Middle East war pressures copper, exposes nickel risk

Executive summary

The war in the Middle East has disrupted energy and maritime trade routes, with the closure of the Strait of Hormuz increasing risks and costs across global commodities markets. For copper, the immediate impact has been muted. Iran’s copper production represents a small share of global supply, while rising exchange inventories and a stronger US dollar have placed downward pressure on prices. By contrast, the nickel market is more vulnerable. The disruption has highlighted structural weaknesses in the sulfur‑to‑acid supply chain that underpins high‑pressure acid leach (HPAL) operations, a critical processing route for battery‑grade nickel sulfate. Should disruptions persist, the nickel market may increasingly price in supply‑chain risk premiums tied to processing inputs rather than mined ore availability.

The Take

Due to the broadening conflict in the Middle East, the closure of the Strait of Hormuz on Feb. 28 led to increased maritime risks for oil and energy markets. With over 25% of global seaborne oil and about 20% of global LNG trade passing through the strait, this stalled trade route furthers cost-push inflation given supply and logistical uncertainties. In this article, we highlight the closure's impacts to the copper and nickel markets, with the latter becoming increasingly susceptible to supply-side shocks.

Copper prices tempered by US dollar

The escalation of the US-Iran conflict is expected to have a limited effect on global copper supply. Although Iran is the Middle East's main copper producer, its output — about 360,000 metric tons of mined copper and 340,000 mt of refined copper in 2025 — represents just 1.5% and 1.2% of global production, respectively. In 2025, Iran exported just over 109,000 mt of refined copper, mainly to the United Arab Emirates and Turkey. Both countries can easily source copper from alternative suppliers, minimizing the risk of disruption.

Global refined copper stocks

Global refined copper stocks have increased significantly in major exchange warehouses since January, rising 50% by early March to 1.25 million mt. This inventory buildup provides a buffer against potential supply shocks from the region.

The London Metal Exchange three-month (LME 3M) copper price fell from $13,343.5/mt on Feb. 27 to $12,955/mt on March 3, suggesting the conflict's immediate impact on copper has been downward. The closure of the strait has triggered a rapid increase in energy prices, which is expected to weaken global growth and put pressure on copper demand. At the same time, higher energy prices have renewed concerns about inflation, potentially delaying any US Federal Reserve interest rate cuts. This has strengthened the US dollar recently, adding further downward pressure on copper prices.

High global refined copper stocks are also weighing on prices, but this could be a short-term phenomenon. With the Chinese market now back from the Lunar New Year holiday, copper-consuming sectors are resuming production and gradually entering their seasonal peak demand period. As a result, we anticipate stocks at the Shanghai Futures Exchange will begin to decline from current high levels. Most global copper stocks are now sitting in the US market and are unlikely to flow out easily, especially with the possibility of the US imposing tariffs on refined copper imports.

In summary, copper prices are currently under short-term pressure from a stronger dollar, high inventories and demand concerns should global GDP growth weaken. Looking ahead, potential dollar weakness and ongoing tightness in the concentrates market are expected to provide support for copper prices.

Nickel supply chain vulnerable given Hormuz closure

The closure of the Strait of Hormuz highlighted a critical vulnerability within the global nickel value chain: the availability and cost stability of sulfur-based inputs essential for high-pressure acid leach (HPAL) operations. HPAL technology is a vital processing stage in the production of battery-grade nickel sulfate (NiSO₄) used in electric vehicle batteries. It relies heavily on sulfuric acid to convert laterite ore into mixed hydroxide precipitate (MHP), which is subsequently turned into NiSO₄. Thus, disruptions in the sulfur supply chain can materially impact primary nickel supply and even exacerbate price volatility.

