Metals sector weathers Middle East shock 

Aluminium deficit cut to 1 million tonnes, but copper surplus signals fragile stability

Many forecast a turbulent, fragmented world for 2026. The first half delivered one. What it did not forecast was a Middle East conflict. This compounds the importance of the US mid-term elections as the next major policy and market milestone for 2026. Wood Mackenzie’s mid-year review reveals how contained the damage to metals and mining has been.

The clearest evidence sits in aluminium. At the height of the conflict, the disruption was expected to generate a supply deficit of between 2.5 and 3 million tonnes. The revised expectation is approximately 900,000 tonnes. Approximately 32% of global direct reduced iron production was also affected, though this remains a small share of overall global steel output.

“The sector has so far absorbed a significant shock with more composure than most expected,” said Peter Schmitz, Director, Global Markets Research, Wood Mackenzie. “The concern now is what the numbers do not yet fully show: inventories depleting, cost pressures building slowly, investment decisions deferred, and demand reorienting away from China. A 900 thousand tonne aluminium deficit and slight copper surplus are hardly comfortable figures. They are just not as uncomfortable as they might have been.”

The indirect effects are proving harder to contain. The conflict has disrupted half of global sulphur supply, and China’s restrictions on sulphuric acid shipments have compounded the pressure on copper and nickel production.  Copper is expected to be in surplus this year, with trade imbalances driven by tariff-related US inflows continuing to support higher prices. Global steel demand is faltering. Lithium has continued through the disruption largely unscathed, backed by existing oversupply and offtake concentrated in China.

Supply chain resilience built through the COVID-19 period and repeated rounds of trade and tariff disruption has cushioned the blow. Contingency plans were activated rather than built from scratch. Resilience, however, carries a cost. Trade frictions and the conflict are slowly exerting pressure on inflation, global growth, and commodity demand. The US Federal Reserve has held rates steady in the face of inflation concerns despite significant external pressure to cut.

The conflict has also sharpened a domestic resilience debate already underway. As oil and gas shipments faltered, discussions around electrification reached, in the report’s own words, “fever pitch,” shifting from reshoring jobs through trade barriers, including the updated EU Carbon Border Adjustment Mechanism, to building regional capability against geopolitical volatility. Whether that momentum survives a potential recession remains an open question.

Key details:

• Half of global sulphur supply has been disrupted by the conflict, compounding China’s sulphuric acid restrictions and placing sustained pressure on copper and nickel production, including in the DRC and Australia
• Aluminium supply affected by Middle East conflict is less than the 2-3 million tonnes initially expected, with the global supply deficit revised to 900 thousand tonnes for 2026
• Copper is still expected to move into surplus in 2026; trade imbalances driven by tariff-related inflows into the United States continue to support prices
• Approximately 32% of global direct reduced iron production was affected by the conflict; global steel demand is faltering near term
• The US Federal Reserve has held rates, citing inflation concerns despite significant external pressure; US mid-term elections are the next major policy and market milestone