In an era of rapid change, resource investors stand at a pivotal juncture. By understanding the current stage of the cycle, tracking the key cross-currents, and translating these insights into portfolio actions, investors can navigate volatility and uncover opportunities.
Where We Stand in the Commodity Cycle
After a bull run that peaked in 2022, aggregate commodity prices are entering a downswing. The World Bank forecasts a roughly six-year low, with prices falling about 12% in 2025 and another 5% in 2026. More than half of commodities are expected to decline by over 10% next year.
The central narrative is weakening global economic growth and elevated policy uncertainty. Since 1990, quarters of negative per-capita global growth have preceded an average 25% drawdown in the commodity index.
Risks now run in both directions:
- Downside risks: A sharper-than-expected slowdown, renewed trade tensions, or tighter financial conditions could further depress demand for industrial commodities.
- Upside risks: Rollback of trade barriers could spark stronger growth; geopolitical tensions might disrupt energy supply; extreme weather events causing price spikes could jolt agricultural and energy markets.
Consensus from major research houses is disinflationary to mildly bearish overall, but with significant dispersion: oil and base metals are under pressure, while gold and certain transition metals display relative resilience.
Structural Themes at the Crossroads
From 2025 to 2027, five cross-currents will shape resource markets:
- Macro fundamentals: growth, inflation, interest rates, and the US dollar;
- Geopolitics and trade policy dynamics;
- Energy transition and decarbonization pressures;
- Climate risk, weather impacts, and food security;
- Financialization, liquidity, and trade finance evolution.
Macro: Growth, Inflation, and Currency Trends
Global growth in 2025 is expected to be solid but unspectacular global growth. China remains a weak spot, with sluggish manufacturing and construction dampening metal demand. Disinflation is advancing, and central banks may begin easing later in the year, supporting capital-intensive sectors outside China.
The US dollar’s path will be decisive. A weaker dollar historically lifts commodity prices, but forecasts assume no dramatic collapse, which caps a broad rally.
Geopolitics and Trade Policy Dynamics
Tariffs and trade restrictions have surged, rerouting flows and depressing volumes. The expiration of the Russia–Ukraine gas pipeline deal at end-2024 heightens European supply risk and will boost LNG demand from the US Gulf Coast.
Resource nationalism is on the rise, especially around critical minerals via export restrictions. Investors face a patchwork of jurisdictional risk in Latin America, Africa, and Asia, counterbalanced by strategic opportunities where governance and infrastructure are improving.
Energy Transition and Decarbonization Pressures
As coal usage shrinks (market share continues to shrink), prices are forecast to drop 27% in 2025. In contrast, natural gas and LNG present a complex picture: strong US production and full inventories have kept prices subdued, but LNG export capacity is set to expand significantly by 2027.
Power demand from data centers and electrification is lifting copper, aluminum, and other metals. New quasi-commodity markets—carbon credits, renewable certificates, biofuels—are reshaping risk and financing structures.
Climate Risk and Food Security Challenges
Climate change and extreme weather pose upside threats to agricultural and energy prices. While many crop markets have comfortable stocks-to-use ratios, wheat is tightening, and cocoa’s volatility underscores the need for innovative risk cover.
Food security finance—barter-style prepayments in fertilizer amortized by exports—illustrates how political and financial priorities converge to stabilize supply.
Financialization, Liquidity, and Trade Finance
Uncertainty, climate disruptions, and new entrants drive demand for off-balance-sheet inventory solutions, prepayments, and structured trade finance, especially in emerging markets. Amid this evolution, digitization of bills and letters of credit is reducing settlement risk and accelerating transactions.
Demand for political and credit risk cover remains strong in high-risk markets, reshaping how investors assess counterparties and price risk.
Major Commodity Groups and Portfolio Strategy
With broad price benchmarks headed lower, selective positioning is key. Oil demand faces a long-term decline as EV adoption rises and China remains sluggish. Base metals are weighed down by inventory builds in Europe and Asia. Meanwhile, gold benefits from lower real rates and central bank purchases.
Below is a snapshot of key 2025 forecasts:
Investors can consider the following portfolio actions:
- Overweight resilient metals (gold, select green-transition minerals);
- Underweight industrial commodities with weak demand outlooks;
- Use hedges or options to protect against extreme weather spikes;
- Incorporate structured trade–finance opportunities for enhanced yield.
Risk management remains paramount. Volatility will rise around geopolitical events, policy shifts, and climate anomalies. Maintaining liquidity buffers, diversifying jurisdictional exposure, and employing dynamic hedging can help weather drawdowns and capture rebounds.
As price trends pivot, resource investors who synthesize cycle analysis with cross-current intelligence and rigorous risk controls will be best positioned to thrive at this critical commodity crossroads.
