What does Trump mean for commodities in 2025?

Trump pivots to a more selective regime where we assume a 15% tariff will be applied to specific sensitive imports, which should allow some rerouting of trade. For China, we assume the effective tariff rates on Chinese goods triples in stages to about 30% by end-2026 (from roughly 10% currently).

The US imposes large, universal tariffs on imports from multiple trading partners. The effective tariff rate rises to 60% tariffs on Chinese goods and 10-20% tariffs on the rest of the world. While rerouting of trade to avoid tariffs wouldn't be a practical option, we would expect tit-for-tat retaliatory measures on key critical commodities, with significant harm likely to all economies, including the US’s.

The US reaches a new trade deal with China and Europe. Like Phase 1 in 2018, a deal could see modest tariffs on some products but may contain specific quotas on purchases to reduce the country’s surplus with the US. We envisage strict enforcement and rules of origin requirements.

Trump’s first tariff war resulted in a 20% drop in US imports from China in 2019-20, although there was a rebound in 2021-2022. At the time, the US levied China with tariffs on approximately USD 450 billion worth of goods. A tit-for-tat exchange then broke out, with increasing bilateral tariffs between the US and China until most of the goods traded between the two countries were subject to additional tariffs. Presidents’ Donald Trump and Xi Jinping then announced a truce in January 2020, by which point China pledged under a “Phase One” agreement to increase its imports from the US by USD 200 billion over two years.

For several reasons, China never came close to meeting its pledges—in fact, China’s customs data shows its deficit with the US actually widened from USD 277.9bn in 2017 to USD 339.9bn in 2023. The only bright spots were grains, coal, and liquid natural gas, although this was principally driven by a surge in value due to war in Ukraine.

As our base case, we believe the US will announce a new round of high (headline 60%) tariffs on China in 1Q25, implement them in 2Q25, and gradually increase their coverage until an effective average tariff rate of around 30% is reached in 2026. While challenging, as discussed below, we believe China is better prepared.

So what’s different in 2025? The macro picture is very different, Trump’s agenda has changed, Beijing didn’t keep to the original deal (see above), and far more countries share concerns over the impact of an expansion of Chinese exports. But China also appears better prepared for a tariff war now than in 2018, although the size of forthcoming stimulus is crucial for commodities.

Figure 5: Property crisis today versus 2018

Year-on-year changes, ytd

On the macro front, back then, China had a higher GDP growth run rate and the US economy was on a strengthening path. Global GDP growth left 2017 at a high unlike in 2024. But also, the commodity-specific situation was different back then. Oil prices finally recovered in 2017 after the rout from late 2014 to early 2016, while base metals were strong in 2017 and in early 2018 amid China’s recovering property sector.

With such a snapshot, some argue the risks of US tariffs currently—i.e., what they could mean for China and the rest of the world—are far greater. Indeed, industrial metals did suffer the most last time, and global manufacturing in the developed world is already struggling. So another trade war could be hard for markets to digest.

As for crude oil, lower global demand growth would require OPEC+ to continue managing supply to keep the oil market in balance. The group stands ready for that role, but if tariffs trigger a sharp slowdown in oil demand growth, prices would likely be extremely volatile in the short term.

For agriculture and livestock, we note that shifts in trade flows since 2018 have made the industry (outside the US) less vulnerable today. Moreover, key row crop prices are already trading at or below their production costs. We think this adds another layer of downside protection.

Figure 6: A step down in global industrial production would be a burden for industrial metal prices

Year-on-year values, monthly and 3-month average data

China remains one of the world’s largest consumers of commodities, particularly industrial metals and bulk commodities, and is also one of the world’s largest importers of crude oil, soybeans, cotton, etc. Therefore, it should be no surprise that these commodities were impacted during the previous trade war; however, the volatility of crude oil prices then was more related to specific geopolitical events (e.g., OPEC+ boosted production on threats of Iranian sanctions, which was followed by waivers by the US for buyers of Iranian crude).

