February 2025 Commodities Update from Westpac IQ

In the past year, the commodities market experienced a significant decline, with Westpac’s export price index dropping over 7%. This decline varied across different commodities, with met coal plummeting 43% and iron ore losing 23%, while gold surged by 40% to reach record highs. The outlook for 2025 remains uncertain due to several factors, including the risks of trade wars, shifting priorities towards a low-carbon economy, and geopolitical uncertainties.

At the start of 2025, commodities saw a soft start, with a general decrease in the broad commodity index by -1.7% since the last report and -7.1% since January 2024. Thermal coal had the most significant fall since December at -14.2%, while crude oil and gold recorded minor increases of 3.8% and 5.1%, respectively. Since January 2024, met coal and iron ore experienced substantial declines of -43.1% and -23.2%, respectively, while thermal coal and crude oil saw decreases of -6.1%. Gold, on the other hand, surged by 40% to reach new record highs, along with copper and aluminium which gained 5.8% and 5.7%.

Towards the end of 2024, there was a positive outlook for commodities due to expectations of continued policy easing in developed countries, tight commodity supplies, and the dynamics associated with the green transition. However, as 2025 began, the balance of risks shifted with lower than expected electric vehicle sales globally, the US government’s effort to reverse green policies, and delays in green transition investments. Despite OPEC+ planning to increase production levels in 2025, crude oil demand surpassing expectations has supported prices. However, uncertainties remain, especially with the looming threat of a trade war initiated by the Trump administration.

Westpac forecasts a medium-term outlook with near-term downside risks from potential trade wars and increased OPEC+ supply moderating crude oil prices. As the US FOMC considers further rate cuts in 2026, demand is expected to rise, supporting energy prices and base metals. Iron ore faces less immediate risk due to a structural demand cycle triggered by a decline in Chinese steel production since 2020. Despite the projected Simandou project coming online in 2025, iron ore prices are expected to fall to around US$85/t from current levels above US$100/t.

In the near term, crude oil is anticipated to remain range-bound, dependent on the resolution of trade war uncertainties. Gold is expected to continue its upward trajectory, possibly reaching all-time highs in the first half of the year. While current gold pricing may seem overvalued, geopolitical tensions, uncertainties surrounding territorial disputes, and the safe-haven appeal of gold amid unpredictable administrations like President Trump’s continue to support its high valuations.