Commodities Update September 2025
Gold rallies to record highs on Fed fears while crude oil facing down a supply surge
The following is based on text from the September Market Outlook (PDF 3MB)
For more details of our longer-term forecasts see September Commodities Forecasts
August delivered a solid month across key commodities with Westpac’s Commodity Export Price Index gaining around 3% since our last report. The gains were reasonably broad based underpinned by an almost 2% increase in iron ore an copper and a 1½% increase in crude oil but with the most significant move being a 7½% surge in gold. We see little reason to call a top for gold at this stage. While the extent of further upside is uncertain, current momentum suggests gold should push further into record territory in the near term.
Gold’s bullish momentum continues
Gold surged to fresh all-time high above US$3,600/oz (A$5,500/oz) in early September and breaking the previous all-time high in inflation-adjusted terms set in 1980. And yet we are still reluctant to call this the top. Near term upside risks remain driven by a widening investor base and growing portfolio allocations. The renewed interest is coming from a confluence of macro factors, including:
- Rising expectations of imminent Fed rate cuts;
- Concerns over the Fed’s independence and credibility;
- Declining real yields; and
- A US dollar hovering near the lower end of its recent range.
These dynamics are reinforcing gold’s strategic appeal. Investor sentiment remains resilient, viewing periods of consolidation as part of a broader upward trajectory rather than a sign of structural weakness.
While the current breakout cannot be attributed to a single catalyst, we suspect a growing anticipation of Fed easing, amid signs of softening US economic data, and lingering uncertainty around trade policy are key. Gold’s inverse correlation with the US dollar continues to provide a tailwind, with recent ETF inflows coinciding with falling US real rates.
Looking ahead, political developments and macroeconomic risks remain fluid making strong convictions difficult to hold. However, we expect that with expanding investor interest gold will continue making new highs. Uncertainty around US trade and international policy settings only adds to gold’s appeal.
Iron ore firms but risks remain
Iron ore prices lifted to around US$105/t in July, buoyed by optimism around potential China stimulus and supply-side reforms. They were holding steady at approximately US$102/t but have popped back up to US$105/t as we go to press. While the rally appears to have found its peak, key market signals suggest a complex but resilient backdrop. That said, we still expect prices to ease later this year as additional supply comes online.
That shift has yet to manifest. Iron ore inventories at Chinese ports edged down in recent weeks and while steel inventories are ticking higher for both traders and steel mills, they are still down on a year ago suggesting the market is in a more balanced position supported by steady Chinese hot metal output and strong export volumes.
However, seasonal and structural headwinds are emerging as we move into the second half of the year. Historically, iron ore prices tend to peak around August, followed by month-on-month declines through September and October, driven by seasonal drops in steel production during China’s wet season.
Property and infrastructure sectors in China showed signs of a deeper slowdown in July, driven by constrained local government funding and a lack of new infrastructure projects. Manufacturing remains a bright spot, supported by strong exports of vehicles and home appliances, which may help offset weakness in construction-related steel demand.
Australian exports for August are estimated at 71.5Mt, down –1%mth/–5%yr, Brazilian exports totalled 41.0Mt in July, the strongest July in 10 years while Chinese imports from non-traditional sources (mostly Chile and Mongolia) rose to 10.8Mt, up 2% in the month. In total, imports from Australia, Brazil, and South Africa reached 91.2Mt to be up 3% in the year. Year to date, Chinese iron ore imports stand at 697Mt, down –2%yr.
LNG: Asia is buying but oversupply threatens
Japan, China and South Korea all have reported robust imports of LNG reflecting regional energy needs but this has not been enough to support prices.
Looking ahead, the medium-term outlook points to a potential global LNG oversupply from 2027 as a wave of new export projects comes online. According to IEEFA, global LNG liquefaction capacity is expected to reach 666.5 million tonnes per annum by 2028, exceeding projected demand under most scenarios.
The US is going to remain a key source of new LNG supplies. Other than Qatar, the other global heavyweight in LNG production, the rest of the world lacks scale and most producers face ongoing challenges to lift output including regulatory approval, limited resources and higher costs. We should also not underestimate the political considerations with US LNG offering a barter potential for some critical trade disputes with the US administration.
Asian demand is expected to trend upward but high prices, currently around $11/MMBtu, constrain industrial and power sector uptake. Analysts suggest demand could accelerate if prices fall below $8/MMBtu, a threshold seen as more viable for switching to LNG as a transitional fuel to a low carbon economy.
By 2030, LNG demand is forecast to rise by 39% compared to 2024, led by Asia’s push to reduce carbon emissions and its reliance on coal fired generation. However, supply is projected to grow even faster at 42%, raising the risk of more significant oversupply and increased price volatility.
Crude oil: OPEC+ signals market shift
The eight members of OPEC+ recently agreed to increase production by 137kbpd from October, a smaller step-up compared to the 555kbpd increase for September and August, and 411kbpd in July and June. This marks the beginning of an early unwind of the second tranche of production cuts – totalling 1.65 million bpd –more than a year ahead of schedule. The first tranche of 2.5 million bpd has already been fully reversed since April, equivalent to roughly 2.4% of global demand.
