Geopolitics, Economic Data, Likely To Affect Commodity Markets. Five Commodity Trends to Watch In 2025

The commodities market wrapped up the week with mixed signals, leaving investors pondering the next moves. From energy to metals, every segment told a story, and what a dynamic tale it was!

As we inch closer to 2025, geopolitical events and major economic data releases will likely set the tone for commodity markets.

1. Crude Oil. Slippery Slope or Stability Ahead?

Crude oil took a significant hit last week, sliding 3.6% as fears of a global economic slowdown gripped the market. Easing geopolitical tensions also played their part, stripping away the risk premium that had kept prices inflated.

Looking ahead, crude oil prices are expected to remain under pressure, with a trading range between ₹5,600 and ₹6,100 per barrel. The market sentiment hinges on global demand recovery, but with current headwinds, don’t expect a smooth ride.

2. Aluminium Battles The China Factor

Aluminium fell by 2.1% as China’s industrial slowdown continued to weigh heavily on demand. Given that China is the largest consumer of industrial metals, any hiccup in its manufacturing sector ripples across global markets. For now, aluminium is likely to remain rangebound, with no immediate catalysts for a breakout. However, keep an eye on any uptick in industrial demand—especially from China—which could shift the positioning in 2025.

3. Gold. Glitter or Glimmer?

Gold prices dipped 1.6% last week, thanks to a strengthening US dollar that made the shiny metal pricier for international buyers. But here’s the twist: expectations of a December rate cut by the Federal Reserve sent US bond yields tumbling, helping gold recover from its lows.

As we move into 2025, gold is looking bullish, with prices potentially heading towards ₹77,000 per 10 grams on the MCX. If market volatility persists, gold might just reclaim its “safe haven” crown.

4. Copper. Balancing Act Between Demand and Supply

Copper saw a modest 0.6% decline, balancing between solid infrastructure spending globally and concerns about China’s sluggish demand. Meanwhile, Chile—the world’s top copper producer—exceeded supply expectations, capping any significant price gains.

For now, copper prices are likely to stay rangebound, but watch for any signs of recovery in Chinese demand or disruptions in Chilean production that could tilt the scales in 2025.

Five Key Commodity Trends to Watch for in 2025

The commodities market saw a rocky 2024, with demand falling short of investor expectations, particularly in China. Strong supply in key sectors like wheat, steel, and crude oil has weighed heavily on prices, leading to significant inventory build-up.

However, gold has been a rare bright spot, driven by central bank buying. As we look ahead to 2025, the commodity market presents a more nuanced picture. Here are five key trends to watch –

1. OPEC+ Faces a Crucial Supply Dilemma
Oil prices have remained under pressure throughout 2024, with weak demand and robust non-OPEC supply growth largely offsetting OPEC’s production cuts. Facing a tough choice between losing market share or increasing production at the risk of reduced margins, OPEC+ has delayed any production hikes for the remainder of 2024. However, 2025 may bring a shift.

The anticipated scenario? OPEC+ could gradually increase production as long as prices remain stable. Despite this, global oil demand is projected to stay lukewarm, particularly as China’s industrial and construction sectors continue to underperform.

The U.S. is also seeing gasoline inventories rise above seasonal norms, signaling weak demand. Moreover, the increasing shift to electric vehicles (EVs) in developed countries presents a long-term headwind for oil demand. If these trends persist, Brent crude prices may face further downward pressure in 2025, as market sentiment remains cautious.

2. Natural Gas Set for a Boom Year

After a subdued 2024, the natural gas market is primed for a resurgence in 2025. Prices have been tempered this year due to strong production and record-high storage levels, but this dynamic is expected to shift dramatically.

The expiration of the Russia-Ukraine five-year pipeline deal at the end of 2024 will intensify Europe’s energy supply concerns, boosting demand for liquefied natural gas (LNG). The U.S. is set to be a primary beneficiary, with new LNG export capacity coming online in the Gulf of Mexico.
Additionally, industrial demand in the U.S. is forecast to surge, along with increased pipeline exports to Mexico. These factors are likely to drive natural gas prices higher, making 2025 a boom year for this sector.

3. Steel’s Overcapacity Problem Will Deepen

The steel market in 2024 has been plagued by oversupply and weak demand, a trend that shows little sign of abating in the coming year.

China’s property sector—a traditionally steel-intensive industry—continues to contract, dragging down domestic demand.
Although China’s steel supply has fallen, it hasn’t been enough to restore balance. Instead, Chinese mills have ramped up exports to maintain market share, flooding global markets with cheap steel, even in countries with tariffs.

The global steel industry is bracing for more trouble as significant new capacity comes online over the next two years, exacerbating the oversupply issue. While global manufacturing activity has deteriorated this year, there’s hope that easing monetary policies in advanced economies could boost spending on capital-intensive sectors later in 2025, offering some respite. However, the overcapacity issue will remain a formidable challenge in the near term.

4. Gold Will Continue to Shine

Gold is riding a strong upward momentum, and all signs point to its continued shine in 2025. After the Federal Reserve cut interest rates by 50 basis points in September 2024, the appeal of non-yielding assets like gold surged. Lower interest rates reduce the opportunity cost of holding gold, making it an attractive choice for investors seeking refuge from market volatility.

This shift has been evident in the rise of gold-backed exchange-traded funds (ETFs), which have seen increased inflows, further bolstering demand. Additionally, emerging market central banks have been snapping up gold as part of their strategy to diversify away from the U.S. dollar. Notably, China has led the charge, accumulating over 180 tonnes of gold in the past two years.

While short-term price consolidation may occur, the fundamentals remain strong. Falling U.S. Treasury yields and robust central bank purchases create a tight supply environment, likely pushing gold prices higher. In 2025, gold is poised to remain one of the best-performing assets, offering a safe haven amidst broader market uncertainty.

5. Grain Prices Will Bottom Out

Grain markets have had a turbulent 2024, with prices plunging more than anticipated. However, the worst may be behind us, and grain prices are finally showing signs of bottoming out, aligning with market expectations.

The primary culprit behind this year’s price drop has been oversupply. Agricultural markets are well-stocked, as evidenced by high stocks-to-use ratios. For example:

Soybeans: The 2024/25 ratio is projected to reach its highest level in 17 years, thanks to a bumper harvest in Brazil and waning global demand.

Maize: Its ratio also remains elevated, indicating ample supply.

Wheat: Although its stocks-to-use ratio is trending lower, the market remains well-balanced, with prices staying comfortably in check.
On the other hand, rice prices have been on a roller coaster. India’s export restrictions kept prices elevated despite strong harvests, but the recent lifting of these restrictions has caused prices to plunge. Moving forward, rice prices are expected to decline throughout 2025.

However, rising fertilizer costs are likely to provide a price floor for other grains, preventing further dramatic declines. While soybean prices will remain under pressure due to excess supply, maize and wheat prices are set to recover slightly, though they’ll remain below their 2021-2023 peaks.

The Last Bit.
The commodity markets in 2025 will likely be a year of cautious optimism and will be a balancing act between supply pressures and shifting demand dynamics.

Gold will likely remain a standout performer, driven by macroeconomic trends and central bank purchases. Meanwhile, grain prices may stabilize, offering hope for a recovery after a challenging year.

For investors, keeping a close eye on these evolving trends will be crucial. As always, the commodity markets promise both volatility and opportunity—making 2025 a year where strategic positioning will be key.