How the Iran Conflict Is Impacting Non-Ferrous Markets

Ronan: The conflict in the Middle East and the closure of the Strait of Hormuz have rocked global commodities markets, driving spikes in prices of oil, natural gas, and sulphur. The impact on non-ferrous metals markets has been mixed as outside of aluminium, the region is not a major production hub, so the instant indirect impact on supply has been limited. Higher energy costs are almost certainly likely to significantly influence output and prices across the entire global metals complex throughout the rest of this year, but like much of the rest of the macro economy, there is almost an eerie sense at this time of a calm before the storm on that front. The markets know the pain is coming, but it hasn't actually landed yet. So, we've yet to see the kind of blanket price surge that accompanied the start of the Ukraine war in 2022.

So, to quantify the most significantly early impact of the Middle East conflict, we have to start with aluminium. How much of global supply has been affected and what has been the consequence for prices? Sulphur is a key input for nickel and copper which means they are next in line for potential supply disruption. How serious is the sulphur availability situation? And how is it affecting pricing and output in those metals markets? And what's the impact of the crisis on the battery supply chain? In the long run it may spur increased investment in the sector as the importance of transitioning away from fossil fuel reliance for automotives becomes an even greater focus. But in the short term, what are the inputs on output?

To answer these questions, I am joined today by a trio of Argus experts from our London office. Jethro Wookey, associate editor for aluminium, Raghav Jain, senior reporter for nickel and copper, and Thomas Kavanagh, global editor of Battery Materials. I'm Ronan Murphy, the editor of Argus Non-Ferrous Markets. And this is the Argus "Metal Movers" podcast. So, Jethro, let's start with aluminium. What is the status of aluminium production in the Middle East? How has output been impacted by the conflict and the closure of the Strait of Hormuz?

Jethro: Yeah. Thanks, Ronan. Well, it's obviously a very significant impact on the global aluminium market, what's happening in the Middle East. I think you sort of have to look at it from two directions. One being sort of the impact on production itself in the Middle East, but then of course, the impact on deliveries from the Middle East. So, if we just look at what is produced over there and what comes out of that region, we're looking at about 6.2 million tons of aluminium produced each year in the Middle East, and about 80% to 85% of that is exported. And the vast majority of that, I'd say almost all of that is exported through the Strait of Hormuz. Of those exports, about 30% go to Europe, about 20% go to the U.S. That makes up about 10% of Europe's total imports and around 24%, I think of total U.S. imports. And then about 30% to 40% of Middle East aluminium exports go into Asia.

So, it's obviously a global issue with everything coming out of the region. And in terms of the impact on production, what we've already seen announced amounts to about 600,000 tons per year of production has been curtailed from 2 smelters, namely the Alba smelter in Bahrain and the Qatalum smelter in Qatar. There are already rumors swirling around that more cuts have been made and certainly more cuts are expected to be made the longer this disruption continues for the reason that almost all of the aluminium production in the region needs to import its raw materials, its alumina or its bauxite. There is one smelter in the region that is the Ma'aden smelter in Saudi Arabia that is fully integrated and can provide all of its own raw material. Every other smelter in the region needs to import, even the EGA, Emirates Global Aluminium smelters in Dubai and Abu Dhabi. That company does have its own alumina production, but not its own bauxite production. And at any rate, its own alumina production accounts for less than 50% of its needs.

So, everyone, our Ma'aden needs to import a lot of raw material. And the longer the disruptions go on, the more they run down their existing raw material stocks, and get to the point where we start to see some more cutbacks. That isn't to mention, of course, that one of the main issues is that the closure of the Strait of Hormuz has cut off deliveries of aluminium. So, even if they are still able to produce for some time over there, it's an issue of getting the metal out to their international customers. There is some stock that has been built up outside of the region by those producers that they have been able to lean on for some time, but by all accounts, that is coming to an end. So, we are likely to start to see some much sharper impacts on both the deliveries out of the region as well as due to the problems getting raw materials in and overall production in the region. So, it's a significant impact so far and the longer this goes on, the more likely that it's going to get quite a lot worse.

Ronan: Thank you. And how has the disruption affected London Metal Exchange aluminium prices and global premiums?

