Commodity traders thrive on volatility. The turbulence of the pandemic helped commodity houses rake in record profits, but revenues have begun to ebb as many markets settle into something resembling normality. With a new US president vowing to impose orthodox-defying trade policies, China’s economy underperforming, and the weather becoming ever-more unpredictable, could this year mark a comeback for price swings? Jacob Atkins examines five themes likely to loom large over commodities for 2025.

 

The Trump factor

US President-elect Donald Trump has promised sweeping tariffs on imports to the US once he enters the White House, in what is set to be one of the most economically radical US administrations yet.

Of all major US trading partners, China, Mexico and Canada are subject to his heaviest ire. While Trump has focused on products where the US faces stiff competition, such as cars, steel and other manufactured goods, the nation is also a major importer and exporter of a variety of agricultural and energy commodities that could be subject not only to domestic restrictions but also retaliatory measures imposed from other countries.

Some of the effects would mainly be felt within the US, such as higher tariffs on imports from Canada, which is a significant supplier of oil and gas to its southern neighbour.

A Trump administration could send ripples through the oil market in several other ways. For example, retaliatory tariffs on US exports could dampen appetite for their product, while a return to stronger enforcement of sanctions on Iran, as in Trump’s first presidency, could crimp global supply, according to a note from Rabobank.

But the new era of deregulation Trump has vowed to unleash – in contrast to the more cautious approach to fossil fuels shown by outgoing President Joe Biden – is unlikely to have much of an impact on US oil and gas production this year due to long lead-in times for new production facilities.

“The new Trump administration will impact domestic and global energy priorities, including pulling any levers available to increase domestic crude production, even though the industry is unlikely to respond to this stimulus,” says Jarand Rystad, chief executive of Rystad Energy.

The US is an agri-commodities powerhouse, meaning “grains are likely to get caught up in any trade friction, particularly if we see retaliatory tariffs targeting US agricultural exports as we did in 2018”, says ING’s 2025 commodities outlook report. “If so, we would expect to see pressure on prices.”

In the event of a trade war, Rabobank projects that China may shrink its hefty soybean purchases from the US and instead source them from Latin America. ING’s head of commodities strategy Warren Patterson concurs that South America, and Brazil in particular, “stand to benefit from any trade friction involving the US”.

“Broadly speaking, I think the whole trade risk is fairly bearish,” he says. “The duties will obviously mean higher prices for consumers, and naturally that could start feeding through into demand destruction. Generally, just the uncertainty around it also means investors are more likely to sit on the sidelines, so you see a little bit less speculative activity.”

More broadly, trade restrictions on the scale foreshadowed by the President-elect could spell renewed trouble for commodities-exporting developing countries that have only just seen some relief from the Covid-era US dollar shortages. “The implementation of US tariffs would raise the risk of fragmenting global trade and financial flows, potentially also affecting the availability of US dollars in the rest of the world,” writes Carlos Mera, head of agri commodity market research at Rabobank. “Developing nations with high dollar-debt exposure could be particularly at risk. In principle, a strong dollar means lower prices for all dollar-denominated commodities.”

 

Will China’s stimulus stimulate?

To feed its vast manufacturing sector, China has a voracious appetite for raw commodities such as petrochemicals, iron ore, coal, copper, and a variety of agricultural goods. But in the second half of last year, a crisis in China’s real estate market was a heavy drag on its economy. While most advanced economies eye the country’s more than 4% GDP growth rate with envy, it is low by Chinese standards.

The impact has already been felt on some commodities. Chinese oil demand weakened over the course of last year, mirroring the drop seen during the beginning of the Covid-19 pandemic in 2020. Australia, a top exporter of raw commodities to China, is girding itself for a 10% fall in export revenue from energy and resources that the government attributes in large part to slackening demand from Beijing.

In the last half of 2024, the Chinese government attempted to jump-start the economy with two rounds of financial stimulus in an attempt to shore up local government budgets, recapitalise banks and inject new life into its moribund real estate market.

Previous stimulus packages issued by Beijing have flowed on to higher prices for some key commodities, says CME Group chief economist Erik Norland.

“If China succeeds in boosting growth, it could have profound consequences for commodity markets including crude oil, aluminum, copper, corn, soybeans and wheat,” he writes in an October briefing. “Over the past 20 years, many of these commodities have followed the path of Chinese growth.”

But if the stimulus falls short of expectations, it could weigh on commodity markets.

“China is expected to account for 20% of oil market demand growth this year,” notes ING’s Patterson. “Obviously, if that fails to come through, that does leave the oil market a lot looser.”

“Similarly, on metals, China is the biggest consumer of basically every metal out there. So once again, if we fail to see that stimulus coming through, we fail to see local governments also boost boosting spending, that’s going to keep pressure on metals,” he says.

Rabobank says that China could pump even more stimulus into the economy if last year’s efforts don’t have the desired effect, but the Dutch bank warns that tariffs from an incoming Trump administration – and retaliatory policies from Beijing – could render them “insufficient”.

 

Oil: No news is good news?

The oil market was remarkably resilient in a year that saw outright conflict between Israel and major producer Iran, as well as ever-tightening curbs on exports from Russia, another top supplier. Spot prices finished 2024 much as they started, at just under US$70 per barrel.

