I. Macro Background: Strait of Hormuz Blockade Ignites Supply Chain Crisis
The core trigger for the sharp divergence in metal markets this week was the sudden escalation of geopolitical conflicts in the Middle East. Deteriorating U.S.-Iran relations and disrupted shipping through the Strait of Hormuz have sparked deep panic over sulfur supply. Sulfur is a critical raw material for copper and nickel production – about 20% of global refined copper output relies on the sulfuric acid leaching method, and approximately 75% of Indonesia's sulfuric acid feedstock sulfur comes from the Middle East. Supply disruptions have directly pushed up production costs for non-ferrous metals. At the same time, U.S. CPI and PPI data for June came in cooler than expected, and a weaker dollar provided macro support for metal valuations.
II. Precious Metals: Safe-Haven Logic Fails, Gold Breaches Below $4,000
The escalation of geopolitical conflicts did not boost gold prices. On July 16, London spot gold closed at $3,977.41/oz, down 2.03%, hitting an eight-month low; COMEX gold futures settled at $3,979.9/oz, breaching below the key $4,000 level.
Reasons for gold's "decoupling" from geopolitical risk: Fed Chair Warsh's commitment to "zero tolerance" on inflation has intensified rate-hike expectations, weighing on gold; U.S. initial jobless claims came in below expectations, and labor market resilience supported the dollar and Treasury yields. Bridgewater analysis noted that official reserve holders staying on the sidelines and capital rotation into alternative assets such as AI infrastructure also weighed on gold prices. However, the People's Bank of China continued to increase its gold holdings in June, and the global central bank gold-buying trend persists, providing medium- to long-term support for gold prices.
III. Base Metals: Sulfur Supply Crisis Reshapes Pricing Logic
Copper – Inventory Crunch Combined with Cost Push
LME copper closed at $13,587/ton this week, up 9% year-to-date. LME copper inventories fell to 300,600 tons, the lowest since March; global visible inventories drew down by 42,000 tons to 1.195 million tons. Spot copper concentrate TC treatment charges fell to -$134.2/dmt. Sulfur supply concerns and inventory depletion formed a dual driver.
Nickel – Cost Curve Sharply Restructured, Hitting Three-Week High
LME nickel rose 2.3% during the week to $17,195/ton, hitting an intraday high since June 23. About 75% of the sulfur required for Indonesia's HPAL process is imported from the Middle East. Macquarie analysts noted that surging sulfur prices have added approximately $10,000/ton to HPAL costs, nearly reversing Indonesia's cost advantage. Combined with Indonesia's full-year nickel ore quota locked at 260-270 million wet tons, a reduction of over 30% from 2025, expectations of supply contraction have further strengthened.
Aluminum – Pulled by Both Restart Expectations and Geopolitical Risks
LME aluminum closed at $3,185/ton, up 1.3%; LME aluminum inventories fell below 300,000 tons for the first time since 2022. Middle Eastern electrolytic aluminum production has been cut by 2.068 million tons, but UAE's EGA aluminum smelter has restarted 89 electrolytic cells, and prior losses are gradually being repaired, with bearish and bullish factors intertwined.
IV. New Energy Metals: Lithium Earnings Surge but Prices Under Pressure, Rare Earths' Strategic Value Reassessed
Lithium – "Strong Earnings, Weak Prices"
Tianqi Lithium's first-half net profit is expected to surge over 30 times year-on-year, while Ganfeng Lithium swung to a profit. However, battery-grade lithium carbonate spot prices fell to 148,900 yuan/ton, down 6% over the past week. Supply-side restart signals are strengthening, while demand-side energy storage orders remain robust, with short-term supply and demand maintaining a tight balance.
Rare Earths – Export Controls Taking Effect
Japanese companies' rare earth procurement costs have risen by an average of 22.3% since last year, with only 4.2% of companies able to fully pass on the increases. In March and April, China's rare earth exports to Japan plummeted over 80% year-on-year, with Japanese companies warning that factories may be forced to halt production. Medium-heavy rare earth dysprosium oxide rose to 1.44 million yuan/ton.
V. Summary and Outlook
This week's metal markets exhibited a pattern of "geopolitical shocks dominating, sharp divergence among varieties": gold's safe-haven logic failed, breaching below $4,000; copper and nickel strengthened on sulfur cost pushes and inventory drawdowns; aluminum was pulled by both restart expectations and geopolitical risks; lithium showed "strong earnings, weak prices," reflecting market skepticism about the outlook; rare earths continued to see their strategic value reassessed amid export controls.
Looking ahead to the second half of the year, the evolution of the Strait of Hormuz situation, the Fed's policy path, and the pace of global critical mineral supply chain restructuring will be the core variables determining the direction of metal markets.