Jethro: I mean, I think we'll start with the premiums because that's where we've seen the biggest impact. You know, like I say, the exports from the region go all over the place, go to Europe, go to U.S., and all through Asia. We have seen European P1020 delivery premiums go up by about 37% since the start of the war. We've seen Asian premiums jump by between 80% and 85%. And U.S. premiums are up about 5% which doesn't sound like a lot. But remember that that's on top of what were already a massive, unprecedented record highs in the U.S. because of Trump's tariffs.

So, the impact on premiums has been substantial as was initially at least the impact on London Metal Exchange aluminium prices. We saw prices up about 10% within two weeks of the start of the war, but subsequently we've seen those prices come off and give up almost all of those gains. Actually at one point, prices dipped below the level they were at before the war began. Now, we're looking at about 2.5%, something like that, above, where they were before the war. So, it's pretty negligible increase on the aluminium prices.

A number of reasons for that. I think prices were already quite elevated due to a lot of people taking on long positions before the war began which was a result of the overall sort of tight supply picture in aluminium anyway. And as the prices initially increased following the start of the war, we saw some of those long positions start to liquidate as maybe some of the sort of quantitative funds and what have you hit some of their trigger levels for selling, and maybe a bit of profit taking as well. On top of that, given the climbing oil prices as a result of the war, we've sort of seen a general slowing economic growth which is leading to forecasts of demand destruction and also forecasts that were expected to be more interest rate cuts now might not happen, and maybe even some interest rate increases.

So, that kind of economic malaise has been dragging down prices and aluminium has sort of gone along for the ride if you like. Certainly you'd expect aluminium prices to increase again though the longer this disruption continues on the fundamental basis of the impact that it's gonna have on global supply. So, it's the premiums that are sort of more also reflecting the issue at the moment. Prices, not so much, but certainly you'd expect that to change in the weeks ahead should the disruption continue.

Ronan: And which industries are being most affected by [inaudible 00:08:15] by these higher premiums and potential disruption to supply? Is it possible for consumers to swiftly replace units lost from the Middle East?

Jethro: I mean, you're looking at a region that produces almost 10% of global supply. It's pretty much every industry is impacted, but I would say one of the most significant being the automotive industry for the simple fact that it's very difficult for automotive consumers to replace suppliers, certainly to do it quickly just because of the extensive specification requirements, the sort of documentation, testing that needs to be done before you start with a new supplier. And the Middle Eastern producers are all supplying automotive markets all over the place. I think BMW particularly buys a lot of metal from EGA. I think Ford buys a lot of metal from Ma'aden. And there's metal from that region going to automotive customers all over the place.

It's going to be very difficult for customers in the automotive industry to replace those units quickly. It takes a long time. So, I would say that's the industry that may be most affected. But given the sheer volume of aluminium that comes out the region, it's pretty much every industry that uses aluminium is gonna be feeling the effects of this.

Ronan: And if we talk about the longer term implications of this disruption, and when I say longer term, I guess I'm really looking forward, that's not that far in the future, just looking really to the second half of this year. But if you have that tightness of availability, if you have those incredibly high premiums and potentially then higher aluminium prices, which will lead to very high all-in prices, if we put on top of that the fact that we haven't really seen energy prices in Europe yet spike to the extent of what we might think given the level of disruption, but we know that there's a possibility that that is coming further down the line, are we looking at kind of demand, kind of prices spiking to the level where we see significant demand destruction, where we see major industrial shutdown? What are these implications?

Jethro: Well, yeah, I think the implications are pretty enormous. I mean, if you look at sort of the previous record highs, the prices and premiums, and it almost all happened following the Russian invasion of Ukraine and the impact that that had on aluminium supply around the world, and the impact that it had on energy prices. Certainly what we're seeing now has the potential to have a far greater impact, particularly on the aluminium side given that as a result of the Russian invasion of Ukraine. We didn't really lose a great deal of aluminium supply from the global picture. A lot got shuffled around, the Russian metal started to go to China, the Western markets, Europe, and the U.S. that for in a large part cut off Russian supplies. It was just a case of things shuffling around, increasing supplies from other regions.

