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Another commodity facing Iran war fallout: Industrial metals. The Middle East conflict has disrupted supplies, increased production costs and created another headache for U.S. manufacturers already dealing with the effects of higher tariffs.
Aluminum has taken the greatest hit. Prices have jumped dramatically since the war began, damaging regional smelters and curtailing shipments from the Persian Gulf, where six countries account for a fifth of U.S. aluminum imports. The metal’s cost in the U.S. has grown by nearly 90% over the past year, fueled in part by tariffs jumping from 10% to 50%.
U.S. consumption totals 27 billion pounds of aluminum, used for everything from fighter jets to soda cans. The U.S. auto industry, in particular, is struggling, as higher costs and supplier outages hamper efforts to increase the aluminum content of its cars. North American automakers consume 30% more aluminum than they did in 2020. Transportation, including the aerospace sector, accounts for a third of U.S. aluminum demand, the most of any category.
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Rising Chinese output should ease the deficit in global supply, now the worst since 2019, starting in the second half of this year. The U.S. could see its first new aluminum smelter since 1980, with construction set to begin later this year. Although the smelter won’t be up and running until the end of the decade, officials hope it’s the first of many new investments in U.S. capacity.
The war will affect the price of industrial metals in other ways. For example, mining costs tend to increase with oil prices. Iron ore operations are most sensitive, with costs increasing 4.2% for every 10% rise in oil prices, versus 3.5% for copper and 2.0% for gold. If oil averages $100 per barrel in 2026, mining costs could increase by 20% for iron ore, 16% for copper and 9% for gold. An ongoing sulfuric acid shortage also affects miners’ ability to extract minerals like copper and nickel from their ores.
Other factors will likely buoy industrial metals demand in the long term. Copper demand, for instance, is expected to increase 50% by 2040, with rapid growth in renewable energy and artificial intelligence adding to the metal’s industrial uses. Analysts also expect a growing copper shortfall, with production peaking in 2030.
Still, prices will fall if the energy supply crunch hits the global economy, which will become more likely if the two sides can’t sign a peace deal.
Keep an eye on metals with vital defense applications, such as tungsten, used in armor-piercing munitions and jet engine components, among other things. Global output is relatively small, 93,000 tons, vs. nearly 3 billion tons of iron ore and is dominated by China. It’s one of many metals included in White House efforts to coordinate supply with allies and reduce reliance on China.
Despite tensions over Iran, Greenland, defense spending and more, the U.S. and EU are deepening their cooperation on critical minerals. The two sides have signed a memorandum of understanding that could pave the way for common standards on mining, processing and recycling, as well as price floors and strategies for stockpiling minerals and addressing supply disruptions. The move is yet another step towards a U.S.-led critical minerals trade bloc. Washington has already agreed to similar action plans with both Japan and Mexico. China continues to dominate global supply chains for critical minerals like lithium and rare earth elements: 60% of production and 85% of refining capacity.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