While the scale of the increase may appear modest, the messaging is significant: OPEC+ is now prioritising market share over price stability. The decision to add barrels despite warnings of a potential global surplus suggests a strategic pivot away from supply management aimed at defending prices.
Even prior to this announcement, many analysts were forecasting downward pressure on crude prices heading into late 2025. The additional supply now raises the risk of a market glut, potentially accelerating the decline in prices.
Westpac forecasts Brent crude to fall to US$60/bbl by June 2026, reflecting expectations of an oversupply and softer demand growth.
Growing LNG supply from 2028 will put pressure on thermal coal.
From 2028 onwards, growing global LNG supply is expected to exert downward pressure on thermal coal prices, primarily through fuel switching in power generation. The extent of this switching will vary by region, depending on the relative economics—such as the age and efficiency of coal-fired power plants, carbon pricing, and the availability of gas infrastructure.
Beyond direct fuel substitution, lower gas prices may have broader indirect effects. Energy typically accounts for around 20% of operating costs for industrial mining companies (e.g., diesel for haul trucks, electricity for grinding). As LNG prices fall, energy costs across the commodity complex may decline, flattening cost curves and placing additional downward pressure on prices for oversupplied commodities.
However, we believe the downside risks to thermal coal are somewhat limited by the cost curve. The thermal coal cost curve reset higher post-COVID due to underinvestment and rising input costs (labour, supply chain, capex, etc.). This structural shift should help support prices, as lower prices would likely trigger supply reductions.
Using Wood Mackenzie’s adjusted seaborne cost curve, we estimate the current spot price of thermal coal at around US$105/t, placing it at the 94th percentile. The 90th percentile sits near US$98/t, suggesting limited room for further downside without impacting supply.
This is supported by recent market behaviour: when prices fell to around US$90/t in March–April this year, Colombian supply exited the market. Should prices remain in the low US$90s for an extended period, we expect further supply curtailments from Colombia, Russia, South Africa, and smaller Indonesian producers.
For historical context, the 95th percentile of the cost curve has risen significantly, from US$55–60/t in 2016 to around US$108/t today, reflecting years of underinvestment and persistent cost inflation across the sector.
Nickel supplies continue to pressure prices
Globally, Indonesia dominates nickel production, supplying over 50% of global demand, followed by China and the Philippines. Indonesia has developed domestic stainless steel production that absorbs much of its nickel output and is expanding downstream infrastructure for batteries and electric vehicles. However, the country faces mounting challenges. A 13.2% year-on-year drop in nickel ore prices and oversupply have triggered calls for a moratorium on new smelters and mining licenses3. Shifting battery technologies—such as lithium iron phosphate (LFP) and sodium-ion—are also reducing nickel’s relevance in the EV sector.
In Australia, nickel output is expected to fall by 33% following the temporary suspension of BHP’s Nickel West operations and the West Musgrave project. BHP cited global oversupply and falling prices as key drivers, with operations paused from October 2024 and a review scheduled for February 2027.
Nickel prices have trended downward since 2022, driven by persistent oversupply and slowing EV uptake. Despite Indonesia’s pledge to curb illegal mining and delay quota issuance, the market remains saturated. According to the International Nickel Study Group, global nickel production is forecast to reach 3.735 million tonnes in 2025, while demand is expected to rise to 3.537 million tonnes, resulting in a surplus of 198,000 tonnes5.
China, the largest consumer of nickel, is projected to account for 63.5% of global usage in 2025, with demand growing by 5.8%, up from 4.3% in 20245. While stainless steel remains the dominant use, its share is gradually declining due to rising demand from the EV sector.
The Pacific Ocean seabed holds significant reserves of nickel and cobalt. Tonga recently signed a deep-sea mining agreement with Canadian firm The Metals Company, raising environmental concerns across the region.
Coffee update: tariffs& weather
Coffee prices have surged nearly 50% over the past year, driven by renewed concerns over global supply and the potential imposition of a 50% US tariff on Brazilian coffee exports. Brazil and Vietnam together supply over half of global coffee demand, with Brazil alone accounting for a third of US imports.
Some US buyers are already avoiding Brazilian suppliers to sidestep higher costs associated with the tariffs. Meanwhile, weather disruptions, including drought and irregular rainfall, continue to threaten crop yields. Notably, no rain fell in August in Minas Gerais, Brazil’s largest Arabica-producing region, raising concerns about the next harvest. Brazil has nearly completed its 2025 harvest, and attention now turns to the next cycle.
From the demand side. the ready-to-drink coffee segment continues to show strong growth, particularly among younger consumers seeking flavour and experience, so it is particularly lucrative while specialty coffee remains popular with Millennials and Gen Z.
Cocoa: prices soften but still quite high
Global cocoa prices have softened, down 20% in the year, as demand from manufacturers weakens amid rising costs and increase pressure on margins. Investor concerns over potential tariffs dampening global chocolate demand have added to the cautious outlook.
Last year’s cocoa rally, driven by supply concerns in West Africa, has faded as production held up better than expected. Ivory Coast exports rose 5.9% year-on-year to August, easing fears of a prolonged supply squeeze.
Looking ahead to the 2025/26 season, price support is expected to be limited. Improved weather conditions in West Africa and expanding production in Ecuador are likely to boost global supply. While prices may ease, they are expected to remain elevated relative to pre-2024 levels.
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