A decision by Opec+ – which includes Russia – to push back planned production increases from January to April has already set the theme for early 2025. The US Energy Information Administration (EIA), a government body, predicts a similar performance for crude oil in 2025 as seen last year, “as oil markets will be relatively balanced on an annual average basis” with a gentle uptick in Opec+ output.

Inventory build-up from the Opec+ ramp-up and greater production from non-Opec exporters, which include the US and Canada, may help push oil prices down toward the end of the year, the EIA says in an early December energy forecast.

ING tips oil prices to dip slightly lower through the year, but flags that falls could be steeper if disobedience breaks out between Opec members that try to boost revenue by producing more than the organisation’s targets.

“Compliance among some members may slip if prices trend lower,” the bank says.

“We have seen a handful of producers already pumping above their production targets for much of the year,” it says, suggesting that a warning from Saudi Arabia that some members are not keeping production in line with the cartel’s agreed targets could be “an indirect threat that if members do not stick to cuts, they would increase output, potentially starting a price war”.

Several banks forecast average prices in 2025 of US$65-70 per barrel, based on muted demand – especially from China – and Opec’s modest output targets. “Demand growth has slowed [in 2024] and is expected to remain tepid in 2025 too, tipping the market into surplus next year,” according to a Bank of America prediction reported by Reuters.

“We’re moving from a time of energy scarcity to a time of energy abundance,” says Rystad, who argues growing output from both renewables and fossil fuels “will outpace increases in demand” in 2025.

“In the face of an oversupplied oil market, Opec+ may need to extend its production cuts far into 2025 to protect oil prices. The era of China driving oil consumption growth is over.”

 

Gas: Uncertainty reigns

This year is set to see a significant expansion in capacity for gas production, particularly compared to limited growth over the last two years, driven largely by projects in North America.

But most analysts suggest it will only influence pricing from 2026.

The domestic gas market in the US is also tighter and expected to remain that way, fuelled by industrial demand. S&P Global forecasts that Henry Hub prices – a barometer for natural gas futures – will average more than US$4 per million metric British Thermal units in 2025, while ING suggests an average of US$3.5, both higher than the US$3 over the last two years.

ING tips prices to ease over 2025, but warns there is significant uncertainty over various price signals, and that newly ramped up capacity runs greater risks of unplanned outages.

A major factor in the European market is the end of pipeline imports from Russia following an EU ban that took effect on the final day of 2024.

“We see the expiration of the Russia-Ukraine five-year pipeline deal… extending the continent’s supply risk culminating in greater demand for liquified natural gas (LNG),” Oxford Economics says. “US LNG will be [Europe’s] main source market as new LNG export capacity in the Gulf of Mexico comes online.”

Export revenues from Australia, the world’s second-largest LNG producer, are set to fall this year and into 2026, according to government forecasts, due to production declines at ageing fields. But ING suggests that if Europe consumes more gas than expected over the northern winter, it may prompt tighter competition for available cargoes between the continent and Asian markets – the main destination for Australian LNG – and nudge prices higher.

 

Soft commodities vs the weather

Coffee and cocoa both had rollercoaster rides in 2024, and the volatility is tipped to continue.

Both are annual crops, heavily dependent on hard-to-predict growing conditions.

“Weather remains a key risk and concern for soft commodities, and so we expect volatility in cocoa and coffee to continue into 2025 – at least until we get a better idea on how supply shapes up for next season,” ING’s commodities outlook for this year says.

Poor weather in major producers Vietnam (which produces cheaper robusta beans) and Brazil (which mainly exports the higher quality arabica variety) sent coffee prices soaring through 2024, almost doubling in the last three months of last year compared to Q3 2023. Despite the poor harvests, Brazil’s coffee exports are at record high levels due to “destocking and front-loading”, according to Rabobank.

The bank’s agriculture forecast for this year predicts coffee prices will trend lower in 2025, presuming the harvest in Brazil goes well. Certainty over the implementation date of the EU Deforestation Regulation may also ease pressure on prices. The commodities sector spent years preparing for a planned implementation date of December 2024, before the EU granted a last-minute reprieve of 12 months.

But in ING’s models, a scenario in which coffee prices continue to rise is possible if Brazilian arabica production ebbs and Chinese demand grows, in addition to “uncertainties about tariffs” flowing from trade tensions between the US and the rest of the world. “Prices are likely to remain volatile and elevated, at least until we get some further clarity on the 2025/26 Brazilian harvest,” the bank says.

For cocoa, the outlook is foreboding for chocolate makers and mixed for traders, with prices continuing to climb.

Cocoa trading is highly vulnerable to adverse weather because production is heavily concentrated in a small number of countries, such as Côte d’Ivoire and Ghana, for which cocoa is a key export. Drier-than-average conditions in West Africa and the failure of a strong La Niña system to emerge as of mid-December pushed cocoa futures to a record of near US$12,000 per ton by the middle of the month.

Arrivals of cocoa beans at Côte d’Ivoire ports in November last year were lower than expected, according to a research note by ADM Investor Services’ Mark Bowman, a senior market analyst.

“Arrivals tend to peak for the year in early November, but the slowdown raises additional concerns that this year’s crop, while better than last year, will not be enough to avoid another production deficit this year,” he wrote in December, referring to the marketing year which began on October 1.

But Rabobank says the 2024 price surge will likely prove a “once-in-a-generation spike” and forecasts a decline in prices this year and “modest surplus” at the end of the marketing year, although cautioning that any supply rebound will be weather-dependent.