Commodities Update May 2026
Commodity markets saw mixed moves throughout April, with the conflict in the Middle East driving most headlines. Crude oil remained volatile but broadly range bound, while LNG eased from March highs but remained elevated. Bulk commodities were firmer, and lithium gained on renewed electrification momentum. Base and precious metals were more mixed. The report anticipates significant impacts on prices and supply through 2026 and beyond due to ongoing geopolitical tensions.
The following is based on text from the May Market Outlook (PDF 3MB)
For more details of our longer-term forecasts see May Commodity Forecasts
April was a mixed month with our broadest commodities index down 1% since our last update. Of course, with the Strait of Hormuz still effectively closed, crude oil grabbed the headlines rallying close to 14%. Iron ore also firmed lifting a bit more than 3%, while lithium gained on renewed electrification momentum. Copper and aluminium softened and gold is down more than 3%. With the conflict in the Middle East continuing, we have revised up our forecasts for crude (US$110/bbl for the June quarter, US$87/bbl for Dec 2026) and lifted the profile by around 20% to 30% through 2027 to post a December quarter average of US$67/bbl. With iron ore continuing to be supported, our December 2026 forecast is now US$97/t, 15% higher than our April estimate.
Note all prices in the following text are quarter averages.
Oil prices steady but risks skewed to upside
A fragile ceasefire in the Middle East continues, with a combination of restricted shipping flows and limited kinetic escalation capping both oil supply and further price gains. As a result, Brent futures have held steady in the US$100-120/bbl range, with dated Brent continuing to trade at a meaningful premium. Note our analysis places greater weight on these physical crude prices, reflecting the ongoing tightness in underlying market conditions. Supply remains constrained by production shut ins, infrastructure damage and persistent shipping dislocation, with many vessels continuing to avoid the Strait of Hormuz. This has resulted in sustained logistical bottlenecks, with an estimated ~20mb/d of crude flows through the Strait disrupted. While global inventories provide some buffer, they represent a finite source of supply, implying that competition for available barrels is likely to remain elevated, placing upward pressure on prices.
Our baseline assumes traffic through the Strait of Hormuz returns to around 10-15% of pre-conflict levels through June, with a full normalisation of flows not expected until mid 2027, reflecting ongoing security and insurance constraints. Accordingly, we now expect Brent prices to average US$110/ bbl in Q2 2026, around 5% above our April forecast, before easing as geopolitical risks unwind and higher prices induce demand destruction. Brent is forecast to moderate to an average around US$87/bbl by Q4 2026, with further easing through 2028 as supply and shipping conditions normalise.
New US and African supply temper Asian prices
LNG markets remain acutely exposed to the conflict, with an estimated 300mcm/day – around one fifth of global supply – disrupted from Qatar and the UAE. Ras Laffan in Qatar, the world’s largest LNG export complex, has remained offline since early March, while global storage levels were already depleted exiting the Northern Hemisphere heating season. Asia remains particularly exposed, with an estimated 80–90% of LNG volumes transiting the Strait of Hormuz destined for Asian markets, driving a sharp rise in Japanese LNG prices. However, gains have been tempered by a combination of ceasefire optimism, demand side adjustments including fuel switching across asia, and crucially, new supply from North America and Africa.
Reflecting these offsetting forces, we have revised lower our expected peak in Japanese LNG prices to an average of US$22.5/ mmbtu in the September quarter, with prices expected to average above US$20/mmbtu through year end. Given the scale of infrastructure disruption and the absence of viable alternative export routes, LNG markets are expected to remain tight, with prices unlikely to return to pre conflict levels until 2028.
This does not mean we have seen the same impact on local Australian gas prices. This year the market has remained reasonably well supplied with prices remaining under the Governments proposed $12 gigajoule cap. Additionally, the government is also proposing the 20% of the uncontracted export gas should be reserved for the local market. With the ongoing political pressure to tax gas exports, we would expect to see the Australian gas market not repeat the pattern of the Russian gas crisis with local prices held down due to ample supply.
Limited fuel-switching in Asia supporting near-term prices
Thermal coal prices remain supported as lingering tension in the Middle East remains. With LNG supply constrained and prices elevated, there is increasing evidence of limited fuel‑switching across Asia, particularly in power generation. Reports of higher coal‑fired generation reflect the trade‑off facing policymakers, with the risk of power outages - especially in South and South‑East Asia - outweighing near‑term environmental considerations. We continue to expect prices to peak in the June quarter, averaging around US$145/t, although efforts by Indonesia to lift supply are likely to cap further gains. Over the medium to longer term, we maintain the view that structural demand for thermal coal will decline, with prices easing back toward US$120/t by end‑2027.