China’s supply chain diversification and self-sufficiency drive since 2018 have likely reduced the US administration’s leverage via key commodity trading channels. China has also developed a toolkit of countermeasures that targets Trump’s voter base in rural areas, such as raising tariffs on agricultural products. Over the past five years, soybeans, on average, accounted for a whopping 15% of total US food and agricultural exports by value (the next largest is corn at 7.5%). Despite the ongoing trade frictions with the Biden administration, China still purchased over half of US soybean shipments and closely lived up to its Phase 1 commitments. Nevertheless, Beijing has pivoted to Brazil as a preferred supplier and increased direct investment in, among other things, logistics. Brazilian farmers responded with record planted areas and production, with expectations of further growth ahead.

Figure 7: US self-sufficiency ratios

Values for 2023 or 2024

Other potential retaliation tools include blacklisting specific US firms, restricting access to critical inputs such as rare earths, and FX depreciation. During the first trade war, the CNY fell by 15% versus the USD. Again, we expect the People’s Bank of China to tolerate more CNY weakness to partially offset the new tariffs.

Beijing also shifted its focus to stimulus, recently adopting the strongest easing tone since 2010. According to Reuters, China’s top leadership last week agreed to raise the fiscal-deficit-to-GDP ratio to 4% of GDP in 2025 (from 3% in 2024) and to set a GDP growth target of “around 5%.” Our base case was for a deficit ratio of around 4% alongside an annual fiscal package of at least CNY 2-4tr, which we believe could keep growth in the mid-4%. If more onerous tariffs eventuate, then we believe more forceful stimulus of at least CNY 5-8tr would be needed, which could backstop growth at around 5% annually.

Key differences today is that many governments are increasingly vocal on what they consider unfair Chinese subsidies in the form of tax breaks, direct transfers of funds, or the public provision of goods or services below market prices. Linked to this, global steelmakers have blamed a surge in cheap Chinese imports as the key reason for subdued local steel prices. There has been increased pushback on these shipments as a result, with several countries launching anti-dumping and anti-subsidy investigations against Beijing. However, we highlight that many countries don’t have sufficient capacity to replace all Chinese products, particularly higher-value-added galvanized steel used in automotive applications.

Figure 8: China steel exports hit record levels in October 2024

In million metric tons

In the worst case of universal tariffs, we would expect gold prices to outperform. If a more protracted trade war weighed on global activity and ultimately forced the Federal Reserve to cut rates more aggressively to support the US economy, we’d expect the yellow metal to reach our bull case of above USD 3,000/oz. Importantly, we attach a relatively low probability of Donald Trump imposing a tariff on gold, as there is no need to import gold into the US.

Likewise, we don’t expect the Trump administration to tax crude oil imports from Canada and Mexico, with few alternatives from a crude quality standpoint. Any tariff would translate directly to prices at the gas pump, which would put greater political pressure on Trump. Additionally, depending on how hard President-elect Trump pursues OPEC+ producers like Iran and Venezuela, this could help balance the markets as key exports are disrupted. Higher domestic prices for industrial metals and materials are also likely under a blanket tariff, particularly for steel and fertilizers. We could again see a widening in relative prices between the US and the rest of the world, which would damage the profitability of consumers and raise margins for US companies or those that are able to bargain an exemption (such as Australian steel).

Select agricultural commodities are an exception to this rule, as described above. Previously, the trade war with China saw prices for US soybeans trade at a discount to Brazilian benchmarks with stockpiles building up in the US. Conversely, we don’t believe Trump would willfully tax coffee or cocoa, particularly as it would be a clear tax on the domestic consumer.

Investors in need of hedging against higher prices run less risk when opting for exchanges outside the US such as the London Metal Exchange (LME). Meanwhile, positions who aim to capture the upside of commodity prices would likely find greater potential at US exchanges. But as indicated earlier, the lack of clarity about what Trump will ultimately do and the intensity of his actions make it hard to take investment positions purely on tariff considerations alone.

We say that because second-round considerations, like China firing up stimulus efforts on the back of US tariffs, could well dominate the price trend of commodities next year. With such unknowns ahead, we suggest avoiding an elevated allocation to the asset class and thus retain a Neutral stance ahead of Trump's inauguration. That said, we stay long gold and continue to crude oil's sell downside price risks.

