Copper miners face energy delivery, supply chain uncertainty

Knock-on effects from the conflict in Iran and subsequent closure of the Strait of Hormuz are expected to have a delayed but meaningful impact in the primary non-ferrous markets, especially through upstream supply chains.

Building on our recent scenario analysis for iron ore, we adjusted our base case for 2026 to incorporate changes in key cost metrics affecting mining operations. Factors such as rising fuel and reagent prices due to ongoing geopolitical disruptions in the Middle East are expected to significantly impact the output and profitability of copper mines. Our modeling projects a 5.1% cost increase across the global copper mining industry, with reagent prices playing a crucial role in this escalation.

The Take

• Sulfuric acid and solid sulfur prices are rising due to trade flow concerns stemming from the closure of the Strait of Hormuz.
• The ongoing conflict has disrupted oil and LNG shipping, impacting copper operations reliant on these resources.
• Modeling indicates potential cost increases of over 10 cents per pound for copper, with reagents seeing the most significant rise.

Sulfuric acid, sulfur costs rise on an already tightened supply

Sulfuric acid is essential in the copper mining industry, serving multiple functions, including acting as a leaching agent to extract copper from oxide ores and as a pH modifier during processing. A byproduct of the oxidation process, sulfur dioxide gas, can be captured and converted back into sulfuric acid, enhancing operational efficiency. Typically, sulfuric acid concentrations hover around 95%. However, operations lacking sufficient in-house production of this reagent may face challenges due to supply chain disruptions stemming from the ongoing conflict.

With a significant portion of sulfur sourced from the Middle East, prices for both sulfuric acid and solid sulfur have risen amid uncertainty regarding trade flows since the start of the disruption. The Platts-assessed Solid Sulfur FOB Middle East Spot (excl. Iran) surged to almost $700 per metric ton at close on March 12, a weekly gain of over 34%, while the Platts-assessed Sulfuric Acid CFR Indonesia shifted higher to $170/mt at close on March 11. Given the sensitivity of the sulfuric acid supply chain to geopolitical events, market participants are closely monitoring the situation.

The power problem: impacts on mining operations

The closure of the Strait has stifled shipping of vital oil and LNG supplies, affecting primary production due to storage capacities nearing their limits. Additionally, with refineries such as Saudi Arabian Oil Co.'s Ras Tanura and Bapco Energies Sitra sites both being affected by missile and drone strikes, pipeline deliveries are projected to be insufficient to meet demand.

Fuel and electricity costs are rising rapidly, and the prolonged nature of these disruptions will undoubtedly affect copper mining operations. Many sites run their light and heavy machinery on diesel fuel, and mills are generally reliant on grid power to process ore. Processes like semi-autogenous grinding (SAG) milling, for example, require large amounts of energy, contributing to the industry's consumption of approximately 1.7% of global energy generated. With some grids in European and Asian markets reliant on oil or LNG as their fuel sources, miners in those regions are highly exposed to the ongoing disruption in supply.

The ramifications for African operations may be even greater and possibly exceed our initial modeling assumptions. While Nigeria and Libya are significant oil exporters, providing an opportunity for increased intra-African trade, the continent remains heavily reliant on fuel imports from the Middle East. Many regions in Africa depend on oil-based fuels for power generation and utilize diesel generators as a backup to mitigate grid instability. In contrast, countries with substantial renewable energy infrastructure — such as Canada, where over 60% of the grid is powered by hydropower — appear relatively insulated from the geopolitical tensions affecting other regions.

Modeling a cost impact scenario: assumptions and inputs

To evaluate the near-term impacts against our 2026 consensus forecast base case, we have incorporated several key assumptions: a variable increase in electricity costs (up to 40%, depending on the region), a 25% year-over-year rise in fuel costs for 2026, a 40% increase in reagent costs, and a 15% hike in transportation rates. Our updated scenario reflects these theoretical rate hikes across multiple cost metrics, indicating a cost increase of over 10 cents per pound for paid copper as a direct consequence of the ongoing conflict. The most significant impact for copper miners will be on the operational side, where mining and processing costs will account for 84% of the total increase.

The uncertainty surrounding the duration of the crisis will likely tighten profit margins for operators and expose vulnerabilities in both upstream and downstream supply chains. With diminishing market sentiment, suppliers to mining operations may be compelled to declare force majeure if they cannot fulfill contractual obligations, which could, in the long term, lead to declines in primary copper production.

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}