Copper drops on US-Iran escalation, rate hike fears
Copper prices fell as an escalation in the US-Iran conflict drove up energy costs, reviving investor fears that central banks will maintain higher interest rates and suppress industrial demand.
LME benchmark three-month copper declined 0.64% to $13,398.5 a metric ton on Monday, while the most-traded contract on the Shanghai Futures Exchange dropped 0.68% to 103,100 yuan ($15,199.54) a ton. The losses reflected a broad-based sell-off across global commodity markets.
The immediate catalyst was a sharp escalation in the US-Iran war over the weekend, with both nations exchanging heavy missile and drone strikes. Iran responded by closing the Strait of Hormuz, a critical energy corridor. This triggered a swift shift to risk-off sentiment among global investors.
The geopolitical shock pushed Brent crude up 2.79% to $78.13 a barrel. For base metals, this energy spike carries a distinct macroeconomic penalty. Higher oil prices threaten to reignite inflationary pressures, creating a strong incentive for central banks to keep interest rates elevated for a longer period.
A prolonged high-interest-rate environment directly threatens copper demand by dampening broader economic activity. Because copper is highly sensitive to industrial and construction cycles, the prospect of tighter monetary policy outweighed any potential supply concerns for the metal itself.
Currency dynamics added further downward pressure on prices. The US dollar strengthened modestly over the weekend, making dollar-denominated commodities more expensive for buyers using other currencies. This reduced international demand, pulling both copper and precious metals like gold and silver lower.
The Indian market offered a slight exception to the broader trend. Copper for July delivery on the Multi Commodity Exchange edged up 0.06% to ₹1,294.35 per kg. However, this masked intraday volatility, with prices briefly slipping 0.75% to an intraday low of ₹1,283.80.
For market participants, the price action underscores how geopolitical risks in the Middle East are dictating macroeconomic expectations. Until the tension between Washington and Tehran stabilizes, base metals are likely to remain caught between physical supply realities and the tightening grip of monetary policy.
