June 2025 Commodities Update from Westpac IQ
In the aftermath of the post-Liberation Day sell-off, the commodities market has seen a varied performance. Gold, crude oil, and copper experienced a robust rally, but this was counteracted by weaker performances in iron ore, metallurgical coal, and aluminum. Crude oil prices were lifted by supply disruptions and new geopolitical risks on the horizon. However, despite these short-term fluctuations, it is predicted that prices will soften as we progress through the second half of 2025.
Iron ore, in particular, is witnessing a gradual decline in pricing following the peak in Chinese steel production back in 2020. This decline has been further affected by the advent of new, higher-grade supplies from the Simandou mine in Africa. As a result, Australian 62% Fe prices have begun to approach the critical level of US$95 per ton, a movement that aligns with previous forecasts. The housing market in China, a significant consumer of steel, is still recovering from a five-year slump, with residential property sales stagnating at historically low levels. The Chinese government is actively regulating steel production, which may lead to several mills undergoing maintenance earlier than anticipated. In addition, the China Iron & Steel Association (CISA) has indicated a demand for price reductions in response to the ongoing electric vehicle price war. Consequently, it is expected that iron ore prices will fall below US$90 per ton in the latter half of the year.
On the crude front, Israel’s military strikes on Iran have caused a surge in Brent crude prices, reaching almost US$78 per barrel. This development, coupled with ongoing geopolitical tensions, raises concerns about further disruptions to Middle East oil supplies. However, global production is anticipated to outpace consumption, exerting some downward pressure on prices in the near term. The Energy Information Agency (EIA) projects a modest rise in global crude production in 2026, albeit slower than the expected increase in demand. Despite this, the US saw a reduction in crude production due to declining rig counts, suggesting that prices will eventually stabilize around US$60 per barrel if tensions in the Middle East subside.
Copper, on the other hand, has experienced a strong rally following the post-Liberation Day losses. Factors such as the anticipation of US copper import tariffs and resultant physical market disruptions have supported copper prices. However, the resolution of trade war uncertainties and potential tariff announcements are likely to impact prices in the short term. Although the longer-term outlook for copper demand remains positive, ongoing uncertainties surrounding trade and end-user demand may limit significant price gains in the near future.
Lastly, the thermal coal market faces a challenging year due to weak demand, oversupply, changing energy policies, and economic instability. Both Chinese and Indian imports declined, and oversupply remains a persistent issue with minimal production cutbacks by miners. Despite the possibility of increased demand during a hot summer in the northern hemisphere, the overall outlook for Newcastle thermal coal prices by the end of 2025 is expected to be around US$105 per ton.
In conclusion, while commodities experience short-term fluctuations driven by various factors, the overarching trends suggest a gradual decline in iron ore prices, potential stability in crude oil, and copper prices nearing their peak, with thermal coal facing headwinds in the current market environment.