Any exposure to base metals should be done very selectively and with a long-term investment mindset—we favor copper. In the case of agriculture and livestock, fundamentals should support higher prices for wheat and corn and for live cattle. Soft commodities can be held on a broad sub-index basis given the attractive roll returns, although price volatility remains elevated as demand requires rationing.

Trump’s policies are a risk in both directions, in our view. On the bullish side, “maximum pressure” against countries like Iran, renewed sanctions targeting Venezuela, and reports suggesting Iraq could be a sanction target may lead to larger supply disruptions. The passage of the SHIP Act earlier this year, which “requires the president to impose visa- and property-blocking sanctions against foreign persons that knowingly transport, process, refine, or otherwise deal in petroleum and petroleum products (including petrochemicals) originating in Iran,” offers a new method to enforce sanctions against Iranian barrels—not just targeting individuals, companies, and tankers, but also ports. Still, Iranian oil is currently almost only shipped to China—the country has offset the loss in buyers from Europe, Japan, South Korea, and India six years ago—which may limit the potential drop in Iranian exports as those refineries have limited interactions with the US dollar financial system. Threatening to target ports could see some volumes decline in 2025. But we wouldn’t expect prices to skyrocket as there would likely be sufficient spare capacity to compensate for such disruptions. Nonetheless, the oil market would tighten as those spare capacity levels shrink—which would support prices.

Figure 9: What WTI oil price is needed to profitably drill a new well in the US

Values are in USD per barrels

On the bearish side, tariffs could weigh on growth prospects in 2025. Also, the market’s focus since the US election has been on Trump's "drill, baby, drill" pledge. We continue to believe that it is not the person sitting in the White House who determines the US crude production path, but the prevailing spot price. The push by investors for increased capital discipline in recent years has forced companies to pay a lot more attention to profitability. While Trump can open new acreage on federal lands for drilling and lower the regulatory burden to facilitate new pipeline development, with the US crude price (WTI) starting to trade into the production curve, US crude production may be flat or even negative next year if current prices prevail. Also, there is a significant number of already leased but unused acreage available. So, availability of acreage has not been a large constraint to production so far, in our view.

Figure 10: US oil production growth rates

Year-on-year changes in million barrels per day

On balance, we stick to our view that the oil market should be largely balanced in contrast to some market expectations of large surpluses. We thus retain a constructive view that oil prices will increase again to USD 80/bbl in 2025.

China accounts for more than 55% of global base metal demand, including metals being used in a large array of exported goods. Large US tariffs on Chinese exports (60% or higher) to the US and the potential for a weaker CNY require close tracking. As exports have been an important growth pillar for China amid soft domestic demand, any export shock would hold the key to bringing metal prices generally lower. Key metals, like copper or zinc, do trade more firmly above the marginal cost of production, unlike in 2018. This gives room for prices to have more pullback potential in case growth expectations and markets in general dive. Beyond top-down news flow, the plethora of metal-specific factors should be considered.

Figure 11: China is the largest consumer of base metals

Values in % of global demand (2024)

China recently announced the removal of a 13% export tax rebate on aluminum and copper semis and other products, which might lead to a reduction in exports in the coming quarters. We have yet to see the real impact of this decision. Supply has been repeatedly an issue for copper, aluminum, and zinc. For copper, the prospect of low treatment and refining charges in 2025 could lead to reduced refined production in the coming quarters. Hence, the case for copper prices reaching USD 11,000/mt remains. The reduced availability of bauxite and alumina has driven input costs higher for aluminum. This should cap smelter production growth and limit the likelihood of smelter restarts.

