Commodities Update June 2025
After the post-Liberation Day sell off, a rally in gold, a strong rally in crude oil and copper was offset by weaker iron ore, met coal and aluminium. Crude was boosted by supply disruptions, and new geopolitical risks emerging as we go to press. Barring worst-case scenarios, prices should soften through the second half of 2025. Iron ore is trending lower as ‘peak steel’ has passed Simandou’s high grade supply weighs on the market.
The following is based on text from the June Market Outlook
For more details of our longer-term forecasts see June 2025 Commmodity Forecasts
Iron ore’s very gradual decline
Our view on iron ore remains unchanged. Chinese steel production peaked back in 2020 and has been in a trend decline since. This, combined with the outlook for new supplies of higher grade ore from the Simandou mine in Africa, will see a gradual decline in the pricing of Australian 62%fe. In the last month, prices have started to probe the key US$95/t level, a move we have been expecting for some time. Chinese residential property sales have, at best, only just started to pull out of a tectonic five-year collapse and remain stalled around 15yr lows. In addition, Chinese authorities have confirmed they are actively pushing forward with steel production control measures and, perhaps more critically, enforcement is happening. Meanwhile, rebar futures are at 8yr lows, which may result in many steel mills going into early maintenance this month. Additionally, the China Iron & Steel Association (CISA) has warned that the current China EV price war has resulted in some auto manufacturers asking steel mills to reduce prices by more than 10%. All up, we are comfortable with our view that iron ore prices will be below US$90/t in the second half of this year.
Israel strikes and crude gaps higher
Westpac’s Head of Commodity Strategy, Robert Rennie, has been arguing for a near-term bounce in Brent up to US$68/bbl and potentially beyond given the loss of Venezuelan exports and Canadian wildfires shutting down heavy crude production. In addition, it appears that OPEC+ production rose only by 180kbpd versus a target of 310kbpd. As such, another push higher was looking possible. The outbreak of renewed conflict in the Middle East has made that a certainty.
As we go to press, Israel has launched military strikes across Iran with a high likelihood of retaliation. Brent jumped almost 9% to US$78/bbl but eased back to US$75/bbl through the day. There are many unknowns at this point but this clearly increases the risk of further disruptions to Middle East supplies. For now, we hold to peak around US$75/bbl given that we the Energy Information Agency (EIA) is forecasting global production to rise a 1.54mbpd this year while consumption is set to rise by just 0.78mbpd. An important offset is that the EIA cut its 2026 forecast for US crude production despite the Trump administration’s “Drill Baby Drill” mantra n is now forecasting a contraction versus 2025. We have long argued that prices are more important for US production than government policies and so are not surprised to see the US rig count has declined to the lowest level since October 2021. All combined, global crude production is forecast to rise just 0.79mbpd in 2026 while global demand is set to rise by 1.05mbpd. Hence, we see crude prices firming in 2026. Nevertheless, we continue to expect crude to dip back to ~US$60/bbl if current tensions in the Middle East subside.
Copper rally nearing its peak
Copper has rallied strongly from the post ‘Liberation Day’ losses with LME futures up around 10% and COMEX futures up more than 15% year to date. This is despite trade war uncertainty and resulting downgrades to the global growth outlook (albeit partially reversed following de-escalation). What has driven the moves and resilience? A key reason has been physical market dislocations associated with the potential for US copper import tariffs. There had been a rundown of LME copper inventories and a rise in COMEX inventories as the US stockpiles copper ahead of an expected copper tariff announcement. The final decision on this tariff is now expected to come in the September quarter so we are looking for copper prices to soften once the rate is known. As such while the medium-term supply and demand outlook for copper remains positive, currently supportive physical market conditions are likely to soften near-term. Trade war de-escalation, if it extends, reduces near term downside risks but ongoing uncertainty means end demand is likely to be softer than what was expected before Liberation Day. However, generally resilient demand from secular drivers (such as electrification) and support from moderate China stimulus will continue to support prices as we move through 2026.
Thermal coal facing a tough year
The thermal coal market is facing weak demand, oversupply, evolving clean energy policies, unstable trade policies and economic uncertainty. Demand is subdued with the only possible upside a hot northern hemisphere summer boosting electricity demand. Chinese imports declined as domestic production rose with a similar situation in India. Oversupply remains persistent with few miners curtailing production. Overall, Westpac expects Newcastle thermal coal to end 2025 at US$105/t.
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