CHART: Copper price, aluminum ‘black hole’ fears lift LME base metals index to record high

A gauge of industrial metals jumped to a record high on the London Metal Exchange on Thursday, driven by gains in aluminum after the Middle East war disrupted supplies, as well as a recent revival in copper.

The LME Index, which tracks six major metals, has rallied by almost 12% over the past four weeks and was at an all-time peak at the close of trading. Aluminum has risen more than 15% since the start of the Iran war, with roughly a 10th of global output coming from the Middle East. 

Aluminum has the biggest weighting in the LME gauge, and prices for the metal hit a four-year high on Thursday, moving closer to a record struck in the wake of Russia’s invasion of Ukraine. Together with copper — which has also moved back towards a record reached in January — the two metals make up almost three-quarters of the index.

Nickel, zinc and tin have also rallied this year, although none of the individual constituents of the index are at all-time highs.

JPMorgan Chase & Co. has warned the aluminum industry was heading toward a “black hole” as a serious, prolonged supply deficit is hitting the market after supply losses escalated dramatically in the wake of Iranian strikes directly targeting two key smelters in Abu Dhabi and Bahrain at the end of last month. A double blockade of the Strait of Hormuz — by the US and Iran — is also keeping shipments stranded. 

But while the waterway remains closed, hopes that a ceasefire between the US and Iran will be extended and signs the two sides may be moving closer to a peace deal have aided other metals. They were hit by soaring energy costs and fears of slowing global growth due to the war, but have recovered in recent weeks on signs the conflict might be winding down.

President Donald Trump claimed on Thursday, without evidence, that Iran had agreed to terms it has long resisted, including giving up ambitions for a nuclear weapon. Tehran hasn’t confirmed it’s made concessions.  

“Traders are building back positions in base metals and front-running the move, even though the Iran war has yet to be resolved,” said Gao Yin, an analyst at Shuohe Asset Management Co. “They also like to trade on the certainty of aluminum supply disruptions.”

Mercuria Energy Group and BMO Capital Markets forecast this week that copper would surpass a record high hit in January. They cited Chinese buyers coming back to the market and a looming decision on tariffs from the White House that’s encouraging more shipments to the US. Copper has rallied 11% in the last four weeks, and is around 3% off its all-time closing price peak.

The LMEX Metals Index rose 3.6% this week through Thursday. Most metals were down on Friday. Aluminum fell 0.4% to $3,629 a ton as of 8:39 a.m. local time. Copper dipped 0.4%, while nickel rose 1.8%.