Key facts
- Base metals prices have been volatile, influenced by AI-driven demand, supply deficits, global growth concerns, and interest rate expectations.
- LME copper prices are expected to remain elevated due to supply underperformance, China's robust demand signals, and geopolitical disruptions.
- Aluminum prices retreated from four-year highs after geopolitical premiums faded, despite persistent supply constraints.
- Platinum group metals, particularly palladium, are facing downward pressure due to a weaker economic outlook and increased bearish bets.
- Standard Chartered has revised its price forecasts for aluminum and palladium downwards for 2026.
Metals markets are navigating a complex landscape, with structural deficits and the burgeoning demand from AI-driven data centers providing underlying support, while broader macroeconomic concerns such as global growth reassessments, elevated energy prices, and the prospect of sustained higher interest rates are creating headwinds.
Base metals have experienced significant volatility this year. The LMEX index reached an all-time high in early June, only to fall to a three-month low weeks later. This decline was partly triggered by a surge in oil prices following the collapse of a ceasefire deal between the U.S. and Iran, which reignited global inflation fears. Leveraged investors are reportedly selling assets to raise cash, anticipating that central banks will maintain higher interest rates for an extended period to combat inflation. Metal-specific tariff uncertainties also continue to be a major factor in market volatility and inventory imbalances.
Commodity analysts at Standard Chartered have provided a medium-term outlook, suggesting that base metal prices will largely be dictated by macroeconomic dynamics, including shifts in risk appetite, Federal Reserve interest rate policy, U.S. dollar movements, and economic activity in China.
Copper prices have largely traded within a range of $13,000-$14,000 per tonne over the past two months, after touching an all-time high in May. Standard Chartered forecasts that copper prices will remain elevated in the second half of the year, citing U.S. copper tariff review uncertainty, inventory dislocations, supply underperformance, and positive demand signals from China. Despite China's Q2 GDP growth falling slightly below its target range, supportive factors for copper demand include declining Shanghai Futures Exchange (SHFE) copper inventories, an increase in refined copper imports, and a strong Yangshan copper import premium, indicating robust buying interest.
The International Energy Agency (IEA) echoes a bullish sentiment for copper, warning that supply conditions have worsened considerably. This is attributed to disruptions in sulphuric acid availability due to the Iran war, geopolitical conflicts in the Middle East, and slower-than-expected recoveries at major mines. The IEA highlights that even as supply falters, copper demand is surging due to grid expansions, renewable energy transitions, and the substantial power requirements of AI data centers.
Aluminum prices initially reacted to geopolitical headlines concerning the Middle East, which accounts for 9% of global production. LME prices surged to four-year highs in early June, but have since retreated, erasing the geopolitical premium. Standard Chartered believes this sell-off may have been overdone, as the return of over 3 million tonnes of idled aluminum production is unlikely to occur simultaneously. Persistent supply constraints could last longer than the market anticipates. Robust production in Asia, particularly from Indonesia and China, has also contributed to subdued price responses to Middle Eastern supply risks. China's unwrought aluminum and product exports reached an all-time high in June. Standard Chartered has lowered its 2026 aluminum price forecast to an average of $3,318 per tonne.
In the Platinum Group Metals (PGM) complex, the platinum market is still seeking a stable floor. Standard Chartered maintains a positive outlook for platinum, citing factors such as the downturn in gold prices, significant outflows from Exchange-Traded Products (ETPs), rapid scaling back of speculative positioning, and anticipated downgrades in internal combustion engine vehicle production and sales. However, palladium has fallen to a low of $1,200 per ounce, with Standard Chartered expressing the least optimism for palladium among precious metals due to a weaker economic outlook potentially reducing demand and increasing bearish speculative bets. Trading activity has slowed, and inventories have risen, approaching Nymex levels. Standard Chartered has significantly lowered its 2026 average palladium price forecast to $1,454 per ounce. For rhodium, Standard Chartered predicts a modest undersupply this year, moving towards balance in 2027, driven by the pace of decline in auto-catalyst demand and recovery in recycling. The firm expects rhodium prices to average $9,268 per ounce in 2026.