S&P Global: Mining Sector Facing New Wartime Reality

A market divided by war and inflation

While gold and copper rallied hard through January, the outbreak of open conflict between the US and Iran on February 28 triggered a cascade of supply chain shocks that no analyst had fully modeled.

“The shift between what was happening in January through to February 28 and beyond was quite dramatic,” said Mark Ferguson, research director for the Metals & Mining Research group at S&P Global Energy.

“Since then, there have been very tumultuous impacts to commodity markets, and we are still trying to gauge the medium and longer‑term impact," the expert added.

The numbers are stark. According to S&P Global Commodities at Sea data, vessel transits through the Strait of Hormuz, collapsed from 135 per day in February to just seven in March.

Transit numbers rose slightly to 14 in April before falling back to eight per day in May.

“Even though there is a ceasefire, there’s no agreement to allow transit,” Ferguson noted. “Even if a longer‑term deal is struck, it will take time for the backlog of vessels to exit, and it will prompt longer‑term supply chain changes.”

Meanwhile, inflationary pressures are building. The US CPI rose to 3.8 percent in April — a three year high — and S&P Global Ratings has begun downgrading GDP forecasts for multiple economies.

Gold holds its ground

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

“Even at its lowest, it hasn’t dipped below US$4,400 an ounce,” said Aude Marjolin, associate research analyst, Metals and Mining Research team. “That’s quite a respectable level.”

Marjolin pointed to a breakdown in traditional correlations. The US dollar and Treasury yields have both strengthened — typically a headwind for gold — yet demand for the metal as a hedge remains strong.

Central banks bought just over 200 metric tons of gold in the first quarter, enough to offset strategic selling. ETF flows also turned positive in April after only one month of net outflows in nearly a year.

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

Aluminum, copper and the sulfuric acid shock

Aluminum has emerged as one of the most exposed commodities. As one of the most energy‑intensive metals, it responds sharply to power prices. Physical damage to smelters in the Middle East has the potential to reduce global output by 3 percent, enough to tip the market into deficit this year, warned analysts.

“The aluminum market is expected to drop into a deeper deficit than what even happened in 2022,” Marjolin said. “That could provide strong support to prices.”

Copper tells a slightly different story.

Demand remains robust, particularly in China, where Shanghai Futures Exchange inventories fell by 45 percent in mid‑April, marking the start of seasonal demand. But the concentrate squeeze continues to tighten.

The bigger story, according to Mitzi Sumangil, a principal analyst tracking zinc, nickel and copper, is sulfur, a critical input for both copper and nickel production.

“Sulfuric acid is used for so many things, including producing copper from SX-EW operations,” Sumangil said. “Prolonged wartime can keep prices for almost every single thing higher for longer.”

Jessica Anne Dela Cruz of S&P Global’s mine economics team quantified the impact: “Our latest analysis projects a 10‑cent‑per‑pound cost increase across the global copper mining industry for 2026. Reagent costs alone are set to rise by 36 percent, adding nearly seven cents per pound to the cost of producing copper.”

In a recent episode of the Investing News Network podcast, Phil Ehr, retired US Navy commander and strategic advisor to NovaRed Mining (CSE:NRED,OTCQB:NREDF), offered insights into the Strait of Hormuz blockade, the impact on the copper market and the need for strategic domestic supply chains.

Lithium, cobalt and battery metals under pressure

The battery metals complex is also feeling the strain. In Australia, diesel shortages are forcing small lithium mines to reduce non‑essential activities. In Zimbabwe, a government ban on lithium exports has transitioned into a quota system, but exports are now only allowed from six approved mines.

“Between the year‑to‑date exports of lithium from the country and the amount allowed by the quota system, we’re only looking at about eight months’ worth of output,” Marjolin said. “That’s leaving quite a supply gap for the year.”

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

Cobalt faces a different challenge.

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

CAPEX discipline and the shift toward production

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

S&P Global projects that capital expenditure for the top 30 miners will reach a decade‑high US$121 billion in 2026, but the spending is targeted and disciplined.

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

Junior financing, however, fell 25 percent quarter‑over‑quarter, even as it remains historically elevated. Debt transactions more than doubled their share, accounting for nearly half of total funds raised.

Notably, new resource announcements for copper have fallen for four straight quarters to their lowest level in several years. Instead, money is being directed toward fast‑tracking existing projects toward production.

“The decline in initial resource announcements and the increase in positive milestones point to money being directed to fast‑tracking projects toward production instead of exploration,” said Dela Cruz.