Author：Wall Street CN
As tensions continue to escalate in the Middle East, the global copper market is facing a double whammy of supply shocks and demand concerns.
On Tuesday, June 7th, Eastern Time, media outlets, citing satellite data agency Earth-i, reported that two major Iranian copper smelters appear to have recently ceased production. Earth-i's monitoring, based on multi-dimensional data including thermal signals, exhaust emissions, inventory changes, and vehicle activity, shows that industrial activity at the smelters has significantly decreased.
Among them, Sar Chesmeh, Iran's largest copper smelter, has been shut down since the Saturday before March 28, and another state-owned smelter, Khatoon Abad, also stopped production last weekend.
The two smelters mentioned above have a combined annual capacity of over 370,000 tons, forming the core pillars of Iran's copper processing system. Sar Chesmeh has an annual capacity exceeding 250,000 tons, while Khatoon Abad has an annual copper capacity of approximately 120,000 tons. They not only determine Iran's refined copper supply capacity but also play a crucial supplementary role in regional trade.
The satellite data reflects a typical characteristic of "systemic shutdown": the disappearance of a persistent heat source, a decrease in emissions, and a halt in transportation activities. This usually indicates that the production chain has encountered an external shock, rather than a short-term equipment maintenance.
Recent conflicts have frequently impacted various industrial assets, including steel mills and oil and gas facilities, indicating that geopolitical risks have spread from the energy sector to a broader industrial system. The suspected shutdown of Iran's two major copper smelters signifies a further deepening of the impact of Middle East geopolitical conflicts on the metal supply chain.
Considering the recent situation, unstable power supply, transportation disruptions, and increased safety risks could all be direct causes of smelter shutdowns. Copper smelting is a high-energy-consuming and continuous production process; once interrupted, the recovery period is long and the cost is high, and the impact on supply often has a delayed amplification effect.
Market analysts believe that the metal smelting industry is more dependent on a stable operating environment than oil and gas facilities. Once power grid, logistics, or security conditions deteriorate, companies are often forced to "shut down first and then deal with the consequences," making supply-side shocks more sudden and unpredictable.
As a crucial resource processing hub in the Middle East, the disruption to Iran's industrial system will further disrupt the flow of bulk commodities in the region.
Goldman Sachs: Energy shocks may suppress demand; copper prices face downside risks.
In contrast to supply disruptions, demand is facing macroeconomic pressures.
According to a recent Goldman Sachs report, global economic growth faces risks of being hampered by soaring oil and gas prices, thereby weakening demand for industrial metals. The report points out that if shipping through the Strait of Hormuz remains disrupted and energy prices remain high, it will drag down the global economy and suppress copper demand, with short-term risks skewed to the downside.
Goldman Sachs believes that current copper prices are not adequately supported by fundamentals, and prices may weaken further if macroeconomic expectations deteriorate or market risk aversion intensifies.
Goldman Sachs' baseline scenario predicts that shipping through the Strait of Hormuz will resume from mid-April, but its analysts point out that current copper prices are already well above their estimated fair value of approximately $11,100 per tonne.
Data shows that since the US and Israel launched military strikes against Iran on February 28, copper prices have fallen by more than 7%, reflecting rising market concerns about the demand outlook.
Meanwhile, Goldman Sachs slightly lowered its average copper price forecast for this year, believing that under a "severely adverse scenario," the support for prices from strategic stockpiling and a tight balance may weaken.
Commentators believe that the current copper market is exhibiting a typical game of supply-driven growth versus demand-driven downsides. On the one hand, the shutdown of Iranian smelters and rising geopolitical risks have injected a premium of supply uncertainty into the market; on the other hand, soaring energy prices have dampened economic activity, weakening demand expectations and putting downward pressure on prices.
