Base metal prices are broadly declining amid renewed conflict between the United States and Iran, heightened expectations for interest rate hikes, and concerns over the global economic growth outlook.

As of the latest update, LME copper futures are down 0.90% to $13,381 per tonne, LME aluminum futures have fallen nearly 2% to $3,140 per tonne, and LME zinc futures are down 0.7%.

The US Central Command stated on July 11th that American forces had completed their third strike against Iran that week, targeting approximately 140 Iranian military objectives, including missile and drone launch sites, naval equipment, ammunition storage facilities, communication networks, and coastal surveillance stations.

Iran subsequently announced a series of retaliatory strikes against US targets in the Middle East.

This follows military actions by the US on July 7th and 8th, which it said were in response to recent Iranian attacks on commercial vessels transiting the Strait of Hormuz, with Iran then launching missile and drone attacks on US facilities in countries including Bahrain, Kuwait, Qatar, and Jordan.

Simultaneously, conflicting statements have emerged from the US and Iran regarding the operational status of the Strait of Hormuz.

Later on July 12th, Iran's Persian Gulf Strait Authority issued a statement reiterating that the Strait of Hormuz is currently closed to traffic, with plans to resume reviewing transit applications and issuing necessary permits once the situation stabilizes.

In contrast, the US military has stated that "traffic continues" through the strait.

Key Market Drivers

The latest escalation in US-Iran conflict has intensified market fears regarding rising energy costs and potentially prolonged supply disruptions for various commodities originating from the Persian Gulf region.

These factors could further fuel inflationary pressures, potentially prompting central banks to tighten monetary policy, with the US Federal Reserve being the most significant due to its influence on the US dollar and, consequently, on dollar-denominated commodities like industrial metals.

Focus on Upcoming Data and Testimony

This week, traders will closely monitor key US inflation data for June, including consumer and producer prices.

As the final inflation reports before the Fed's policy meeting later this month, these figures will provide crucial clues for assessing the future interest rate path.

Economists anticipate that both the headline and core (excluding food and energy) US Consumer Price Index (CPI) for June will show a slight deceleration in the annual growth rate compared to May, though both metrics are expected to remain well above the Fed's 2% inflation target.

Additionally, investors will be watching the first congressional testimony by the new Federal Reserve Chair, scheduled for Tuesday.

Market Expectations and Impact

Meanwhile, traders have further increased their bets on Fed policy tightening.

The interest rate swaps market now prices in nearly 40 basis points of cumulative Fed rate hikes by December, up from expectations of around 15 basis points in early June.

For manufacturing firms, higher borrowing costs typically dampen demand for industrial metals.

Copper, often viewed as a barometer for global economic health, has been trading within a relatively narrow range since a temporary peace agreement was reached between the US and Iran last month.

Galaxy Futures noted in a report released on Monday that renewed geopolitical tensions have led to diverging market expectations for rate hikes, resulting in increased market volatility.

However, the firm maintains that, from a long-term perspective, the fundamental outlook for the copper market remains "relatively healthy," with supply prospects and sustained demand growth from sectors like artificial intelligence (AI) and energy storage expected to continue supporting copper prices over the longer term.