Metals Markets Project Cautious Optimism Amid Supply Constraints and Macroeconomic Headwinds

LME Week Concludes with Upbeat Sentiment for Key Metals

LME Week, the premier gathering for the global metals industry, concluded with a tone of cautious optimism regarding the trajectory of metal markets. Participants observed a potential turning point, primarily attributed to underlying physical market tightness and ongoing supply disruptions. Copper, in particular, has demonstrated remarkable resilience, trading near all-time highs, while cobalt experienced rapid price appreciation. The broader market, however, continues to navigate shifting trade policies and uneven demand recovery.

Copper Markets Driven by Supply Shortfalls and Robust Demand

Discussions surrounding copper during LME Week highlighted the persistent challenges of supply-side disruption and the unusual spread in the CME–LME copper arbitrage. Despite the U.S. not imposing immediate tariffs on copper cathode, a lingering expectation of potential future tariffs, possibly a 15% tariff from early 2027, continues to influence pricing. Key to the market's current strength are significant mine disruptions, including those at Grasberg, Kamoa Kakula, and El Teniente. Production losses from Grasberg are estimated at 591 kilotonnes and from Kamoa Kakula at 295 kilotonnes across 2025–2026, collectively projected to remove approximately one million tonnes over an eighteen-month period. These disruptions are expected to shift the global refined copper balance into a steep deficit by 2026.

Market data underscores this tightness. LME copper cash prices were recorded around $10,612 per tonne, with three-month futures at $10,637 per tonne on October 21. A striking development has been the steady drawdown in LME warehouse stocks, which declined by 4,575 tonnes during October alone. This inventory reduction signals that physical demand is outstripping available supply. Demand is further buoyed by structural shifts such as electrification initiatives and grid expansion in the U.S. and India, alongside the rapidly increasing copper requirements for data center construction to support artificial intelligence. Analysts estimate a compound annual growth rate of 39.5% for copper needed in data center construction from 2022 to 2025, with a projected 20% CAGR through 2030.

Cobalt Sees Bullish Momentum, Nickel Remains Oversupplied

In contrast to copper, cobalt markets experienced robust upward price movements during LME Week, particularly for cobalt hydroxide, which saw daily increases of approximately $1 per pound. This bullish sentiment is largely fueled by strong demand from Chinese refiners for both cobalt metal and hydroxide, coupled with anticipated delays in material leaving the Democratic Republic of Congo (DRC). While estimates of ex-DRC stocks vary, a significant portion is reportedly concentrated among a few major players, suggesting potential for additional price spikes into year-end.

Conversely, the nickel market continues to grapple with persistent oversupply. Despite rising costs potentially pressuring weaker nickel pig iron (NPI) and ferronickel (FeNi) producers, significant curtailments are not widely expected in the near term. Market participants suggest that without decisive intervention from the Indonesian government, such as export restrictions, the surplus is likely to persist. While long-term demand from the stainless steel and battery sectors remains robust, confidence in these fundamentals shifting the short-term market balance is minimal.

Aluminium Gains Traction as Future Deficit Looms

While copper has held the spotlight, aluminium has also shown notable resilience. Investors and industries are increasingly pivoting towards aluminium, prompted by raw material shortages in other sectors and stable pricing. The metal is projected to remain stable, averaging $2,325 per tonne, supported by a favorable inventory-to-consumption ratio near 15-year lows. Looking ahead, analysts at Citi forecast that the global aluminium surplus will shrink sharply through 2026, tipping into a 1.4 million-tonne deficit by 2027, a shortfall that Wood Mackenzie anticipates could persist for at least five years from 2028. This future deficit is influenced by China's 45 million-tonne annual capacity cap and the escalating costs of electricity, which pose a critical bottleneck for smelters.

Broader Economic Context: Inflation and Trade Tensions

The overall bullish sentiment in physical commodity markets is supported by a prolonged period of undersupply, extending for well over two years. Historically, such scarcity has correlated with higher commodity returns. This trend is amplified by persistent inflation, with the U.S. Consumer Price Index (CPI) at 2.9% year-over-year and Core CPI at 3.2%. Data indicates that the Bloomberg Commodity Index has performed approximately 15% better when year-over-year inflation exceeds 2%, reinforcing the link between inflation and commodity performance.

However, macroeconomic uncertainties, particularly surrounding China-U.S. trade relations, introduce significant headwinds. A critical deadline approaches on October 22, 2025, with the potential for a sweeping 155% tariff on Chinese imports if a new trade deal is not reached by November 1. Such tariffs could significantly impact demand forecasts for industrial metals, driving shifts in global manufacturing and sourcing strategies. China's economy itself faces challenges, including weak domestic demand, a downturn in the property market, and a projected fiscal deficit exceeding 8% of GDP in 2025, with national debt expected to surpass 100% of GDP by 2026.

Looking Ahead: Supply Dynamics and Policy Decisions Key

In the coming weeks and months, market participants will closely monitor several key factors. The ongoing impact of supply disruptions across major mines will continue to dictate short-term price movements for copper and other base metals. The outcome of U.S.-China trade negotiations and any subsequent tariff implementations will be crucial in shaping demand patterns for industrial metals. Furthermore, the interplay between persistent inflation and the monetary policy decisions of central banks will remain a significant determinant of overall commodity market performance. The long-term projections for a deepening deficit in the aluminium market also warrant close attention, potentially driving further investment shifts within the sector.