The Metal Market: The Battle Between AI Demand and Global Economic Risks

The metal market is in a precarious balancing act, with structural deficits and AI-driven data center construction creating growth momentum, while reassessments of global growth, high energy prices, and rising interest rate risks increasingly challenge the positive thesis.

Basic metal prices have fluctuated significantly this year, with the LMEX index hitting an all-time high in early June before dropping to a three-week low just two weeks later after the ceasefire agreement between the US and Iran collapsed, driving oil prices higher and raising concerns about new global inflation. Leveraged investors are increasingly selling assets to hold cash as they forecast central banks will keep interest rates higher for longer to combat inflation.

Simultaneously, uncertainty about specific metal tariffs remains a key driver of volatility and inventory imbalances. Commodity analysts at Standard Chartered have issued a medium-term outlook for base metals, suggesting prices will be influenced by macro factors, including changes in risk appetite, Fed interest rate policy, USD fluctuations, and China's economic activity.

Volatility in Basic Metal Prices

Basic metal prices have fluctuated significantly this year, with the LMEX index hitting an all-time high in early June before dropping to a three-week low just two weeks later. The collapse of the ceasefire agreement between the US and Iran stimulated oil price increases and raised concerns about new global inflation.

1. Copper

LME copper prices have largely been range-bound over the past two months, trading flat in the $13,000-14,000/ton range after testing the all-time high of $14,000/ton in May. Standard Chartered forecasts copper will remain elevated in the second half of the year due to uncertainty about US copper tariff reviews, inventory imbalances with flows to the US encouraged by the Comex-LME spread, poor supply performance, and recent demand signals from China.

Although China's economic growth in Q2 reached 4.3% year-on-year, below the 4.5-5.0% target, Standard Chartered noted several supportive signals for copper demand from China. These signals include:

• Decreasing SHFE copper inventories, indicating tight domestic supply
• Increased refined copper imports, with unwrought copper reaching 478,000 tons in June, up 4% year-on-year, showing stronger buying activity
• Continued strength in the Dongshan copper import premium, a sign that Chinese buyers are willing to pay higher premiums for imported copper due to strong demand

Standard Chartered is not alone in its optimistic view on copper. In its latest Global Critical Minerals Outlook, the International Energy Agency (IEA) warns that short-term and medium-term copper supply has "deteriorated significantly," due to severe disruptions in sulfuric acid supply needed for copper processing due to the war with Iran, geopolitical conflicts in the Middle East, and slower-than-expected recovery at major mines.

The IEA suggests that even as supply faces challenges, copper demand continues to surge due to grid expansion, renewable energy transition, and skyrocketing energy demand from artificial intelligence (AI) data centers.

2. Aluminum

Aluminum prices have been driven by geopolitical headlines around Middle East conflicts, with the region accounting for 9% of global production. Initially, LME prices were slow to reflect supply risk relative to the physical regional premium increase; however, prices hit a four-year high, peaking in early June at above $3,700/ton. Since then, prices have fallen, dropping to the lowest close since February 1 on July 1, completely erasing the geopolitical premium.

According to Standard Chartered, the sell-off was somewhat excessive as the return of more than 3 million tons of aluminum production that had been idled due to production constraints and smelter damage cannot occur simultaneously. With facilities expected to resume production at different times, supply constraints could last longer than the market is currently pricing.

Standard Chartered notes that strong production in Asia is the main reason for the severe price reaction to supply risks from Middle East smelters. Indonesian aluminum production has grown significantly while domestic Chinese production is testing the 45Mt production limit as producers seek to capitalize on higher prices and improved profit margins.

China's imports and exports of unwrought aluminum reached an all-time high of 711,000 tons in June, up 45% year-on-year after rising consecutively for four months. Standard Chartered has lowered its aluminum price forecast to an average of $3,318/ton in 2026, from $3,478/ton previously.

3. Platinum Group Metals

Along with the rest of the platinum group metals, the platinum market is still seeking a floor. However, Standard Chartered has maintained a positive outlook due to several stimulating factors. These include falling gold prices as the market prices higher real yields and a stronger USD, significant outflows from exchange-traded products (ETPs), rapidly narrowing speculative positioning, the market pricing in a more pronounced downgrade in production and sales of internal combustion engine vehicles, and an expanding range for recycled supply.

Platinum fell to a low of $1,200/oz in June as platinum group metal prices continued to weaken. Standard Chartered remains most optimistic about platinum among the precious metals, warning that weaker economic prospects could further reduce demand. Investor sentiment has also deteriorated, with hedge funds increasing short positions in Q2. Trading activity has slowed while inventories continue to rise, a sign that demand is not strong enough to absorb available supply. Exchange inventories have risen to 200,000 oz, approaching the Nymex level of 233,000 oz.

Reflecting weaker fundamentals, Standard Chartered has lowered its 2026 average palladium price forecast to $1,454/oz from $1,850/oz previously.

Meanwhile, Standard Chartered forecasts the rhodium market will remain in slight deficit this year and near balance by 2027. The main drivers for the rhodium market are the pace of declining automotive catalyst demand as well as the scope for recovery in recycling. The fact that rhodium is also under pressure suggests a slowdown in automotive expectations. However, lower prices also make hedging activity more attractive. Standard Chartered forecasts rhodium will average $9,268/oz in 2026, down from the previous forecast of $9,563/oz.

Market Outlook Summary

The metal market is facing a critical juncture where demand from AI data centers and renewable energy is battling against unfavorable macro factors. Analysts at Standard Chartered and IEA both agree that copper supply will continue to be a significant challenge in the short and medium term, while other metals like aluminum and platinum group metals will be more influenced by specific geopolitical factors and industrial demand.

For investors, closely monitoring Federal Reserve policies, China's economic situation, and geopolitical conflicts will be key to understanding metal market trends in the coming period.

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