So, overall, the impact on overall global aluminium supply was nothing like what we could potentially be seeing with this situation because there isn't really an alternative to sending all the metal that comes out of the Strait of Hormuz. There is some potential for other ports to be used. There is some potential for say, EGA to truck material into Oman and use some other ports. And there is certainly a lot of talk about that sort of being formulated right now. There is some potential for Saudi Arabia metal to be trucked across Saudi Arabia to Jeddah port. But certainly not in the type of volumes that would allow those companies to maintain anything like full capacity. And then when you look at companies like Qatalum and Alba, there really isn't any alternative for those companies. There really isn't any feasible alternative route to either get large volumes of aluminium out to international customers or indeed to get large volumes of raw material in.

So, the longer this goes on, the more likely we are gonna see sort of large scale production cuts in the region and as is quite well known in the industry is very, very difficult, and very time-consuming to recover lost output like that. I think it was interesting what Qatalum said when they first announced what they thought would be a controlled shutdown of most of their production early on in March. There was a note saying that if it gets to the point where production is completely shut down, then it's 6 to 12 months away from restarting. And I think that can be applied across the region if we do see large scale production cuts.

We are a long way from getting that stuff back. It's not just something you can turn on. And even when we do sort of get things moving again, it's going to be an issue getting it through the Strait of Hormuz for some time to come. Even if shipping does resume, insurance costs are gonna be high, freight costs are going to be much higher, that's gonna feed through to the pricing as well. So, whatever happens from here, I think the impact is going to be higher prices and premiums for some time to come. But a sort of a worst case scenario is that the disruption continues for some time. And if that happens, then in the timeframe you mentioned into the second half of the year, we'll absolutely be looking at sort of record highs again in terms of prices, and premiums, and a severe shortage of aluminium, given that, remember, the market is very, very tight to begin with.

Before all this happened, we were looking at a globally tight supply picture. We've seen production in the U.S. and Europe come off in the last few years because of very high power prices. We've just seen the Mozal Aluminium smelter in Mozambique shut down because of an inability to find affordable power, and that was a big supplier into the EU. We've seen Chinese production come up against its production cap. And for what it's worth, the Middle Eastern production was actually coming down as well before all this happened. We look at the February output was 5% down this year than it was a year ago in the Middle East. So, we were already starting to see production come down a little bit before all this happened. And this is obviously, it has the potential to wildly exacerbate what was already a pretty tight supply picture. So, in terms of price and premiums, who knows, the sky's the limit. But we could certainly be looking at record highs if this goes on for much longer.

Ronan: Okay. Jethro, thank you very much. I mean, I'll move on to Raghav now. As we said, aluminium, the most directly impacted. Looking at the rest of the base metals complex, I think we touched on it a little bit earlier there that the LME prices for the entire rest of the base metals complex have all fallen since the start of the Iran conflict. Can you speak a bit more about that?

Raghav: Yeah. Thanks, Ronan. Well, the key point is that outside aluminium, the Iran conflicts has been read by metals markets primarily as a macro demand shock, not a direct supply shock. For copper, nickel, zinc, and lead, the market reaction has been driven by fears that higher oil and gas prices will feed inflation, keep interest rates higher for longer, and slow industrial activity. That is a bearish setup for most base metals because it weakens expectations for manufacturing demand.

Copper is the clearest example. Prices softened from the highs seen earlier this year. Not because the long-term structural stories disappeared, but because the market started re-pricing weaker near-term demand. Rising inventories in the LME and in China reinforced that shift. One of the clearest takeaways was that copper is being treated much more as a top-down macro story than a bottom-up supply story in the context of the Middle East conflict.

Nickel has followed a similar logic. Even the sulphur disruption has created real cost pressure for Indonesian battery-grade nickel production. The outright LME nickel price has not really surged because the market is still dominated by weak downstream demand and oversupply from Indonesia, and just poor sentiment in the EV materials chain. So, the short answer is most metals outside aluminium fell because the market focused on weaker demand and tighter monetary policy, while aluminium rose because it has a much more immediate and visible supply exposure to the Middle East.

Ronan: Okay. So, let's delve a bit more into the whole sulphur issue because it's certainly the case that Middle East is one of the major production hubs of sulphur in the world and obviously, the kind of initial disruption to sulphur exports is felt most keenly in the fertilizer sector and in the kind of food production sector. But when we talk about base metals, which are the ones that are most exposed to the disruption of sulphur exports from the Middle East?

