Commodity Markets Face Volatility Amid Geopolitical Tensions and Economic Shifts

Commodity Markets Face Volatility Amid Geopolitical Tensions and Economic Shifts

The global commodity markets are experiencing significant volatility, influenced by a combination of geopolitical tensions, economic policy changes, and shifting supply-demand dynamics. Key developments across various commodities highlight the complex landscape traders and investors are currently navigating.

Energy Markets React to Middle East Conflict

The recent 12-day conflict between Israel and Iran in June 2025 has underscored notable shifts in global cross-asset dynamics. Traditional safe havens like the U.S. dollar and Treasury bonds did not attract the usual investor demand, with the DXY index remaining at a three-year low and 10-year Treasury yields rising instead of falling. Oil prices initially surged but quickly reverted once supply fears eased. This trend suggests a potential secular change in leadership from U.S. assets to international equities, supported by capital outflows weakening the dollar. Commodities are emerging as strong contenders for future outperformance due to improving global economic indicators and the U.S.’s “run hot” economic policy. MidEast war highlights key cross-asset trends to watch

Australia’s Resource Earnings Projected to Decline

Australia’s mining and energy export earnings are projected to decline over the next two years, driven by increased global trade uncertainties—largely stemming from U.S. President Donald Trump’s policies and a newly imposed 10% tariff on global imports—which have disrupted investment and commodity demand. Earnings are estimated to drop from A$415 billion in 2023-24 to A$385 billion in 2024-25, and further to A$352 billion by 2026-27. Key exports like iron ore and liquefied natural gas (LNG) are expected to decrease due to rising global supply, with iron ore earnings falling from A$116 billion to A$97 billion by 2026-27. However, gold is set to become Australia’s third-largest export next year, with projected revenue of A$56 billion, supported by higher volumes and prices. Additionally, copper and lithium exports are expected to rise, with lithium revenue growing from A$4.6 billion this year to A$6.6 billion in 2026-27, partially offsetting the impact of falling bulk commodity prices. Trade risks to keep shrinking Australia’s resources earnings, report says

Copper Smelters Face Market and Pricing Crises

Copper smelters are grappling with a significant market and pricing crisis, as they are now paying miners to process copper concentrates due to negative treatment and refining charges (TCRC). Traditionally a revenue source for smelters, TCRC has remained negative in both spot and mid-year negotiations, reflecting an imbalance driven by excessive smelting capacity, particularly in China. While global mine production has grown modestly, it cannot keep pace with new processing facilities, leading to a supply-demand mismatch. Though by-products like sulphuric acid and precious metals offer some financial relief, copper is no longer the primary income stream for smelters. China’s aggressive expansion of its smelting sector has inflated refined copper production, while tightening margins have already forced some Western smelters to halt operations. Compounding the problem, countries like Indonesia are halting concentrate exports, worsening supply conditions. The current pricing model—reliant on annual or semi-annual contracts—appears outdated, as it fails to adapt to market volatility. There is growing pressure to shift towards more dynamic pricing mechanisms, such as quarterly or spot pricing, to better reflect real-time supply-demand conditions and prevent further financial strain on smelters. Copper smelters are facing both market and pricing crises

Commodity Traders Expand Influence Amid Market Turbulence

Leading commodity trading houses—Trafigura, Vitol, Gunvor, and Mercuria—have earned over $57 billion in net profits since the onset of the 2022 energy crisis and are aggressively investing these gains to expand their influence across global supply chains. These firms are utilizing profits to diversify into assets such as power plants, petrol stations, and biofuels, while also strengthening their core oil and metals trading operations. Vitol, with profits exceeding those of BP, has expanded its asset base to own nearly 10,000 petrol stations and significant energy infrastructure across regions including the Mediterranean and Africa. Gunvor and Mercuria are likewise investing in infrastructure like refineries and gas production. Trafigura, while more cautious due to past fraud losses, has reorganized its assets and continues to invest selectively. These expansions aim to boost profitability through enhanced control over physical assets and information advantages, despite rising competition from hedge funds and other market entrants. Experts suggest these investments will reinforce the firms’ core capabilities and extend their market relevance. Commodity traders snap up assets and tighten grip on global supply chains

China’s Commodity Imports Decline

In May 2025, China experienced a decline in imports of major commodities including crude oil, coal, iron ore, and copper, signaling potential economic concerns in the world’s second-largest economy. Only natural gas imports showed a marginal monthly increase, although they remained down year-on-year. Crude oil imports fell to 10.97 million barrels per day, down from April and March figures. Iron ore imports dropped to 98.13 million tons, while coal and unwrought copper imports also declined significantly in both monthly and yearly comparisons. These reductions may reflect a combination of sluggish domestic growth, especially in construction, and the impacts of fluctuating global commodity prices. Crude oil and copper markets saw volatility influenced by global price trends and geopolitical factors such as U.S. sanctions and anticipated tariffs. Copper shipments, for instance, shifted toward the U.S. amid tariff expectations. Meanwhile, strong domestic coal production and low local prices reduced import needs. Analysts caution against overinterpreting monthly fluctuations, which are often influenced by timing and price dynamics when cargoes were secured. There is optimism that upcoming Chinese economic stimulus measures could spur future demand for imported commodities. China’s imports of major commodities hiccup in May

In summary, the commodity markets are navigating a period of heightened volatility influenced by geopolitical conflicts, economic policy shifts, and evolving supply-demand dynamics. Stakeholders must remain vigilant and adaptable to effectively manage the risks and opportunities presented in this complex environment.