According to S&P Global Energy's preliminary assessment, Indonesia imported over 5.2 million mt of sulfur in 2025, up by 44% year over year, driven by the accelerated expansion of HPAL output. Exports to Indonesia from Qatar, Saudi Arabia and the UAE jumped 29%, led by outflows toward Bahodopi and Weda Bay, both of which house HPAL plants. Bahodopi, a joint venture between PT Vale Indonesia Tbk and GEM Hong Kong International Co. Ltd., is expected to commence operations within the year. On the other hand, PT Weda Bay Nickel received a lower production quota of 12 million wet metric tons for 2026, from 42 million wmt in 2025. Eramet SA, one of the venturers alongside Tsingshan Holding Group Co. Ltd. and PT Aneka Tambang Tbk, stated that the company will apply for a quota increase.

Although the recent rally in LME 3M nickel prices within the $17,000/mt to $18,000/mt range — partly attributed to Indonesia's recent quota reduction announcements — has improved market sentiment, it does not fully offset the impact of rising sulfur costs. HPAL plants with higher all‑in sustaining costs (AISC) in regions such as Australia and New Caledonia are more vulnerable during a surge in sulfur prices. These plants often struggle with design limitations, slow ramp‑up performance and persistently high operating costs. By contrast, Indonesia's HPAL operations benefit from structural advantages that keep their AISC low. They operate with lower energy and labor costs and tend to achieve higher recoveries through newer-generation HPAL designs.

Should the disruptions in the Strait of Hormuz persist, the nickel market will likely begin to increase the price premium associated with battery-grade nickel chemicals. The next phase of nickel market volatility may be driven less by ore supply constraints and more by the resilience of the sulfur-to-acid supply chain that underpins HPAL operations.

Why Copper Has Been More Resilient

Limited Supply Exposure

Iran accounts for a relatively small share of global copper production and exports, and its main trading partners can source copper from alternative suppliers. This limits the risk of physical supply disruption stemming from the conflict.

Inventory and Currency Effects

Global refined copper stocks have risen sharply since January, providing a buffer against regional supply shocks. At the same time, higher energy prices have reinforced inflation concerns, strengthening the US dollar and placing downward pressure on copper prices.

Near‑Term vs Medium‑Term Outlook

While copper prices are under short‑term pressure from inventories, dollar strength and growth concerns, support may emerge if US dollar weakness materializes or if tightness in the concentrates market persists later in the year.

Nickel: A More Exposed Supply Chain

HPAL’s Dependence on Sulfur Inputs

HPAL processing is essential for producing battery‑grade nickel sulfate used in electric vehicle batteries. This process relies heavily on sulfuric acid, much of which is derived from sulfur shipments originating in or transiting through the Middle East.

Indonesia’s Growing Exposure

Indonesia, the world’s dominant nickel producer, has sharply increased sulfur imports to support rapid HPAL expansion. A significant share of these imports comes from Gulf producers, increasing exposure to disruptions linked to the Strait of Hormuz.

Cost and Competitiveness Implications

Rising sulfur costs disproportionately affect higher‑cost HPAL operations in regions such as Australia and New Caledonia. Indonesian HPAL projects are structurally better positioned due to lower energy and labor costs and newer plant designs.

Market Implications to Watch

• Copper pricing remains demand‑ and currency‑led in the near term, with limited direct supply risk from the Middle East war.
• Nickel price volatility may increasingly reflect processing‑input risks, particularly for battery‑grade nickel chemicals.
• Supply‑chain resilience, not ore availability, could become the key differentiator across HPAL producers if disruptions persis

How does the Middle East war affect copper prices?
The impact has been limited. High global inventories, a stronger US dollar and modest regional supply exposure have weighed more heavily on copper prices than physical disruption.

Why is nickel more vulnerable than copper?
Nickel HPAL processing depends on sulfur‑based inputs that are exposed to disruptions in Middle East shipping routes, particularly the Strait of Hormuz.

Does the Strait of Hormuz matter for battery‑grade nickel?
Yes. Disruptions could raise sulfur and sulfuric acid costs, increasing production costs for battery‑grade nickel sulfate even if ore supply remains adequate.

Which producers are most exposed?
Higher‑cost HPAL operations outside Indonesia are more exposed to rising sulfur prices, while Indonesian producers benefit from lower costs and newer facilities.