S&P Global: The mining sector faces a new wartime reality

Markets divided by war and inflation

While gold and copper rallied strongly during January, the outbreak of open conflict between the US and Iran on February 28 dealt a blow to the supply chain that no analyst had fully anticipated.

“The change between what was happening from January to February 28 and beyond was quite dramatic,” said Mark Ferguson, research director of the Metals and Mining Research Group at S&P Global Energy.

“Since then, there have been very turbulent impacts on commodity markets, and we are still trying to assess the medium and long-term impact,” the expert said.

The numbers are sobering. The number of ships passing through the Strait of Hormuz dropped from 135 per day in February to just seven in March, according to S&P Global Commodities at Sea data.

Transit numbers increased slightly to 14 in April, before falling to eight per day in May.

“Even though there is a ceasefire, there is no agreement to allow transit,” Ferguson said. “Even if a long-term deal is reached, the backlog of ships will take time to clear out, and this will prompt long-term supply chain changes.”

Meanwhile, inflationary pressure is building. US CPI rose to 3.8 percent in April – a three-year high – and S&P Global Ratings has started lowering GDP forecasts for several economies.

gold maintains its hold

Despite the chaos, gold has proven resilient. After reaching above US$5,400 in January, prices have recovered but remain above US$4,400, still almost double the level from two years ago.

“Even at its lowest, it has not fallen below US$4,400 an ounce,” said Odd Marjolin, associate research analyst in the Metals and Mining research team. “That’s a pretty respectable level.”

Margolin pointed to the decline in traditional correlations. Both the US dollar and Treasury yields have strengthened – generally unfavorable for gold – yet demand for the metal as a hedge remains strong.

Central banks bought more than 200 metric tons of gold in the first quarter, enough to offset strategic sales. ETF inflows also turned positive in April after only one month of net outflows in almost a year.

“Gold is not tied to any fiat currency,” Margolin said. “It is not one of those financial instruments that can become collateral in a war or be subject to sanctions or freezing.”

Aluminum, copper and sulfuric acid shock

Aluminum has emerged as one of the most exposed commodities. As one of the most energy-dense metals, it responds strongly to electricity prices. Analysts have warned that physical damage to smelters in the Middle East is likely to reduce global output by 3 percent, enough to push the market into losses this year.

“The aluminum market is expected to slide into deeper losses than in 2022,” Margolin said. “This could provide strong support to prices.”

Copper tells a slightly different story.

Demand remains strong, particularly in China, where Shanghai Futures Exchange listings fell 45 percent in mid-April, marking the beginning of seasonal demand crunch. But the pressure to concentrate continues to tighten.

According to Mitzi Sumangil, the lead analyst who tracks zinc, nickel and copper, the bigger story is sulfur, a key input for the production of both copper and nickel.

“Sulfuric acid is used for many things, including copper production from SX-EW operations,” Sumangil said. “Prolonged wartime could keep prices of almost everything high for a long time.”

Jessica Anne dela Cruz of S&P Global’s mine economics team quantified the impact: “Our latest analysis estimates cost increases of 10 cents per pound in the global copper mining industry for 2026. Reagent costs alone are set to increase by 36 percent, adding about seven cents per pound to the cost of copper production.”

Lithium, cobalt and battery metals under pressure

The battery metal complex is also feeling the strain. In Australia, diesel shortages are forcing small lithium mines to reduce non-essential activities. In Zimbabwe, government restrictions on lithium exports have changed to a quota system, but exports are now only allowed from six approved mines.

“Between the country’s year-to-date exports of lithium and the volume allowed by the quota system, we are only looking at eight months of production,” Margolin said. “This leaves a huge supply gap for the year.”

In China, four mines are in the process of reforming mining licenses that were not originally issued for lithium, a lengthy process that could halt operations and lead to further supply shortages.

Cobalt faces a different challenge.

While demand remains weak, supply constraints in the Democratic Republic of Congo and Indonesia are keeping the market tight. In Indonesia, cobalt is produced through HPAL facilities which are heavily dependent on sulfur – now in short supply due to the closure of the Strait of Hormuz.

CAPEX discipline and shift towards production

Despite record metal prices, miners are not opening the doors to spending.

S&P Global estimates capital spending for the top 30 miners will reach a decade-high US$121 billion in 2026, but spending remains targeted and disciplined.

“Copper growth remains the central focus for almost all major diversified miners,” Dela Cruz said. BHP (ASX:BHP,NYSE:BHP,LSE:BHP) and Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) each expect to spend about US$11 billion in 2026, primarily on copper projects, potash and decarbonization.

However, junior financing declined 25 percent quarter-on-quarter, even though it remains historically high. Their share in loan transactions more than doubled, accounting for almost half of the total funds raised.

In particular, new resource announcements for copper have fallen for four consecutive quarters to their lowest level in several years. Instead, funds are being directed to rapidly move existing projects toward production.

“The decline in initial resource announcements and increase in positive milestones shows that money is being spent on projects moving rapidly toward production rather than exploration,” Dela Cruz said.