession expectations, the inventory accumulation pressure in the midstream of the industrial chain would become evident in the latter half of the second quarter.
Competitive Landscape and Regional Market Differentiation
In the context of geopolitical reshaping of the global trade landscape, the regional competition in the non-ferrous metals market is exhibiting new characteristics. The current data clearly shows the pricing differences between LME and SHFE when facing the same macro shock. The contrarian rise of 0.6% in Shanghai lead and the slight increase of 0.02% in Shanghai zinc demonstrate that certain small metal varieties in the domestic market, with relatively high self-sufficiency and supported by domestic microeconomic fundamentals, have a certain degree of independent pricing ability. Confronted with extreme uncertainty in overseas supply chains, major manufacturing countries such as China may accelerate the implementation of strategies for self-controlled key mineral resources and may prefer to build a more secure regional metal supply chain under a non-dollar pricing system. In the long term, if the LME system dominated by the dollar continues to be constrained by the severe fluctuations of the U.S. geopolitical cycle, the need for Asian industrial capital to enhance the pricing power of local futures exchanges will become increasingly urgent.
