Copper prices approach historic highs despite Middle East tensions, Citi: Once the Strait of Hormuz is unblocked, they will head straight for $15,000.

Copper prices are ignoring the geopolitical clouds in the Middle East and are making a push toward historic highs. According to Wind Trading Desk, Citi's latest research report points out that even under the continued pressure of the blockade of the Strait of Hormuz, the physical copper market still shows significant structural resilience and maintains a recent target price of $13,000 per ton; once the Strait reopens and market sentiment improves, copper prices may average $15,000 per ton by the end of the year. The report believes that the energy transition, AI-related demand, growth in military demand, and supply-side constraints together form a triple buffer allowing copper prices to withstand cyclical shocks, making copper's resilience in today's complex macro environment far exceed that of comparable historical periods. On Monday, London Metal Exchange copper prices rose 0.2% to $13,609 per ton, approaching the historical highest closing price. Despite Trump dismissing Iran’s latest peace proposal as "completely unacceptable" over the weekend, metal markets rose in sync with Asian stock markets, indicating that investor concerns about further escalation are relatively limited. "Markets have moved past the impact of the US-Iran conflict; copper prices now have their own independent trend," said Jia Zheng, trading manager at Suzhou Chuangyuan Heying Asset Management. The main supporting factors are declining inventories in China and tight supply. Recent Target: $13,000; Bull Market Scenario Points to $15,000 Citi's recent assessment of copper prices is neutral and prudent. The report places its base-case scenario as the Strait of Hormuz blockade lasting until the end of May, which it believes will continue to suppress global growth expectations and market risk appetite. Even if there is a larger-scale sell-off in risk assets, it expects low buying in the physical market to continue to support copper prices above $12,000 per ton in the second quarter. Moving into the second half of the year, the base case expects US tariffs and inventory dynamics to form resistance, possibly pushing copper prices down to $12,000 per ton. However, in the bull case, if the reopening of the Strait of Hormuz improves growth expectations and triggers restocking demand, or the energy transition gains a structural boost from this crisis, copper prices might average $15,000 per ton at year-end. The bull scenario is assigned a probability weight of 30%, the base scenario 50%, and the bear scenario (copper price falling to $10,000 per ton) 20%. Energy Transition Demand Provides Structural Buffer Copper demand’s sensitivity to cyclical shocks has significantly declined versus historical levels, mainly due to the rising proportion of structural demand. Energy transition and AI-related demand currently account for about 18% of global copper consumption, and since the COVID-19 pandemic, they have contributed almost the entire increase in copper demand. According to the report’s calculations, if the annual declines in copper demand during major economic downturns (such as the 1980s second oil shock and the global financial crisis) of 3%–5% are applied to today, and structural demand remains unchanged, a 5% decline in cyclical demand only corresponds to a roughly 1.7% decline in global refined copper consumption; if cyclical demand falls by only 3%, global total demand is essentially flat. This calculation shows that expansion of structural demand has materially lowered the downside risk for total copper demand. High oil prices themselves may accelerate the energy transition—in fuel-importing countries, geopolitical pressures tend to prompt faster adoption of renewables and electrification, boosting incremental copper demand for electric vehicles, energy storage, and grid infrastructure. China stands out in this logic, with a higher proportion of energy transition in its copper consumption structure and stronger anti-cyclical capacity; markets outside China have higher exposure to the manufacturing cycle. Military Demand Provides Additional Upside Military-related copper demand is a structural supporting factor. The report estimates global military copper consumption at about 2.5 million tons per year, roughly 9% of total global consumption. Consensus forecasts show global defense budgets will maintain moderate growth in coming years, supporting military copper demand at relatively high levels. More notably, equipment intensity in modern warfare is rising—heavy use of consumables like drones and missiles means military copper demand growth may outpace actual military spending growth. If geopolitical tensions in the Middle East or elsewhere escalate, military copper demand could jump sharply, with post-Russia-Ukraine war demand shifts as precedent. Supply-Side Constraints Tighten in Sync The blockade of the Strait of Hormuz impacts copper supply mainly through two channels: increased scrap copper recycling costs, and sulfur supply shortages affecting hydrometallurgical copper mines. Scrap copper supply is most sensitive to energy price shocks. Recycling, processing, and remelting of scrap are all energy- and transport-intensive steps; rising fuel and logistics costs directly push up marginal scrap supply cost curves, reducing supply-side market participation. Scrap copper is the main source of copper supply increase this year, while mine output is forecast to be flat, making scrap supply contraction especially key for overall supply-demand balance. Regarding sulfur shortage, Middle East sulfur export disruptions will raise production costs at hydrometallurgical copper mines in Congo (DRC) and others reliant on sulfuric acid. However, as copper prices are well above mine marginal costs, risks of production cuts are limited, and producers can respond via inventory adjustments and process optimization. "Just-in-case" Inventory Logic Supports High Prices in the Medium and Long Term The report also proposes a medium-to-long-term price support logic: as global trade frictions and geopolitical uncertainty rise, government and corporate supply chains are shifting from a "just-in-time" model to a "just-in-case" model, with stronger willingness to actively increase metal inventories. The report estimates that if global refined copper inventories rise from the current roughly 1.3 months of consumption to 2 months and the build is completed within two years, the price needed would be about $14,423 per ton; if the target rises to three months of consumption, the price needed for a two-year build is as high as $27,885 per ton. Under this framework, inventory surplus and high copper prices can coexist—high prices are necessary to incentivize marginal suppliers (especially scrap and high-cost mines) to meet inventory build demand. This logic also aligns with the broader investment theme of copper as a strategic hard asset in the current market. ~~~~~~~~~~~~~~~~~~~~~~~~ The above highlights are from Wind Trading Desk. For more detailed interpretation, including real-time commentary and frontline research, please join [Wind Trading Desk Annual Membership]. Risk Warning and Disclaimer The market entails risks, and investment should be approached cautiously. 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