Raghav: Yeah. Well, the most exposed base metal is clearly nickel, especially battery-grade nickel produced through high-pressure acid leaching or HPAL in Indonesia. That's because Indonesian HPAL plants rely very heavily on imported sulphur to produce arthritic acid, and that acid is essential to processing laterite ore into mixed hydroxide precipitate or MHP. Now, Indonesia imported about 3.95 million tons of sulphur from the Middle East last year, which was about 3 quarters of its total imports. So, when flows through the Strait of Hormuz, for example, are disrupted, Indonesian HPAL is directly exposed.

Copper is exposed too, but in a much more specific and nuanced way. The main vulnerability is insolvent extraction and electrowinning, SX-EW, and acid leaching operations, particularly in the DRC. That is where sulphuric acid matters most, but having surveyed market participants and analysts, it is important not to overstate this impact on copper. Zambia, for example, is much less exposed because it has more domestic smelting capacity and smelters themselves produce sulphuric acid as a byproduct, of course. So, for copper, the sulphur story is really a DRC-specific leaching story, not a global copper supply story in the same way that it is for nickel MHP. So, if you rank exposure, it is number one, nickel HPAL in Indonesia. Number two, copper SX-EW and acid leaching in the DRC. And number three, to a lesser extent some linked battery and chemical chains that use sulphuric acid as an input.

Ronan: Okay. Thank you very much. And to just give a bit of context around the pricing of sulphur, how have sulphur prices in these exposed markets moved since the start of the conflict?

Raghav: Sure. Well, sulphur prices were already historically high before the conflict. It's important to note that, very important part of the story. This was not a market starting from normal levels and then suddenly spiking. Sulphur had already rallied strongly through 2024 and early 2026 because of tight supply and booming demand, of course, from the metal sector, especially Indonesian nickel refining. Since the conflict began, the market has tightened further. We've seen Middle East sulphur spot prices jump sharply, reports of Indonesian buyers paying in the high $1.60 per ton CFR for April arrival, Chinese domestic sulphur prices rising to record highs, and prompt cargos into Africa for late March and April quoted as high as $580 to $700 per ton, CFR range.

So, the broader point is that sulphur prices have moved from already elevated levels into what is now a much more stressed and fragmented market. For Indonesia, that means much higher feedstock costs for HPAL. For African copper leaches, it means much more uncertainty around asset availability and replacement costs. And for the wider market, it means sulphur has gone from being a background reagent to a frontline strategic input almost.

Ronan: Thank you. And I mean, just to delve into a bit further on how the sulphur disruption has the impact on metals prices, as we've said, LME prices not really seeing the uplift from that. Has there been any impact on regional premiums for nickel and copper like what we've seen in aluminium?

Raghav: Yeah. Well, for nickel, the sulphur disruption has had a much clearer effect on market behavior than on outright LME price as you pointed out. The most direct impact has been in the intermediate battery materials chain, especially Indonesian MHP. Producers and traders have reportedly stopped offering some long-term contracts, shortened contract durations, and moved to a more cautious spot-focused approach while they assess sulphur availability. The important nuance here is this, costs are rising, but prices are not fully following. MHP payables that are the success are heard to be weakening across the board now because downstream demand remains weak. April is expected to be much weaker than March, for example.

So, for nickel, sulphur disruption has created a cost squeeze and a supply risk. But not a bullish price response in any way. For copper, the price impact has been much more muted. Outright copper prices have fallen, of course, since the conflict started. But that has not been because sulphur disruption hit copper supply in a major way. It has been because the market repriced weaker global growth expectations and saw inventories continue to rise.

On the concentrate side, that's important to note, smelter TCRCs have in fact dropped further since the start of the conflict. The Middle East conflict is not a concentrate supply shock because Iran is not a big seaborne supplier and much of its concentrate is smelted domestically anyway. In fact the concentrate smelters, higher sulphuric acid prices can actually support margins since acid is a byproduct of smelting. So, the sulphur disruption is much more of a risk for acid leach cathode production especially in the DRC as we've said, a ban for the global copper concentrate market itself. The main copper sulphuric risk is more a potential medium-term supply side issue in the African copper belt rather than something that has changed prices and premiums immediately today. What we see in Europe as far as nickel and copper premiums are concerned, they are depressed at the moment. But that's more due to demand side concerns than any Middle East conflict related issues.

