Global Metals and Mining Sector Escapes Worst of Middle East Conflict, But Challenges Loom Ahead

New Delhi: The global metals and mining sector has escaped the worst of the Middle East conflict so far, with the projected aluminium supply deficit slashed to 900,000 tonnes from an initial estimate of 2.5-3 million tonnes. However, disruptions to half of the world’s sulphur supply, weakening steel demand and mounting cost pressures threaten a more difficult second half of 2026, according to Wood Mackenzie. The consultancy had forecast a turbulent and fragmented world for 2026, but had not factored in a Middle East conflict. Its mid-year review found the direct damage to metals and mining significantly more contained than initially feared, aided by supply-chain resilience built during the Covid-19 pandemic and repeated trade disruptions. “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,” he said. Aluminium offers the clearest evidence of the reduced impact. While the conflict was initially expected to remove 2.5-3 million tonnes of supply, the shortfall is now estimated at around 900,000 tonnes for 2026. The indirect effects are proving more difficult to contain. Half of global sulphur supply has been disrupted, while China’s restrictions on sulphuric acid shipments have intensified pressure on copper and nickel production, including in the Democratic Republic of Congo and Australia. Copper is still expected to move into a surplus this year. Tariff-related inflows into the US, however, have created trade imbalances that continue to support prices despite the projected excess supply. Around 32% of global direct reduced iron production was affected by the conflict, though it represents a relatively small share of overall steel output. Global steel demand is also faltering in the near term. Lithium has remained largely insulated, supported by existing oversupply and offtake concentrated in China. Wood Mackenzie said contingency plans created after successive global disruptions were activated rather than designed from scratch. But this resilience carries a cost, with trade frictions and the conflict gradually adding to inflation, weakening global growth and pressuring commodity demand. The US Federal Reserve has kept interest rates unchanged amid inflation concerns despite strong external pressure to cut rates. The conflict has also pushed debates over electrification and domestic supply resilience to “fever pitch”, shifting attention from reshoring through trade barriers, including the updated EU Carbon Border Adjustment Mechanism, to building regional capacity against geopolitical disruptions. The US mid-term elections now emerge as the next major policy and market milestone for 2026, with the durability of the resilience push likely to depend on whether the global economy avoids a recession.