A slow recovery ex-China, coupled with slowing smelter production growth in China, should help aluminum prices rise above USD 2,750/mt next year. Lastly, continued tightness in the zinc concentrate market and the 100,000 tons jump in canceled warrants (over one month) in the LME have supported higher zinc prices in recent months. We expect the tightness in the concentrate market to linger and translate into tightness in the refined market in 1H25, with zinc prices trading at USD 3,400/mt. Conversely, sentiment in the nickel market has turned bearish amid the potential negative impact of US anti-climate policies on electrification, especially electric vehicles, and Trump’s ambition to broker a ceasefire between Russian and Ukraine. As nickel prices test the cost curve, we expect mine and refinery closures to see supply curtailed. Hence, we think prices should come back up to the USD 16,500/mt mark.

Gold held steady at around USD 2,650/oz this week, as recent US dollar strength, the rise in US Treasury yields, and better risk appetite toward US equities have kept the metal in a range. Gold has fallen over 4.7% since its all-time high at the end of October, but it's still up nearly 29% year-to-date, outperforming the S&P 500.

Global central banks should continue to accumulate gold amid the reserve diversification trend. The latest IMF data showed that global central banks bought the most gold in October this year. Based on the agency’s historical underreporting pattern, we now expect the official sector to buy 982 metric tons of gold this year, up from our previous estimate of 900mt. While this remains lower than levels seen over the past two years, it represents a significant step-up from the average of around 500mt in the years since 2011.

Figure 12: Central banks continue to buy gold at record levels

In million metric tons

Demand for gold as a key portfolio hedge should rise as well. While US President-elect Donald Trump has broadcast his policy agenda, it's uncertain what will be implemented from fiscal, trade, and geopolitical standpoints, especially given his transactional approach. With the Russia-Ukraine war still ongoing, and the situation in the Middle East no less complicated, we think investor demand for hedges should rise further, boosting inflows to exchange-traded funds.

Lower real rates further support the case for holding gold. We expect the Federal Reserve to cut rates further in the coming year. This should reduce the opportunity cost of holding the yellow metal, which should again drive demand from exchange-traded funds. A weaker US dollar in the medium term, due to lower rates and concerns over the US government debt trajectory, should also support gold prices. We retain our bullish view on gold over the next 12 months, forecasting the yellow metal to reach USD 2,900/oz by the end of next year. We recommend an allocation of around 5% within a USD-based balanced portfolio as a diversifier.

For silver, prices have been weighed down by periods of weakness in broader commodities amid concerns on growth and bouts of risk-off sentiment. However, despite this underperformance versus gold, we think the metal can outperform in 2025 and should attract relative value buyers, especially if there is a recovery in US industrial production and more stimulus is announced in China.

Past years have seen major global events disrupt agricultural markets—i.e., COVID-19, the Ukraine war, and the US-China trade war. With the threat of another trade war looming, will agriculture be caught again in the middle of rising tensions? Or does President Trump understand he has less leverage via this channel versus last time, mostly due Beijing’s focus on production self-sufficiency and switching to preferred trading partners like Brazil? China is less vulnerable this time around versus the last tit-for-tat escalation, which saw China impose retaliatory tariffs on over 1,000 categories of US agricultural products such as pork, soybeans, dairy products, and nuts.

Grains remain challenged in the short term, but we expect global inventories of corn and wheat to decline in 2025, which should lead to higher prices. For wheat, we forecast Russia and EU output to decline by 11% and 9%, year-over-year, respectively. For corn, despite an expected increase in US planted areas this year and next, we see global ending stocks reaching their lowest level since 2020-21. The major driver being a combination of lower areas and weaker yields in the EU and Ukraine. Conversely, soybean markets are likely to be well supplied in 2025; we anticipate ending stocks will reach a record high of almost 132mt, up more than 17% year on year. On the risks, La Niña's influence has faded somewhat, while bearish trade-related risks loom large, particularly for US futures.

The divergence among soft commodities will likely continue in 1H25, although sugar prices hinge on the Indian harvest. So far, sugar output has declined by more than 35% year on year. The Indian Sugar and Bio-Energy Manufacturers Association forecasts that the 2024-25 crush could reach 29.2mt, which is down from 31.95mt in 2023-24. The cocoa price rose to a new record level of just over USD 11,900/mt on 17 December, surpassing its previous high from April. While deliveries to ports in the Ivory Coast, the world’s largest producer, are up by more than 30% versus last year, there are concerns that weather-related risks could weigh on yields and prevent any material improvement in stocks over the year ahead. Important to recall is that global cocoa stocks at the beginning of the crop year were only 1.3 million tons—the lowest level in 36 years (International Cocoa Organization).

