On February 28, the U.S. and Israel launched extensive strikes against targets in Iran operations dubbed "Epic Fury" and "Roaring Lion", respectively. In retaliation, Iran subsequently announced the closure of the Strait of Hormuz.

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While the outlook is positive for both nonferrous metals, aluminium is expected to see greater upside potential than copper, a Mysteel analyst suggested. Copper prices are likely to be buoyed mainly by safe-haven demand and supply disruptions, though they remain under noticeable pressure from the macroeconomic environment and tepid demand. In the near term, copper prices on the Shanghai Futures Exchange (SHFE) are expected to climb and consolidate at highs between RMB 98,000-106,000per tonne (USD14,290-15,456per tonne), Mysteel analyst said.

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The escalation of the U.S.-Iran conflict and the resultant shipping risks in the Strait of Hormuz should directly bolster copper prices. As a major exporter of copper concentrate, any disruption to Iranian shipments would trigger global supply concerns. At the same time, rising oil prices from the military escalation will increase smelting costs. These factors, combined with rising market risk aversion, will likely keep copper prices fluctuating at elevated levels in the near term.

In the medium term, copper price trends will depend on the duration of the conflict and when shipping access through the strait recovers. If tensions ease soon, the current geopolitical premium will gradually fade, and fundamentals, including high inventories and slow downstream restarts, will once again dominate the market. In this scenario, prices are likely to retreat after initial gains. If the conflict spreads and shipping remains disrupted, supply constraints will continue to support prices at high levels, though upside potential will still be capped by actual demand.

Compared with copper, Chinese aluminium prices are expected to exhibit greater upside elasticity, given its higher sensitivity to energy costs and the heavy concentration of primary aluminium production capacity in the Middle East, Mysteel analyst noted.

In the short term, Chinese aluminium prices are likely to be primarily driven by geopolitical developments, with SHFE aluminium trading between RMB 23,500-24,500 per tonne. Rising tensions in the Middle East have heightened market risk-aversion and strengthened safe-haven sentiment.

More importantly, the closure of the Strait of Hormuz would directly affect around 7 million tonnes per year of primary aluminium capacity across six Middle Eastern countries, including approximately 804,000 tonnes per year in Iran, significantly elevating global aluminium supply risks, Mysteel Global understood. As such, the aluminium market is currently trading largely on the conflict-escalation narrative, with sentiment and risk-hedging capital reinforcing price support and keeping Chinese aluminium prices relatively firm in the near term.

From a fundamental perspective, demand for aluminium in China has yet to fully recover following the Chinese New Year holiday. Domestic downstream sectors have resumed operations only slowly, with the average operating rate of aluminium fabricators edging up slightly to just 57per cent, according to Mysteel data. At the same time, inventory accumulation remains evident. As of March 2, inventories of aluminium ingots and aluminium billets reached 1.48 million tonnes and 870,000 tonnes, respectively, up by 476,000 tonnes and 519,400 tonnes from pre-holiday levels, Mysteel's latest survey results showed. This suggests that domestic aluminium inventory pressure has not yet eased.

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Note: This news is published under a content and exchange agreement with Mysteel