Ronan: Okay. So, again, just as we asked Jethro on aluminium, let's look towards a more longer term effect and again, this isn't that much longer term, really looking more into kind of second half of this year. But what is that longer term effect of the disruption, particularly on Indonesian HPAL output?

Raghav: Yeah. This is where the story becomes a bit more serious, I suppose. If sulphur disruption lasts only a few weeks, many Indonesian HPAL plants should be able to manage through inventories, procurement adjustments, and delay deliveries. Market participants are already saying some producers may have enough sulphur coverage through to the end of April. But if disruption persists beyond that, the risks rise materially. The longer term effects could then include narrower margins at HPAL plants. Sulphur accounts for around 40% of MHP production costs based on recent estimates, so it's a big chunk. Other effects can be delayed ramp-ups at newer projects, shorter term contracting, and more cautious marketing behavior, and eventually, output cuts of deferrals at more marginal facilities. We might see a move to sulphate being produced through matte and class 1 nickel if that happens, I suppose. That matters because Indonesia is now the dominant global supplier, of course, of MHP and nickel chemicals. So, even modest disruption can matter to the wider battery materials chain.

The key phrase I'd use is this, for now it is a cost story, but if the disruption persists it becomes a supply story. And that is especially important because this is happening at the same time as Indonesia is already tightening its all-quota policy and talking about potential new export taxes on downstream products. So, sulphur disruption is not happening in isolation, it is compounding existing uncertainty on the Indonesian supply side. The result is that HPAL output growth could slow even if the market does not feel that fully yet in outright nickel prices.

Ronan: Excellent. Thank you very much, Raghav. I mean, obviously nickel MHP is part of the battery supply chain, but it's not the only part that is being impacted by the Iran crisis. So, moving on to Tom now. Tom, aside from nickel MHP, what other battery metals use products which transit the Strait of Hormuz?

Thomas: Well, I think Raghav has already mentioned an area that is likely to be exposed. He hinted that the DRC is probably a little bit more exposed than the rest of the copper supply chain for sulphur disruption and that's where 70% of the world's cobalt comes from. So, in terms of likely disruption that you'll see towards the middle of April if sulphur stops, if sulphur doesn't come through the strait, you're actually gonna see some interruption on cobalt production as part of that sort of copper-cobalt area in Kolwezi in the DRC. We've seen sulphur prices shoot up, delivered into the DRC. Actually, we saw around $900 per ton for sulphur deliveries in the DRC last week and that's up from $595 to $610 before the conflict. So, a rise of about almost 38%.

Now, looking at some other parts of the supply chain that could be impacted, then you have to start looking at the energy products that are coming out of the Strait of Hormuz. In particular, diesel. And I think diesel is one of the real pain points for some of the miners down in the copper belt. Obviously, deliveries mostly rely on trucks in that region. And we've already seen from some traders that diesel shortages in certain areas are already emerging. So, the likes of Zambia, the DRC, and some of the ports around that deliver material through. So, Durban, Dar es Salaam, and Barrow ports. Obviously, the longer this goes on, the worse those shortages become, and that starts affecting mining operations eventually.

We also look at places like Australia as being particular pain points as well. Australia is one of the biggest lithium producers in the world. And again, we see the situation in Australia for gas, oil, and diesel is quite difficult at the moment.

Ronan: Of course. Are these kind of initial disruptions, are they filtering through to cobalt or lithium prices as of yet?

Thomas: Not right now. We haven't actually seen that much of an impact on prices as of yet. In fact there's some different factors that have been affecting the cobalt and lithium prices in recent weeks that are probably a little bit more important than the Strait of Hormuz and the wider conflict right now. In cobalt, the DRC still holds an export quota on the amount of mined material that can leave the country and that's raised prices over the last few months. And that seems to be a more important factor in cobalt prices right now. Also it probably allows for some cushion if there was any production halts in the region because as these export quotas, there was an export ban from February till November last year and material has only just started moving out of the DRC just recently. So, there's probably quite a large buffer of cobalt hydroxide inventories at the mines themselves. So, any disruption in production on cobalt prices shouldn't have too much of an impact on the price itself.