Figure 13: Niña risks have moderated in recent weeks

In %, probability of an event

Likewise, the price of Arabica coffee rose to a record high of nearly USD 3.50/lb a week ago due to ongoing crop-related concerns in Brazil and Vietnam, the world's two largest producers and exporters. While coffee prices should be supported in the near term, recent on-the-ground reports suggests the Brazilian crop may not be a bad as first thought.

We expect livestock markets to tighten in 1Q25, as reduced female cattle slaughter and rising heifer replacement signal a shift in the cattle cycle for Brazil and the US, which should translate into higher live cattle prices. Moreover, we see nascent signs of easing inventory trends in hogs, which should see prices rise as seasonal demand factors kick in. While Trump trade-related risks overhang markets, fundamentals should win out.

Open: Exposure to an active commodity strategy

We remain positive on commodities over the medium term and expect the asset class to deliver diversification benefits for traditional bond-equity portfolios. Larger differences in the performance contribution from different sectors still speak in favor of actively managed commodity strategies, in our view. Our active commodity strategy is designed to capture broad price trends on the asset class level as well as sector-specific developments from a demand-supply perspective. By scaling the overall asset class exposure up and down and expressing different sector exposures, we target an improved risk-adjusted return versus traditionally passive commodity investments.

Open: Benefit from optimized rolling of commodity futures

The strategy “Benefit from optimized rolling of commodity futures” aims to systematically generate returns by being long a second-generation commodity index while being short a first-generation commodity index. This allows investors to generate yield through the outperformance of the second-generation index. With little sensitivity to individual commodity spot moves, the strategy also provides investors diversification benefits.

Open: Yield pickup strategy in Brent crude oil

We continue to hold a constructive outlook, expecting an almost balanced oil market in 2025 (modest surplus of 0.1mbpd) and look for well anchored inventories and higher oil prices over the coming months. As such, we like selling the downside price risks in Brent crude oil below USD 66/bbl over the next six months.

Figure 14: Option volatility in copper has pulled back, requiring a strong directional price view

AMTF 6 months

Open: Yield pickup strategy in copper

The prospect of US tariffs, especially on China, and Trump’s views on renewable energy have weighed on copper prices. Despite these risks, our market balance estimates still indicate a deficit of 242,000 tons in 2025. As inventories are likely to come under further downward pressure, we expect copper prices to rise to the USD 10,000-11,000/mt range next year. Considering this price trajectory, we like selling the downside in copper below USD 8,850/mt over the next six months.

Open: Yield pickup strategy in platinum

We expect the platinum market to remain undersupplied in 2025, supported by a slower roll-out in electric vehicles, supporting auto catalyst demand. We target a price of USD 1,100/oz by mid-2025. On the back of a positive price view, we like selling the metal’s downside price risks from USD 890/oz onward over the next three months.

Open: Yield pickup strategy silver

We expect the silver market to be undersupplied this year. A general recovery of industrial activity next year amid lower interest rates should assist in lifting the prospects for higher silver prices. Our forecasts stand at USD 36-38/oz in late 2025. With this view in mind, we like selling price downside risks from USD 28/oz over the next three months.

Figure 15: Option volatility in precious metals

ATMF 3 months

Yield pickup strategy in sugar

We expect a tightening of the global sugar balance in 2024-25. While Brazil’s weather has improved alongside expectation of production, we see the reverse in India. So far, sugar output has declined by more than 35% year-on-year. The Indian Sugar and Bio-Energy Manufacturers Association forecasts that the 2024-25 crush could reach 29.2 million metric tons (mt), which is down from 31.95mt in 2023-24. With the sweetener in backwardation, we like to sell downside price risks in below USD 0.18/lb over six months.