Iron ore continues to hold above US$100/t
Iron ore prices continue to hold firmly above US$100/t. The conclusion of China’s Labour Day holiday has provided renewed support, as steel mills move to replenish inventories, while higher steel prices have temporarily widened margins and encouraged production. Higher freight costs linked to the energy shock are also supporting prices, with freight accounting for an estimated 15–30% of delivered costs. Reflecting these dynamics, we have raised our near‑term outlook for the 62% Fe index, with prices now expected to average around US$106/t in the June quarter, and remain above US$100/t through the September quarter. We expect prices to ease only modestly to US$97/t in the December quarter, around 15% above our April baseline.
The medium‑term outlook is increasingly challenged, however, with surplus conditions expected to emerge. Supply‑side pressures are building, driven by new low‑cost supply from Simandou and persistently high iron ore inventories at Chinese ports. At the same time, global steel demand is softening as major economies contend with higher energy costs and weaker industrial momentum. Increased use of steel scrap, together with a structural decline in Chinese steel production, is eroding underlying demand, with growth in India and South‑East Asia providing only a partial offset. Taken together, these factors point to rising downside risk beyond the near term. We therefore expect iron ore prices to soften further, averaging around US$83/t in the December quarter of 2027, as surplus conditions become more evident.
Gold remains range-bound
Gold has come under pressure in recent weeks, as markets have increasingly focused on the inflationary implications of higher oil prices and the prospect that central banks may keep policy tighter for longer. A rapid rise in US real yields, alongside renewed USD strength, has weighed on bullion, contributing to a retracement from the all‑time high reached in late January. While intermittent ceasefire optimism has provided some support, headlines continue to shift, leaving prices without sustained direction.
We expect range‑bound trading to persist in the near term, although upside risks remain. The recent correction has seen speculative positioning largely unwind, and a period of lower volatility should allow prices to stabilise and encourage a gradual return of longer‑term investors. Should the conflict ease, the recent headwinds from yields and currency strength are likely to unwind, supporting a renewed rally. While some central banks may engage in modest selling at times, there is little evidence of a structural shift away from gold, with official sector demand expected to remain broadly in line with recent trends. As such, we continue to expect gold prices to rise, with a peak of around US$5,000/oz in the March quarter of 2027.
A softer global outlook caps copper gains
Copper prices have eased modestly into May but remain elevated, finding a footing above US$13,000/t with concerns around demand destruction, driven by higher energy costs and a softer global growth outlook, capping further gains. Despite this, underlying fundamentals remain supportive. Inventory drawdowns through late March and into April, reflected in Shanghai Futures Exchange data, point to a recent stabilisation in demand, supported by renewed focus on electrification amid rising energy costs. At the same time, shortages of sulphuric acid, critical to copper production, is emerging as a constraint, with around one third of global sulphur supply sourced from the Gulf. Against this backdrop, we expect copper prices to test higher levels, with a local peak expected in the March quarter of 2027 at an average of $13,350/t, before consolidating. Further growth is expected later in the forecast period as net zero targets approach, accelerating EV and renewable deployment, and data centre build outs intensifies.
Elevated prices support the restart of idle Australian aluminium capacity
Aluminium markets are facing mounting supply pressures from elevated energy input costs and disruptions to Gulf‑based smelting capacity. Often described as ‘solid electricity’, aluminium production is highly energy‑intensive, with higher power prices feeding directly into marginal production costs. The Gulf region accounts for around 9% of global smelting capacity, much of which is geographically concentrated within the Arabian Gulf, amplifying exposure to disruption. In addition to logistical constraints, physical damage to smelting facilities in Qatar and Bahrain has resulted in outright supply losses. Rio Tinto estimates that close to 2.5mn tonnes of annual aluminium production has been removed from the market, while the time‑ and capital‑intensive nature of smelter restarts limits the scope for a rapid recovery in capacity.
These dynamics are providing an incentive for capacity restarts elsewhere, with Australian producers beginning to respond. Notably, Alcoa has restarted idle capacity at its Portland smelter in Victoria to capitalise on higher prices. Against this backdrop, we expect aluminium prices to spike in the March quarter of 2027, averaging around US$4,000/t, before moderating as supply conditions gradually stabilise.
EV uptake to support lithium
The lithium market has transitioned toward a more balanced position. Spodumene (6% FOB Australia) prices have stabilised around the US$2,00-2,500/t range, with recent gains reflecting a drawdown in inventories. In the near term, this trend is expected to persist as downstream users maintain lean inventory positions amid price volatility. Additional support will come from accelerating EV adoption, particularly as higher fuel prices and supply insecurity, improve relative economics. Unlike previously, the EV market is now sufficiently mature for fuel dynamics to meaningfully influence purchasing decisions as lower cost Chinese EVs gain market share.
Over the medium to long term, lithium demand will continue to be underpinned by structural electrification trends. EVs remain the primary demand driver, while growth in battery energy storage systems is expected to accelerate alongside expanding renewable generation. The growing role of data centres is also likely to support demand for storage solutions, as systems are deployed to relieve transmission constraints and enable peak shaving. On the supply side, expanding production, particularly from Australia, is expected to place a cap on price upside.
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