Different from previous super cycles! HSBC warns: bulk commodities are caught in a "super squeeze." Continued closure of the Hormuz Strait could trigger a "tipping point."

The smell of gunpowder in the Hormuz Strait continues to disrupt the pricing logic of global commodities markets. HSBC HOLDINGS believes that the commodity market is currently in a state of "super squeeze", and if the Hormuz Strait continues to be effectively closed, inventory will be further depleted, and the market is likely to reach the "critical point" for some commodities. It is worth noting that HSBC strictly distinguishes the current trend from historical commodity "super cycles". The bank's analysts, including Paul Bloxham, clearly stated that the current overall commodity cycle is still in the so-called "super bull market" phase, but "this is very different from the early 'super cycles', as this round of uptrend is driven by supply shocks rather than a systematic explosion of demand." Hormuz Standoff: Optimistic signals cannot hide deep-rooted power games As the only strategic maritime passage connecting the Persian Gulf to global markets, the Hormuz Strait plays an irreplaceable role in global energy transportation. According to HSBC's report, during peacetime, the waterway carries about one-fifth of global oil and liquefied natural gas shipments. However, since the start of the "Epic Fury Operation" by the US at the end of February 2026, tensions in the Middle East have escalated rapidly, leading to continued severe disruption in shipping through the Hormuz Strait. HSBC warns investors that the longer the strait remains closed, the more severe the depletion of oil inventories, and the market is closer to the so-called "critical point". Once inventories fall below the minimum functional working level, oil prices could experience a "non-linear rapid rise", and physical shortages could also become apparent. However, they also added that it is very difficult to accurately determine when the critical point will be reached. Although the global oil benchmark Brent crude oil has been hovering around $90, well below the peak of over $126 per barrel during the conflict, this does not mean that the supply shock has been absorbed, but rather that the mechanisms behind it are suppressing the rise in oil prices. Morgan Stanley warned in early May that if the buffers were exhausted, Brent oil could spike to $150. The situation in the Middle East itself has seen dramatic fluctuations in recent times. At the end of May, influenced by positive signals from US-Iran negotiations, Brent crude oil briefly fell below $90. However, by June, the situation escalated suddenly. Reports indicate that due to ongoing military actions by Israel in Lebanon, Iran's negotiation team suspended talks with the US through intermediaries and planned to completely block the Hormuz Strait, as well as taking simultaneous actions on other "fronts" such as the Mandeb Strait. The US, on the other hand, has sent out completely different signals. US President Trump stated on June 1st that he expected to reach an agreement with Iran within the "next week" to extend the ceasefire and reopen the Hormuz Strait. Trump also mentioned on social media that Iran "does indeed want" to reach an agreement, contrasting sharply with the news of Iran suspending talks. A Structural Bull Market under Supply Shock According to HSBC, the super squeeze characteristics of the base metals sector are particularly prominent. The bank's analysts pointed out that besides the Middle East geopolitical situation, the rise in aluminum prices has other support factors. In the aluminum market, "the structural demand story remains positive, but the recent core DRIVE comes from the impact on smelting capacity in the Middle East." As for the rise in copper prices, it is "mainly driven by demand". From the latest market prices, aluminum prices have reached a four-year high, driven by actual supply shocks. Data from the International Aluminum Association shows that aluminum production in the Gulf region in April was 330,000 tons, a sharp 35% decrease year-on-year. According to JPMorgan estimates, Middle East aluminum production in 2026 may decrease by 36% year-on-year, with an annual production loss of about 2.4 million tons, corresponding to a global aluminum market supply gap of about 949,000 tons. Jesse Gary, CEO of Century Aluminum, had previously warned that the turmoil in the Middle East is expected to expand the global aluminum supply gap to 1.4 million tons in 2026, and such a scale of gap cannot be repaired in the short term. Facing a severe supply crisis in the aluminum industry, Citigroup has raised its target price for aluminum in the second half of 2026 to $4,000 per ton. The copper market is also in a tense situation of weak supply and strong demand. Copper prices have risen by 13% so far this year, while the supply-demand contradiction at the industry level continues to deepen. There are many hidden dangers on the supply side of upstream copper mining: the resumed production progress of the Grasberg copper mine in Indonesia, which accounts for 3% of global production, is slower than expected, and the overall resumption time has been postponed to early 2028; Peru issued an energy crisis emergency decree due to fuel crisis, causing concerns about reduced production and lower capacity utilization in mines due to power restrictions; the situation in the Middle East has indirectly raised the cost of wet copper refining in the Congo (Kinshasa) by pushing up sulfuric acid prices and shrinking production capacity. On the demand side, AI data centers and energy transformation continue to drive up copper consumption. Citigroup had previously stated in a report that the demand in the energy transformation and AI sectors remains strong, and expects a global copper supply gap of about 360,000 tons by 2027. UBS recently raised its copper price estimate for 2026 by 13%, with a target price of $13,200 per ton, and raised estimates for 2027 and 2028 by 4% and 3% respectively, stating that resilient demand from energy transformation will provide continuous support for copper prices. Finally, HSBC's macro outlook also emphasizes other bullish factors supporting commodity prices, including the imminent El Nino weather phenomenon that may affect crop supplies. According to the US NOAA forecast, the probability of El Nino occurring from May to July 2026 is 82%, with a total probability of over 60% for a strong/super strong event by the end of the year.