Now, obviously, if diesel dries up and material can't make its way to the port and the entire logistics chain in southern Africa clogs up, then we'll see the usual impact on price that you'd expect from that. And the last time we saw this was COVID, but for different reasons. It wasn't anything to do with diesel. It was more to do with border checks, border closures. In some instances, I remember that Zambia and DRC closed their borders to stop the spread of the virus. But now we could probably see a supply truck in diesel which would choke up those vital supply routes. And then I would expect some price impact on cobalt.

In lithium, we are already seeing some effects in Australia of diesel shortages. So far six fuel shipments to Australia were cancelled last week and Australian government ministers have warned that supply in the second half of April is relatively uncertain. Obviously, that means that some bigger industrial operations may be curbed to keep supply for the general population. The IEA said that Australia's oil reserves were at 49 days and that was as of last week. So, there could be quite a period of shortage in Australia and the reason why is because they're at the very end of the Asian supply chain. So, most of Australia's gas, oil, diesel comes from places in Asia that are already struggling. So, take places like South Korea, Japan, Singapore. And they're on the very end of the supply. Obviously, most of those Asian countries get their oil from the Middle East, and refine, and send to Australia. Now, some of the largest lithium operations in the world are in Australia and most of them rely on diesel for haulage, drilling, remote site logistics, and trucking to and from ports. So, there could be a definite immediate impact if Australia starts running short on fuel supplies in the second half of April.

Ronan: Absolutely. And looking a little bit more longer term again into kind of second half of the year and beyond. And, you know, there is almost certainly going to be, I'm sure, plenty of mainstream media chat about how, "Oh, the oil supply has been disrupted. Let's go full steam ahead with electric vehicles." You know, surely this will mean more will be built and more will be consumed. But in real terms, if we see the kind of disruption, even the early disruption you're talking about cobalt and lithium, and then a potential energy price shock across the world, that is gonna filter through to the wider global battery complex as well, isn't it?

Thomas: Yeah. And it's interesting. I mean, we've already seen a slight uptick in lithium prices because of the Zimbabwe export ban around 140,000 tons or so of LCEs removed from the market. So, lithium's already in a period of relative shortage and many analysts have been saying that it might be in a deficit in 2026. If Australia is taken off the table for even a few months, then that pushes it into a major deficit over this year, and probably into next year, and the year after.

In terms of cobalt, I mean, the export quotas were to address a chronically oversupplied market because many miners in the DRC were chasing the copper volumes and were producing cobalt as a byproduct. So, obviously, cobalt follows the copper story, but we could also see a period of deficit. If the exports are stopped, diesel dries up and production's halted for long enough. I would say this, I mean, the irony of electrification is that it will save us from these kind of shocks. But at the moment, we need to burn oil and gas to reach that renewable future that will protect us from it. So, we're kind of caught in the middle. So, I would expect to see short-term pain in these markets for long-term gain.

Ronan: Now, that makes a lot of sense. Well, thanks very much to all of our experts. It's pretty clear that just one month into the conflict in Iran, this has already triggered an outright supply shock in the aluminium chain, which will impact regional availability and pricing in both Europe and Asia in particular, for the rest of 2026 at minimum. Then for the rest of the non-ferrous metals complex, it certainly seems like it's going to be the duration of the conflict and the accompanying closure of the Strait of Hormuz that will determine the pricing response in the medium term.

So, as we've heard, while exchange prices for metals like copper and nickel are lower on heightened macroeconomic risk, this dynamic could certainly reverse if disruption to supply of key inputs intensifies to the extent that we start to see metals production elsewhere start going offline globally. As we've heard from Raghav and Tom, that certainly looks like the first lines of disruption would come from sulphur and diesel. And it looks like we could start seeing real consequences for metals output there within the next two to three months. And then the key question is gonna be the extent of disruption to oil and gas supply, and what that means for global metal producers, power costs, and ability to operate. And that I think is going to be the story that really dominates how things play out throughout the second half of this year.

So, that concludes the podcast. For more information on our prices, and all the rest of our news and analysis coverage, please visit https://www.argusmedia.com/en/commodities/metals.