Copper: Is the Correction the End of the Rally?

• Base Metals Price Outlook: Standard Chartered expects base metals prices to remain elevated throughout the year, particularly in H1 2026.
• Market Drivers: The anticipated price increase is driven by both macroeconomic and microeconomic factors.

• Norway's Policy Reversal: Norway has halted its deep-sea mining plans until at least 2029 due to political pressure and public demand for environmental protection, marking a significant shift from its previous stance of opening vast offshore areas for mineral exploration.

• Environmental Concerns: The decision was influenced by warnings from environmental agencies and scientists about the vulnerability of deep-sea ecosystems, leading to a historic victory for conservation advocates like WWF Norway.

• Continued Mining Ambitions Elsewhere: Despite Norway's pause, deep-sea mining efforts are advancing in the U.S., where The Metals Company is pursuing permits in the mineral-rich Clarion-Clipperton Zone, significantly boosting its stock performance.

• Regulatory Framework Issues: The global regulatory landscape for deep-sea mining remains incomplete, with the International Seabed Authority yet to finalize a comprehensive Mining Code, although it emphasizes the need for strict environmental oversight.

• Iron Ore Price Projections: Analysts predict a slight decline in iron ore prices, with an average of $95/ton in 2026, influenced by increased supply and macroeconomic pressures in China.

• China's Demand Weakness: China's manufacturing sector shows persistent weakness, with a contraction in the PMI and declining new-home prices, leading to expectations of reduced iron ore consumption as the country shifts towards less steel-intensive sectors.

• Supply Stability and Vale's Strategy: Major iron ore producers maintain stable operations, but Vale SA has lowered its production forecast for 2026 and is adopting a more cautious investment strategy amid market dynamics.

• Vale's Copper Ambitions: Vale is shifting focus towards copper, planning to produce 700,000 tons annually by 2035 through a joint venture with Glencore, indicating a strategic pivot in response to the iron ore market outlook.

Impact of Tariffs on the Aluminum Supply Chain

• EU's Response to Tariffs: The European Union is under pressure from a 50% tariff imposed by the U.S. on finished aluminum, prompting Brussels to prepare emergency measures to protect its €40 billion aluminum industry, which directly employs around 250,000 people and supports an additional 1 million jobs.
• Scrap Metal Exemption Issue: While finished aluminum is heavily taxed, scrap metal shipments to the U.S. are exempt, leading to a significant flow of scrap away from European recyclers, which is critical for their operations.

Consequences for European Recycling Plants

• Operational Challenges: European recycling plants are facing shutdowns and reduced capacity due to the lack of scrap metal, with industry leaders warning that they have only weeks to address the situation before it becomes critical.
• Potential Levy on Exports: There is opposition from scrap dealers against a proposed levy on exports, but EU officials indicate that such measures may be necessary to maintain competitiveness in the aluminum sector, which is essential for low-carbon technologies.

U.S. Market Dynamics

• Surge in Aluminum Prices: Following the tariffs, the Midwest premium for aluminum in the U.S. has increased by 81%, with U.S. buyers now paying approximately $4,200 per ton compared to the global price of around $2,600 per ton.
• Adaptation by Major Producers: Companies like Rio Tinto are adjusting their strategies by purchasing aluminum from the U.S. spot market instead of exporting from Canada, as tariffs have made traditional shipments unprofitable.

Broader Industry Concerns

• Decline in U.S. Smelters: The U.S. aluminum industry has seen a drastic reduction in operational smelters, now only four remain, raising concerns about the industry's ability to meet domestic demand amidst rising prices.
• Consumer Price Impact: The Can Manufacturers Institute has warned that increasing aluminum costs could lead to higher prices for canned goods, posing risks to food supply chains.
• Global Market Reshaping: Analysts note that the tariffs are altering global aluminum flows, particularly affecting Canadian producers, while the U.S. industry struggles with insufficient domestic capacity and high energy costs for new plants.

• U.S.-China Trade Tensions: The trade truce between the U.S. and China is at risk as the Trump administration accuses China of not adhering to an agreement regarding rare earth mineral export licenses, leading to concerns from U.S. companies about potential production halts.

• Recent Developments: Despite a temporary suspension of tariffs following negotiations in Geneva, China's slow approval of export licenses has prompted criticism from U.S. officials, with President Trump highlighting China's failure to meet its commitments.

• Tariff Exemptions: The White House announced that certain industrial and precious metals, including steel, aluminum, gold, and copper, will not face additional reciprocal tariffs, providing some relief to domestic buyers affected by existing duties.

• Economic Impact: The Aluminum Association and Can Manufacturers Institute expressed concerns about the reliance on imports due to closed domestic production lines, warning that tariffs could increase packaging costs and reduce global competitiveness, while the White House claims these tariffs have strengthened the U.S. economy and created jobs.