Copper prices swing as inflation fears hit industrial metals

Industrial metals have been volatile this week as mounting inflation fears put further pressure on global bond markets.

Copper futures for August delivery dropped 1.3% on the London Metals Exchange on Tuesday, before rebounding 0.5% on Wednesday to $13,477 per ton. The metal — used in various goods including electrical wiring, machinery and plumbing — is widely seen as a bellwether for the global economy.

Aluminum, nickel, tin and zinc have been similarly oscillated between gains and losses.

The moves came amid broader volatile trade in global bond and equity markets. Global stocks have been volatile as investors assessed corporate earnings and U.S. Treasury yields, climbing to multi-decade highs.

Analysts told CNBC the outlook for many industrial metals was being clouded as complications unfolded on both the supply and the demand sides.

In a note last week, strategists at Macquarie said potential risks for zinc were weighted to demand pressures, given that around 55% of end-use demand is in construction and therefore vulnerable to any economic downturn.

“On the supply side, higher diesel, acid and explosive costs are weighing on margins, but this should not be an issue at current metal prices,” they said.

“Energy prices in Europe are a key risk for European zinc smelters, although power prices are yet to show much of a reaction to the situation in the Middle East.”

Similar uncertainty has also emerged in aluminum, in which “structurally tight supply is set against weak end-demand” in Europe and North America, according to Shashank Sriram, senior metals analyst at Wood Mackenzie. 

Aluminum is an essential material across electronics, transport, and construction, as well as other industries such as solar panels and packaging. Around 9% of global ​aluminum supply comes from the Gulf, and most firms there have been unable to export the metal beyond the region since Iran effectively closed the Strait of Hormuz.

“As the conflict persists, supply risks are becoming more entrenched,” Sriram told CNBC.

“Even in a scenario where the Strait reopens, the supply shock is not quickly reversible – beyond shipping dislocations and raw material disruptions, the restart of smelters following both controlled shutdowns and uncontrolled damage will be gradual, which means recovery will be phased rather than immediate.”

As such, Wood Mackenzie sees “insufficient demand-side momentum to sustain a move towards $4,000 per ton” in the near future.

The particularly bullish narrative that drove copper higher through 2025 is still supporting prices, led by mine supply shortages and strong demand from the energy transition, Alice Fox, commodities strategist at Macquarie, told CNBC over email.

The “sentiment-driven” nature of prices, she added, is caught between demand for the red metal and fears of higher interest rates.

Charles Cooper, head of copper research at Wood Mackenzie, told CNBC that prices for the metal were highly volatile but holding at historically elevated levels around $13,500 a ton.

“While prices recently peaked near all-time highs of US$14,500/t, they are now consolidating below those levels,” he said in an email. “High absolute prices have triggered a wave of demand caution in China’s spot market, allowing broader macroeconomic headwinds to drive aggressive two-way volatility.”

Cooper added that a stark divergence between U.S. and Chinese bond markets is driving heavy fund volatility.

“In the US, rising inflation expectations are pushing Treasury yields higher, supporting a strong U.S. dollar and prompting periodic profit-taking across long copper positions,” he said.

“Conversely, Chinese government bond yields are hovering near historic lows, signalling a sluggish domestic manufacturing and property sector that is currently struggling to provide the physical demand required to support a sustained next leg higher.”

Despite these macro pressures, the physical market remains highly sensitive to ongoing supply-side disruption risks, according to Wood Mackenzie. A return to full operations at the world’s second-biggest copper mine, Grasberg in Indonesia, have been delayed to 2028 following a fatal mud slide in 2025.

Flooding at the Kamoa-Kakula mine in the Democratic Republic of Congo and an accident at the El Teniente mine in Chile also impacted supplies last year.

Cooper added that many physical copper supplies were still concentrated in U.S. warehouses following tariff-driven stockpiling, limiting availability to the broader market.

“Overall, copper reflects a classic macro vs. micro tug-of-war,” he told CNBC.

While structural, relatively price-inelastic demand drivers — such as grid expansion and AI data center infrastructure — continue to underpin the long-term narrative, Cooper noted that data center-related consumption that is yet to be fully evidenced in physical markets.

“Against a backdrop of softer macro conditions and elevated inventories, this suggests the market may be pricing in part of the longer-term story early,” he said. “For now, this leaves copper in a volatile $13,200–$13,800 a ton range, with further upside requiring both stabilization in global bond yields and a clearer recovery in Chinese industrial activity.”